The largest UK pension schemes are substantially ahead on climate action as smaller schemes risk falling further behind

The largest UK pension schemes are substantially ahead on climate action as smaller schemes risk falling further behind

11 May 2026

• 88% of the largest schemes have a credible net zero implementation strategy compared to 61% on average for all schemes reviewed
• Almost all schemes with assets above £5bn now target net zero, compared with just over half of smaller peers, averaging 76% across all schemes.
• Average Implied Temperature Rise remains at 2.4°C, suggesting schemes are still exposed to assets misaligned with climate goals

XPS Group, a leading UK consulting and administration business specialising in the pensions and insurance sectors, has today published its fourth annual review of UK pension scheme Task Force on Climate-related Financial Disclosure (TCFD) reports, revealing a growing divide between the climate ambition of large and smaller schemes.

The review analyses 49 UK pension schemes, totalling ~£420bn in assets, and finds that while overall adoption of net zero targets has stabilised, progress has slowed among smaller schemes with assets between £1bn and £5bn, despite several years of mandatory reporting.

The sample included 25 larger schemes (>£5bn), which have been reporting under TCFD requirements since 2021, and 24 smaller schemes (>£1bn), reporting since 2022. The findings show that size remains a key differentiator in both ambition and action.

Nearly all of the UK’s largest pension schemes are now committed to net zero, with 96% of schemes managing more than £5bn in assets having set targets, compared with just 54% of £1bn–£5bn schemes. While the largest schemes continue to strengthen both ambition and implementation, momentum among smaller schemes appears to have stalled.

The report shows that 88% of larger schemes now have a credible net zero strategy underpinned by clear interim targets and adjustments to their investment approach. By contrast, only 33% of smaller schemes meet the same standard.

Elsewhere, despite improvements in disclosure and data quality, among schemes reporting the metric, the average Implied Temperature Rise (ITR) among schemes reporting the metric remains unchanged at 2.4°C. While this is below the 2.6°C warming projected under current global policies, it remains above the Paris Agreement goal of limiting warming to below 2°C, reflecting ongoing exposure to transition risk.

The report also identifies a gradual shift towards more forward‑looking climate strategies. The proportion of schemes setting explicit engagement targets has risen to 33%, up from 24% in 2024, signalling increased focus on influencing investee companies rather than divesting alone.

Alex Quant, Head of ESG Research at XPS Group, said: “TCFD reporting has undoubtedly brought climate risk into the mainstream for pension schemes, parts of the market have fallen into a steady-state pattern. Larger schemes are increasingly translating targets into investment strategy, while many smaller schemes are yet to take the practical steps required.

“Climate risk is not going away. Recent geopolitical tensions have reinforced that the transition will be shaped by energy security and inflation resilience as much as climate objectives. Trustees should focus on practical action: understanding their highest‑risk holdings, making greater use of forward‑looking metrics, and challenging managers on how they are engaging with companies that are misaligned with the transition.”

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