By the year 2040, UK pension funds could potentially face a staggering 19 billion dollars in stranded assets, as suggested by new research.
The UK pension industry is disproportionately exposed to the risk of stranded assets, a situation that could potentially cost the country £113bn ($141bn) by 2040, according to a report jointly produced by UKSIF (UK Sustainable Investment and Finance Association) and TREX (The Transition Exchange).
As a proportion of the total £3trn UK pension pot, this amounts to a 0.5% stranding. The report reveals that approximately £88bn in fossil fuel assets are held by UK pension funds, and around £15.2bn, or 17%, is at risk of stranding by 2040 if current policies and pledges are fulfilled.
This decision is a significant blow for major UK energy firms such as Shell and BP, which had banked on expanding oil production in the North Sea. The report was released a day after the UK government announced its decision not to issue further licences for North Sea oil and gas exploration.
TREX aims to inform professional investors about the propagation of stranded asset risk through complex ownership networks. Willemijn Verdegaal, co-CEO at TREX, emphasizes the lag in corporate transition plans regarding stranded asset risks.
To mitigate the risk of stranded asset losses, UKSIF and TREX propose several strategies. These include incorporating climate risk assessments into investment decision-making, engaging with pension fund managers to improve transparency and disclose climate-related financial risks, promoting active stewardship by pension funds, accelerating the integration of sustainable and transition-focused assets, and supporting policy engagement and advocacy for regulatory clarity on climate risks and incentives for green investments.
UKSIF encourages investors to disclose climate-related transition plans in line with the Transition Plan Taskforce (TPT) framework and advocates for investors to ramp up their stewardship efforts to engage with governments and international standard-setting bodies to ensure a more enabling policy environment for the road to net zero.
In addition, UKSIF puts forward proposals to mitigate the potential cost of stranded assets, including attracting international investment in the energy transition. The report tracks the exposure of end beneficiaries (individual investors, pension funds, and governments) to the risk of fossil fuel assets becoming 'stranded'.
UKSIF, an industry body for the UK financial sector, is seeking to help investors manage the risks associated with stranded assets. James Alexander, chief executive of UKSIF, commented that the UK government should implement ambitious decarbonisation policies and foster investment in the growth industries of the future, like renewable energy.
For precise and up-to-date details on UKSIF and TREX’s current proposed strategies specifically targeting stranded asset losses in UK pensions, consulting their official publications or recent reports would be necessary. The search results do not contain specific information about the proposed strategies by UKSIF and TREX.
- The report, co-produced by UKSIF and TREX, reveals that approximately £15.2bn of fossil fuel assets held by UK pension funds are at risk of becoming stranded due to climate-change, with £88bn in total fossil fuel assets currently held in these funds.
- Aiming to mitigate the risk of stranded asset losses, UKSIF and TREX propose strategies such as incorporating climate risk assessments into investment decisions, promoting active stewardship by pension funds, and accelerating the integration of sustainable and transition-focused assets.
