Gallery: DC Forum 2025 in Snapshots
The United Kingdom's Defined Contribution (DC) market, particularly DC master trusts, is poised to play a significant role in the country's transition towards a net-zero economy. This was a key theme at the Net Zero Investor's third DC Forum, held at Stationer's Hall near London's St Paul's Cathedral.
The Forum aimed to address the challenges and opportunities in the transition to a net-zero economy for defined contribution investors. The event provided insights into the current and future strategies being considered by DC investors to achieve net-zero targets, particularly in hard-to-abate sectors.
Evolving Index Investing and Net-Zero Targets
One of the significant topics at the forum was the evolving thinking around index investing and net-zero targets. Traditional index funds are being rethought by incorporating climate metrics and focusing on transition readiness rather than pure exclusion. Investors are exploring indices that weight companies based on their carbon intensity, transition plans, and engagement progress, thus evolving from passive benchmarks to tools that support net-zero.
Active Engagement over Divestment
Instead of divesting from companies in high-emission hard-to-abate sectors such as steel, cement, or aviation, DC investors prefer engaging with these companies to encourage transition to low-carbon business models. This approach recognizes that divestment does not reduce emissions directly, whereas active stewardship can influence company strategies towards net-zero.
Setting Interim and Long-term Targets
Institutional investors adopt clear interim and long-term emission reduction goals aligned with global climate science, tracking progress transparently. Measurement challenges, especially around Scope 3 emissions and private markets, are acknowledged but do not delay action.
Portfolio Tilting and Transition Finance
Investors increasingly tilt portfolios towards sustainable investments, favouring companies or sectors with credible transition plans, and invest in climate solutions including renewable energy, clean technology, and transition finance instruments.
Inclusion of Alternatives via Defined Contribution Plans
Expanding DC plan participants’ access to alternative investments such as private equity and venture capital offers opportunities to back innovative green technologies and business models that can contribute to the net-zero transition. This inclusion can also improve diversification and risk-adjusted returns for DC participants.
Engagement with Managers in the Net Zero Asset Manager Alliance
Membership in the Net Zero Asset Manager Alliance helps investors commit to net-zero by fostering collaboration among asset managers who share best practices, climate-related engagement strategies, and standardized measurement frameworks. Through this network, investors can better align their portfolios with net-zero targets and enhance accountability.
Assets in the UK's DC market now exceed £158bn, and the growth trajectory suggests continued expansion in the coming years. The projection for the growth of DC master trusts in the UK indicates their potential influence in the country's economic transition. The UK's DC market has experienced a substantial expansion in recent times, with the growth of DC master trusts potentially contributing to the net-zero transition.
The primary focus of the discussion was how defined contribution investors can address hard-to-abate sectors beyond 2030 targets. Green venture capital opportunities were also a key theme at the event, highlighting the potential of this sector in tackling hard-to-abate sectors and contributing to the net-zero transition.
The event also explored whether DC asset owners are engaging with their managers about the challenges facing the Net Zero Asset Manager Alliance. The growth of the UK's DC market since the introduction of automatic enrolment and the anticipated growth of DC master trusts to over £460bn by 2029 underscore their potential influence in the country's economic transition.
In conclusion, these approaches provide a framework for DC investors to influence emission reductions in difficult sectors while evolving investment strategies and broadening opportunity sets to meet net-zero ambitions.
- In the net-zero transition, investors are rethinking traditional index funds by incorporating climate metrics and focusing on transition readiness, creating indices that weight companies based on carbon intensity, transition plans, and engagement progress.
- To tackle hard-to-abate sectors, DC investors prefer engaging with high-emission companies in sectors such as steel, cement, or aviation, rather than divesting, in a bid to encourage transition to low-carbon business models.
- On the path toward net-zero, institutional investors adopt clear interim and long-term emission reduction goals, aligned with global climate science, while acknowledging measurement challenges in areas like Scope 3 emissions and private markets, but not delaying action.
