Donald Trump's second term is intensifying the ESG backlash, putting pressure on European investors, with 93% expressing concerns about sustainability under his presidency, according to a survey conducted by Pensions for Purpose. Back in 2022, the Texas governor had already issued a letter calling for Texas pension funds to boycott 10 banks, including 8 European ones, due to their climate policies. However, this tense context is conversely providing an opportunity for other players to rethink their strategies and affirm their convictions. In March 2025, The People's Pension, one of the largest British pension funds, appointed Amundi and Invesco to manage £28 billion, moving away from its former sole manager, State Street, to promote responsible investment and sustainability.
The world of sustainable finance is vast, beginning with the actors who comprise it: financial institutions, states, and NGOs are all at the heart of ESG issues, either because they reluctantly follow regulations and other financial news, or because they are active pioneers contributing to evolving standards on this subject. Among these actors, some may seem less well-known. This is the case with pension funds.
Yet their role is far from negligible, both in terms of weight and impact. This newsletter will help us understand their significant position within the sustainable finance ecosystem.
Pension funds, primarily present in Anglo-Saxon countries, are dedicated to retirement savings. While there is a distinction between defined contribution funds and defined benefit funds, their principle remains the same: collecting contributions from employees and their employers to later pay a pension upon retirement. Thus, pension funds are financial actors that invest for the long term, making them important players in global finance who can influence the companies in which they invest.
Their capacity for intervention and power of impact are further strengthened by the considerable amount of assets they represent. Indeed, the UK pension fund market is expected to grow from $4.43 trillion in AuM in 2025 to $5.45 trillion by 2030. This expansion has not gone unnoticed by the British government, which plans to create "megafunds" by grouping together public pension funds from local authorities to boost investment.
Finally, pension funds have particular weight in certain sectors: with more than $46 trillion in assets worldwide, pension funds rank among the largest institutional investors in fossil fuels. As Climate Safe Pensions highlights, nearly 30% of shares in the fossil fuel industry are held by pension funds.
Due to their size and influence on markets as well as on key sectors, pension funds are now subject to specific regulations aimed at directing their power of action towards the transition.
Pension funds are subject to multiple ESG regulations where transparency is the watchword, with the obligation to publish multiple documents:
Their typology as actors and the different roles they play allow pension funds to have an impact on the transition. This influence manifests at several levels and is directly linked to their long-term horizon, which leads them to integrate risks at this scale. Conversely, other financial actors, such as asset managers, are often subject to short-term imperatives. The influence of pension funds thus unfolds in two ways: through responsible shareholding, and through capital allocation, not only to better manage risks, but also in an impact logic. Let's look at these roles in more detail.
Pension funds manage billions to finance future retirements, and their investment horizon often extends over several decades. They are thus particularly sensitive to environmental, social, and governance risks, as these can compromise the medium or long-term returns of their investments, forcing them to proactively integrate ESG criteria into their strategy.
For example, Ortec Finance predicts that the returns of British pension funds could fall by 30% by 2050 due to climate change. This decrease is explained by greater exposure to geographical areas vulnerable to extreme climate events, which can directly affect asset performance. Conversely, Swiss and Dutch pension funds are comparatively less affected due to a more prudent asset allocation that favours more resilient sectors or regions, and by geographical diversification that limits systemic risks linked to climate. This gap thus shows the importance of taking risks into account in long-term investment strategies.
As Asset Owners, pension funds also have considerable institutional power and can drive beneficial initiatives that impact other financial actors, starting with Asset Managers. A concrete example of this role can be found with the Asset Owner Statement on Climate Stewardship, a coalition of 27 institutional investors formed in 2025 and led by 3 British pension funds, which aims to define clear and coherent expectations for asset managers in terms of climate management after noting that the latter were facing increasing fiduciary risks linked to climate impacts, and that it was therefore their duty to strengthen their efforts on this subject.
But this role of institutional investor is even more strategic when several actors mobilise together to make their voice heard and weigh their position in the balance. Thus recently, a coalition of 26 global institutional investors led by three British pension funds, The People's Partnership, Brunel Pension Partnership and Scottish Widows called on major asset managers to strengthen shareholder dialogue with companies on climate, by not giving in to short-term political pressures.
Moreover, as important shareholders, pension funds can exert influence on corporate governance (via voting at general meetings, shareholder dialogue, etc.). They can encourage companies to improve their ESG transparency, reduce their carbon footprint, or adopt more inclusive policies.
Thus, at the general meeting of Woodside Energy, an Australian group, the pension funds CalPERS, CalSTRS and Storebrand announced they were voting against the re-election of certain directors because their climate commitments were deemed insufficient, and their strategy too focused on fossil projects, making it incompatible with a long-term horizon.
Increasingly, pension funds are redirecting their investments towards green bonds, sustainable infrastructure (renewable energy, clean transport) or environmentally and socially responsible companies.
A study conducted jointly by Columbia University, the World Bank and the Sustainable Finance Institute analyses the sustainable investment strategies of ten of the world's largest pension funds. These funds integrate renewable energy into their investments and systematically measure the environmental footprint of their assets. The Norwegian Government Pension Fund Global, for example, has excluded 282 companies that do not meet its climate requirements, while the New York State Common Retirement Fund (NYSCRF) aims for a net zero portfolio by 2040.
In addition, pension funds can have a specific and visible impact by investing in thematic funds. British pension funds have thus invested £375 million in Gresham House's forestry strategy, thereby contributing to supporting environmental objectives, creating rural jobs and supporting local economies. Here again, this shows their role to play and their importance as drivers of change.
Pension funds are thus powerful actors that must be considered when it comes to sustainability, ESG or transition. The extent of their field of action can make them major levers in the fight for climate justice, so it is important to ensure their transparency and responsibility. The campaign launched by Make My Money Matter indicates, for example, that while £88 billion of British savers' money is invested in fossil fuels, pension funds nevertheless have the potential to invest £1.2 trillion in renewable energy and climate solutions by 2035. Given the scale of their impact and the urgency of climate change, pension funds can strengthen their position as examples and place themselves as pioneers in understanding profitability and sustainability in the long term.
Don't miss our next in-depth study on the ESG practices of pension funds!
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