Net zero investments are costing pension savers hundreds of thousands of pounds in lost returns, a report has warned. [some emphasis, links added]
A policy paper by the Prosperity Institute said that Environmental, Social, and Governance (ESG) regulations had “undermined” pension funds by encouraging asset managers to invest in progressive causes rather than acting in the financial interests of clients.
The think tank called on Labour to impose a legal fiduciary duty that would compel all pension providers to prioritize maximum financial returns over social factors in their investment decisions.
It comes after the Universities Superannuation Scheme (USS), one of the UK’s largest private pension schemes managing £73bn, delivered annual returns of 1.7 percent over the last five years. Inflation rose at 4.4 percent over the same period.
The USS has said it is committed to ensuring that all of its investments are net zero by 2050 at the latest, and it will “encourage the companies [it] invests in to transition towards a low-carbon world”.
The report singles out net zero funds that have delivered poor returns for investors.
Among those are the iShares Global Clean Energy ETF, which tracks equities in the clean energy sector and delivered negative returns of -11 percent over the past five years.
It also refers to Legal and General’s Clean Energy ETF, which has delivered 16 percent growth over the past five years.
However, the report said they paled in comparison with the FTSE 350 oil and gas index, which has returned more than 140 percent over the same period.
James Graham, the report’s author, said it was a “scandal” how many ESG funds excluded defence investments at a time when the Government has committed to increasing defence spending to 2.5 percent of GDP by April 2027.
Between 2022 and 2025, Rolls-Royce delivered cumulative returns of 717 percent, BAE Systems of 213 percent, and Babcock of 60 percent.
The study claimed the failure to prioritize the financial interests of investors would punish workers, 55 percent of whom do not know how their pension is invested.
It found that a 25-year-old saving £150 a month into a pension would lose £178,000 by the time they reach 65 if their pension underperformed by 1 percent each year. This is based on the difference between annualised returns of 8 percent and 9 percent.
Richard Tice, Reform UK’s deputy leader, said the party would make sure pension providers prioritized financial returns if his party won the next general election.
He said: “Alarm clock Britain should be able to trust that its pension savings are being invested in a way that will maximize their retirement income. Instead, their money is being used to fund net zero.
“This paper lays bare just how much worse off ESG makes British pension savers. Asset managers should beware of a future government committed to stopping this nonsense.”
Read rest at The Telegraph
In some jurisdictions the investments by pensions are required by law to be made for the best return. When asset managers invest in progressive causes rather than acting in the financial interests of clients, they should ending serving prison sentences.