UK pension funds looking to sharpen, not scrap, transition investing

When investment professionals from the UK’s pensions industry gathered in Edinburgh for the Pensions UK Investment Conference 2026 this week, their agenda was set against a backdrop of change and turbulence – both regulatory and geopolitical.

The gathering offered a timely opportunity for asset owners to reflect on their transition investment appetites and assess the prospect of importing a US-driven ESG investing backlash.

In response, the UK’s pensions industry called for sharpening, not abandoning, the investment case for the energy transition.

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Inflection point

CIOs of some of the country’s largest asset owners agreed that ESG investing, broadly defined, is at a crossroads. “It is going through a sharpening of the investment case”, said Dan Mikulskis, chief investment officer of the People’s Pension.

Speaking alongside Mikulskis, Border to Coast Pension Partnership CIO Joe McDonnell seemed to agree. The drivers of sustainable investment decisions, he stressed, are now different.

“A couple of years ago everyone focused on risk now they are looking at the return”, he quipped. Sustainability, he added, was “an important criteria that can discover value”.

Delivering ‘higher growth for longer’ is at the core of on-going pension regulatory reforms in the UK. Refining sustainable investment will likely mean aligning it with these expectations.

Ahead of the conference, investment consultant Hymans Roberston surveyed 100 UK asset owners about their sustainable investment beliefs. 81% said ESG was more important than it was two years ago. 90% agreed these considerations were becoming more complex and 88% expect managers to explicitly acknowledge climate risk as a systemic financial risk.

“When large US asset managers and service providers reduce their sustainability activities, doesn’t the rest of the world follow suit?”, the report asks. “We don’t accept this narrative, and crucially it isn’t what our clients tell us about their beliefs and needs”, it concludes.

Transition investing

A sharpened, returns-led, fundamentals driven investor interest in the energy transition was palpable. Investors, on stage and outside it, were optimistic that the UK’s energy transition could provide opportunities to deliver ‘higher growth for longer’.

“The transformation of the energy system is becoming one of the most important investment stories of our time”, said Clay Lambiotte, a partner at LCP, an investment adviser.

Speaking at the conference, Lambiotte traced the history of energy transition investing and pointed out an inflection point. “Energy transition used to be a decarbonisation story. That all shifted in 2022 to being all about energy security”, he explained, citing Russia’s invasion of Ukraine.

Lambiotte’s observation that energy security – once an Achilles heel of renewable energy – now drives its deployment was timely. That same day, the UK’s climate change committee published a landmark report along similar lines.

The report stresses the contribution of energy transition to energy security. “The total additional cost of a single fossil fuel price spike of 2022 magnitude is likely to be as large as the total net additional cost of meeting the pathway to net zero across every year to 2050”, the committee found.

“In light of current world events, it’s more important than ever for the UK to move away from being reliant on volatile foreign fossil fuels, to clean, domestic, less wasteful energy”, said Nigel Topping, chair of the climate change committee.

What was once governed by policy, Lambiotte pointed out, is now steered by markets. Amid an asset owner community looking to sharpen their tools, Lambiotte’s perspective could find an audience.

At their Scottish retreat, UK pension funds hinted that sustainable investing is now at a crossroads. Fiduciary calculus and energy security will likely shape its future.

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