Naomi Clark of the Universities Superannuation Scheme (USS) outlines the importance of investing to support the energy transition and the role of pension schemes and policymakers.
In a world marked by extreme short-term volatility, it’s easy to lose sight of long‑term objectives. Pension schemes are, by definition, long-term investors. Against this backdrop, the energy transition should not be viewed as a distant aspiration; we believe it is a present-day financial imperative.
We see climate change as a significant financial risk that’s increasingly reshaping the global investment landscape. Put simply, it could threaten long-term financial stability and the returns needed to pay pensions for decades to come.
Small changes in environmental variables – like temperature or sea level – can trigger disproportionately large impacts not only on communities and ecosystems, but also on financial economies. Traditional economic models often underestimate these risks, but the reality is that climate change could threaten the stability of entire systems, including financial markets.
“To accelerate the transition, we need bold and coordinated policy, which will help catalyse billions of pounds to be invested in renewables, grid infrastructure and emerging technologies.”
Naomi Clark, USS
Encouragingly for investors, the transition to clean energy also presents a big investment opportunity. A fast transition to clean technologies could save global economies trillions in energy costs by 2050, while also boosting energy security, productivity, and job creation.
To accelerate the transition, we need bold and coordinated policy, which will help catalyse billions of pounds to be invested in renewables, grid infrastructure and emerging technologies.
The reality is that even as investment portfolios decarbonise, real-world emissions continue to rise. That gap exposes an uncomfortable truth: investor action without policy alignment cannot deliver the change that is required for a successful transition.
Divestment alone won’t deliver real-world change
There is temptation to believe the energy transition can succeed purely through financial markets: by reallocating capital, decarbonising portfolios, or divesting from high-emitting companies. Those tools matter to an extent, but we believe that on their own they’re insufficient.
Selling polluting assets may reduce an individual portfolio’s carbon footprint, but it does little to reduce real-world emissions. High-emitting assets don’t disappear when investors sell them; they’re simply owned by someone else, sometimes with less incentive to change.
If the goal is genuine decarbonisation, investors must remain engaged in helping high-emitting sectors transition, not walk away from them.
Policy must set the pace – markets will follow
Governments play a decisive role in accelerating the transition to clean energy and shaping the investment environment. Clear, coherent, and credible policy frameworks can reduce uncertainty, lower the cost of capital, and unlock private investment at scale.
By contrast, policy volatility, weak regulation, and inconsistent signals can slow the transition and raise costs and risks for everyone.
What is needed in the early stages of the transition won’t be the same as the later stages, nor will it be the same across different sectors or countries. Tailored policies are needed. We need clear commitments and frameworks from governments to support progress at every stage of the transition – this is what, in our view, will accelerate progress.
“With the right policies and investor leadership, we believe [the energy transition] can be accelerated – unlocking trillions in savings, boosting energy security, and creating a more resilient economy.”
Naomi Clark, USS
In the early stages, policies should support the first deployment of zero emission solutions in sectors such as steel, cement, chemicals, shipping and aviation.
In the middle stages, the government could adopt a zero-emission vehicle mandate in heavy road transport, strengthen investment in charging infrastructure, and address bottlenecks preventing heat pump adoption. And in the late stages, we need to see a deeper restructuring of markets to make the best use of new technologies.
Collective action is key
We don’t believe that operating alone and chasing our own individual targets will drive the action we require, meaning collective action is key.
Asset owners globally should collaborate closely, share data and standards, and engage more forcefully with policymakers and regulators to bring about change. Governments must treat the energy transition as core economic infrastructure, not a niche environmental issue.
The transition is already underway. With the right policies and investor leadership, we believe it can be accelerated – unlocking trillions in savings, boosting energy security, and creating a more resilient economy.
Bold policy and smart investment must move together. One without the other is unlikely to be successful – and we can no longer afford that risk.
Naomi Clark is head of investment product management at USS Investment Management. USS’s recent paper, published in partnership with Trex, is available here.
