Where do the UK’s DC master trusts stand on meeting their net-zero targets?
While the largest master trusts have now all set net zero targets, a closer look under the bonnet is required to establish how the pension providers are scoring on net zero
The UK’s DC master trusts are on track to become some of the country's largest asset owners. At last count, assets under DC master trust management were at £ 122.8 bn, spread across 35 trusts.
Since the introduction of automatic enrolment in 2012, their assets, invested on behalf of over 26 million members are on track to grow rapidly. They are estimated hit £800bn by the end of the decade, according to the UK's Pensions Policy Institute.
While these assets are so far somewhat fragmented, the UK government is pushing for further consolidation. A new consultation launched in November 2024 suggests that multi-employer schemes such as master trusts should in future have minimum assets of £25-£50bn invested across a maximum number of default funds, this would mean consolidation of existing providers.
With the master trusts as hefty stewards of long-term capital on the brink of significant changes, their net-zero strategies are hugely consequential.
In early 2024, Net Zero Investor analysed the details of DC master trusts’ climate strategies. From interim ambition to screening and titling default strategy portfolios, a wide variety of strategies were on display.
Ahead of the Net Zero Investor’s Defined Contribution Forum in January 2025, here is an updated answer to the question: where do the largest master trusts stand on tackling climate change?
Vision 2030
To compare long-term emissions reduction targets across DC master trusts yields no comparison at all. Most trusts have set a 2050 target to achieve net zero emissions. The exception to this norm is the Aviva Master Trust with its 2040 net zero ambition – a target that was ratified back in 2021. This ambitious target has since been adopted for the trust’s standard and default strategies.
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Variation lies in the road to 2050. Interim targets - to be achieved before 2030 - reveal a divergence in ambition. Cushon Master Trust’s 80% scope 1 and 2 emissions intensity reduction target, compared to a 2022 baseline, applies to its Sustainable Investment Strategy portfolio (growth phase). Thus far, the trust’s TCFD report shows a 78% reduction, with eight years left on the clock.
The People’s Pension Master Trust took longer than others to announce an interim target. Last year, it was the only trust to not do so. In the trust’s latest TCFD report the Trustee explains why:
“The Trustee takes setting a target seriously and believes that before publicly stating an emissions based target, there needs to be a plan in place to meet that target, and there needs to be a high level of trust in the data being used”, the report says.
The target is now set. By 2030, the trust is aiming for a 50% emissions intensity reduction in the scheme’s growth assets. For developed equity assets, the target is 30% by 2025. The TCFD report highlights the Trustee’s confidence in meeting these targets, based on a new climate aware strategy in the developed equity portfolio.
Confidence in interim ambition is a common theme across master trust public disclosures. Legal & General Master Trust’s 2024 sustainability report shows that all default options have exceeded interim (2025) targets and Target Date Funds are either ‘at or ahead of’ 2030 targets.
Implied temperature rise
In addition to ambition, portfolio alignment with global temperature rise is a vital forward-looking indicator of climate-driven investment strategies.
Implied temperature rise (ITR) is an indicator commonly found in public disclosures. The metric is based on the global carbon budget - the maximum net GHG emissions that can be emitted without exceeding the temperature rise limits such as 1.5 °C or ‘well below’ 2°C. On a portfolio level, the implied temperature rise number indicates “overshoot or undershoot for the portfolio”, according to MSCI – a data provider.
Several portfolios overshoot the Paris Agreement objective, but comparisons need a methodological caveat in that different models yield different results. LGIM for instance, calculates temperature alignment using a proprietary methodology. Others rely on external providers.
It is possible that the ITR numbers reflect exposure to emissions-intensive assets but given that titling and screening are increasingly common across DC master trust default strategies, another factor is likely at play.
The degree of overshooting in portfolio temperature alignment points toward a disconcerting underlying reality - current policy settings and corporate decarbonisation targets are in dire need of upward revision.
Climate Action Tracker data shows that if current 2030 NDC targets were to be implemented, the probability of exceeding 1.5 °C is 99.7%. 2.7°C is a more likely outcome, ceteris paribus.
The ITR number, however, remains useful as a guide to a master trust’s Paris alignment. “This year we have added the ITR as an additional portfolio alignment metric. Going forward we intend to report on this metric as we believe it provides more insight and aligns more closely with our net-zero target”, says Aon Master Trust in its TCFD report.
Carbon footprint benchmarking
Another indicator of progress on reducing emissions is the carbon footprint of their portfolio. DC master trusts report emissions intensity of their default portfolios – measured in tonnes of carbon dioxide equivalent (tco2e), weighted by the portfolio’s exposure to the asset in question. Yet, reasonable comparisons are hard to draw and where possible, they hardly fit the ‘apples-to-apples’ criteria.
Portfolio emissions intensity benchmarking faces several challenges. First, the weight applied varies. Aegon Master Trust reports the emissions intensity of its default portfolio per unit invested. As does Aon Master Trust, Fidelity Master Trust, Smart Pension Master Trust and Sottish Widows. Others such as Aviva, Nest and Mercer Master Trust report emissions per unit revenue. Indicators with Enterprise Value Including Cash (EVIC) are also in the mix.
Second, carbon footprints differ based on which asset classes they cover. Aegon Master Trust’s emissions intensity metric covers listed equity, real estate and corporate fixed income. Aon Master Trust’s reporting excludes real estate but includes sovereign debt. Estimating footprints for private assets is a challenge most master trusts face. Reasons reported range from the complex structure of private market investments to the relative lack of mandatory disclosures.
Lastly, some Trusts opt to report a greenback figure, while others report GBP estimates. Understanding emissions intensity trends is then an exercise best suited to a case-by-case analysis.
For instance, Aon Master Trust attributes its reducing carbon footprint to changes in capital allocations. “Since 2022 we have seen a reduction in the carbon footprint across most asset classes. This reflects the changes we have made to our investment strategy to manage climate-related risks for our members including the inclusion of climate transition funds”, the trust said
in its TCFD disclosures.
There are also facets of a master trust’s climate strategy that are not adequately captured by quantitative indicators – collaborative engagement and policy advocacy being key amongst them. Aegon Master Trust for instance, is a member of the IIGCC Policy Advisory Group which gives it additional capacity to influence climate policy. However, information of this kind is rarely covered in public disclosures and consequently make comparisons challenging.
