The UK's National Employment Savings Trust, known as NEST, will immediately shift close to half of its entire portfolio to climate aware strategies and begin divesting from companies involved in thermal coal, oil sands and arctic drilling.
NEST, home to more than nine million members, has introduced a new investment policy aimed at achieving net-zero status by 2050 or earlier. It expects carbon emissions in its portfolio will have halved by 2030.
The pension fund is immediately shifting close to $10 billion in equities - roughly 45% of its portfolio - to climate aware strategies, instantly reducing its carbon footprint by the equivalent of taking 200,000 cars off the road, the fund said.
The divestment includes its investments in emerging market equities and represents $2.17 billion being removed from the world's largest carbon emitters, NEST said.
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It will also begin divesting from companies involved in thermal coal, oil sands and arctic drilling.
NEST will divest all companies with more than 20% of revenues from these activities by 2020 end; all companies with more than 10% of revenues from these activities by 2023; and then all companies still involved in these activities by 2025, unless the companies implement a clear plan to phase out all related activity by 2030.
"No-one wants to save throughout their life to retire into a world devastated by climate change," NEST chief investment officer Mark Fawcett said.
The fund has also committed to investing a greater proportion of its funds directly in green infrastructure - it already has about $180 million invested in renewable projects across Europe.
It will also actively pressure companies to align with the Paris goals and divest from companies that fail to progress following engagement, while committing its fund managers to make progress against set benchmarks - incumbent managers will have three years to do so.
"We will continue to research the impact of climate change on asset-class risks and returns. This includes running scenario analyses as recommended by the TCFD. In the future we may invest more or less in certain asset classes or regions depending on how we believe they will perform in a low-carbon economy," NEST said.
Investing in private markets continues to present opportunities to generate returns while still supporting companies and projects contributing to the low-carbon transition, it said, commencing an allocation to renewable energy in private equity infrastructure.
"Just like coronavirus, climate change poses serious risks to both our savers and their investments. It has the potential to cause catastrophic damage and completely disrupt our way of life. No-one wants to save throughout their life to retire into a world devastated by climate change," Fawcett said.
"As the world's economy slowly recovers from coronavirus, we want to ensure this recovery is a green one. We have a unique opportunity to support sustainable growth and transition towards a low-carbon economy."
Fawcett said it's what NEST members want and expect from it; "How can we offer them the prospect of a better retirement if we ignore the world they'll be retiring into?"
A recent survey conducted by YouGov found 38% of pension savers in the UK didn't know their pensions are invested in stocks and shares, with NEST saying this suggests pension schemes have a responsibility to put the issue of tackling climate change at the heart of default strategies instead of expecting consumers to make the change and select ethical or green fund themselves.
It also found 79% of UK adults believe it's important the economic recovery accounts for climate change, while 65% of pension savers believe their pension should be invested in a way that reduces the impact of climate change. However, only 1% actively made a change in the last 12 months in regards to how their pension is invested.