Climate-linked passives to gain inflows from pension funds over next three years, finds survey

Pension funds are earmarking more money to be invested in climate-linked passive assets, as a survey of pension plans finds that over half still have no allocation at all toward the asset class.

The DWS-sponsored survey by consultants CREATE-Research covered over 131 pension plans in 20 jurisdictions with a combined AUM of around EUR2.25 trillion. 

Almost two thirds of pension plans, or 65 per cent, say they plan to increase their allocations into climate-linked passive assets over the next three years. 57 per cent expect overall ESG allocations to grow more than 5 per cent per annum over the same time period.

However, just over half (56 per cent) still have no allocation at all as part of their passive investments, and 60 per cent say they are constrained by data and definitional problems. On the other end, 26 per cent of plans said they commit over 15 per cent of their passive funds to the segment.

The overall favourite passive vehicle was traditional cap-weighted index funds, preferred by 70 per cent, and 89 per cent treat equities as their favourite underlying asset class.

A full 70 per cent of plans examine capacity and track record to fulfil a ‘green’ agenda when choosing an asset manager for climate-related investments.

“This survey shows how sustainability is moving up the agenda for pension funds globally, and how it is being worked into broader moves to embrace passive investment solutions,” says Simon Klein, Head of Passive Distribution, Europe and Asia-Pacific, at DWS.