As political pressure on pension capital rises, pension scheme trustees are being forced to resolve the tension between sustainability aims and maximising returns.
The question of whether pension schemes should pursue sustainable investment strategies — or focus solely on maximising returns — is becoming more acute for pension schemes, with the government’s prioritisation of net zero feeding into private markets opportunities.
That shift was on full display at the Pensions UK Investment Conference, where a debate between former Green Party leader Caroline Lucas and former Conservative cabinet minister Michael Gove framed the divide over the role of pension capital in addressing climate risk.
Likewise, pension scheme trustees and professionals at the event had a wide variety of views.
For Lucas, the argument is clear: sustainability is not a competing objective to fiduciary duty, but a core part of it. Pension schemes, she argued, are deeply exposed to economy-wide risks – and climate change represents one of the most significant.
“Environmental policy and pension policy are still seen too much as separate domains,” she said, warning that such a separation is “no longer intellectually or practically sustainable.”
Gove, however, framed the issue very differently. While acknowledging climate change as a material risk, he drew a firm line around the role of pension trustees.
“Your ultimate responsibility is to follow your fiduciary duty… to ensure that your members secure the best and most secure returns,” he said, cautioning against government or external pressure influencing asset allocation decisions.
At stake is more than asset allocation. The debate cuts to the core of how fiduciary duty is interpreted – whether it is a narrow obligation to maximise financial returns, or a broader responsibility to account for systemic risks that could ultimately shape those returns.
Trustees caught in the middle
For pension scheme decision makers, the reality is less binary than the political framing suggests.
For Russell Baird, a professional trustee at BESTrustees, the starting point is a fundamental challenge: most pension scheme members are not actively engaged in the issue at all. “Engagement with pensions generally isn’t as strong as we might like,” he said. “If you ask many members about their investment strategy, they often don’t have a clear answer.”
That raises questions about how representative calls for sustainable investment really are. “In practice, you’re often hearing from a relatively small group of people who are confident engaging with pensions, and a smaller subset again who feel strongly enough to express a view,” he noted.
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Yet Baird does not dismiss the importance of sustainability. Instead, he frames it as part of a broader, long-term assessment of member outcomes. “If you end up with better nominal returns but in a world where people can’t properly enjoy or spend their savings, you’ve missed something fundamental,” he said.
For him, the issue is not whether sustainability should be considered, but how to balance it with returns – and how to manage the transition. “The challenge is managing the transition,” he explained. “You can’t simply stop one approach today and replace it overnight – it needs to be orderly and well managed.”
Others are more sceptical about how the debate is being framed.
For David Adkins, and experienced pension scheme CIO, the bigger issue is not sustainability itself, but the risk of distorting investment decision-making. “There’s certainly a risk of other interests [influencing decisions] other than pure fiduciary duty,” he said.
He questions whether the market is correctly allocating pension capital, particularly in private markets. “You hear asset managers say the pipeline isn’t good enough… and then you hear others say there’s loads of investors,” he noted. “If people need capital and people can’t find capital… something isn’t quite working.”
His point suggests the problem may be less about willingness to invest sustainably, and more about how efficiently capital is being matched with opportunities.
A more critical perspective comes from professional trustee Brian Barbour, who questions whether current sustainability policies are aligned with economic realities. “We’re losing tax revenue… we’ve got higher energy costs… this isn’t working,” he said, pointing to the domestic impact of energy and industrial policy.
Barbour argues that the transition to a low-carbon economy is necessary – but warns against ignoring the practical constraints. “You may think we could switch off our oil and gas needs tomorrow… but we’re 20 years away from doing that,” he said.
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For trustees, this creates a difficult balancing act. While long-term sustainability is important, short-term economic pressures — from energy costs to industrial competitiveness — also affect member outcomes.
“We have to take a long-term outlook,” Baird noted. But Barbour’s perspective highlights how difficult that is in practice when policy, markets and economic conditions are in flux.
What emerges from the debate is not a consensus, but a spectrum of views. At one end, sustainability is seen as inseparable from fiduciary duty and a necessary response to systemic risk. At the other, it is viewed as a potential distraction from the core objective of delivering returns.
Between those positions sit trustees, navigating competing pressures: political expectations, market realities and their duties to members. As political interest in pension capital continues to grow and net zero remains central to economic and industrial policy, the tension between purpose and performance may only intensify.
The debate is unlikely to be resolved any time soon.