The importance of including climate risk mitigation in the Pension Schemes Bill to safeguard investments for UK pension savers.
The UK's Pension Schemes Bill, currently under government review and evaluation, presents a significant opportunity to address climate risk in pension investments. This legislation, if amended, would be a world-first, directly addressing climate risk in pension investments.
The UK's pension system, worth around £3 trillion, is particularly at risk, given the growing regulatory, reputational, and market pressures facing holdings in fossil fuel companies. The International Energy Agency states that there is no room for expanded fossil fuel production to remain within safe climate boundaries, making it a financial necessity to protect the long-term resilience of the UK economy.
Campaigners are urging for an amendment to the Pensions Schemes Bill, which would require pension funds to exclude companies with significant exposure to thermal coal from their investment portfolios and establish a review mechanism to consider future restrictions on fossil fuel investments. This amendment is not just an environmental imperative; it is a financial necessity to protect the long-term resilience of the UK economy.
However, as of early July 2025, the Pension Schemes Bill is at the stage of Second Reading in Parliament, focusing on various reforms such as centralizing Local Government Pension Scheme asset pools and rules around pension scheme surpluses. Explicit climate risk requirements have not been finalized within the Bill itself.
The Department for Work and Pensions (DWP) is actively reviewing and evaluating the pension scheme climate disclosure regime as part of the government's broader modernization efforts around climate disclosure and transition planning for UK financial services. This review includes assessing current climate change and sustainability reporting requirements for pension schemes but does not indicate a finalized amendment specifically mandating climate risk integration in investments at this stage.
The timeline for the broader Pension Schemes Bill indicates Royal Assent likely in early to mid-2026, with detailed regulations and guidance on surplus flexibilities expected gradually through to 2027. Given this timeline and the current focus, any climate-specific amendments could still be subject to consultation and legislative development within this period.
Progress on addressing climate concerns in pension investments remains uneven without statutory backing, undermining both risk management and market integrity. The amendment to the Pensions Schemes Bill aims to protect savers by sending a strong signal to markets, encouraging responsible investment, and aligning the UK pension system with national climate goals and global best practice.
It is crucial to note that UK pension schemes continue to invest billions in coal, oil, and gas companies, including those pursuing new extraction projects. Climate-related financial risk could cause 20-30% declines in the valuation of UK pension portfolios by 2040 under plausible warming scenarios.
In conclusion, while the UK government is actively reviewing and evaluating the pension scheme climate disclosure regime, no formal amendment mandating climate risk management in pension investments has yet been enacted as part of the Pension Schemes Bill. The government’s evaluation and legislative process remain ongoing with expected developments through 2026-2027.
The environmental-science implications of climate-change call for urgent action in the UK's pension system, as its investments, particularly in fossil fuel companies, pose a significant risk to the long-term resilience of the economy. To mitigate this risk, campaigners advocated for an amendment to the Pension Schemes Bill, requiring pension funds to consider climate risk and potentially exclude companies with heavy fossil fuel exposure from their portfolios. However, as of 2025, this amendment has not been finalized within the Bill itself, although the Department for Work and Pensions is currently reviewing and evaluating the pension scheme climate disclosure regime. The timeline for these changes indicates a potential enactment by mid-2026, with further details expected in 2027. The future of investing in real-estate and the housing market is closely linked to the progress of climate-specific amendments in the Pension Schemes Bill, as failing to address climate risk could lead to significant financial losses due to climate-related risks.
