The State of European Pension Funds’ Net-Zero Transition

The report finds a positive trend in European pension funds' commitment to sustainable investing, with significant growth in the adoption of mitigation targets and climate risk management. However, a persistent gap remains between these commitments and actual real-economy impact, as pension funds rarely invest directly in projects and often hold fragmented indirect ownership. The analysis highlights that larger funds, those in net-zero coalitions, and funds in countries with strong regulatory frameworks—such as the Nordic countries, the Netherlands, and France—are leading the transition. Key challenges include the gap between asset ownership and management, the difficulty of transitioning passive investments, and limited capital flow to emerging markets and developing economies (EMDEs).

• European pension funds showed a positive shift in target-setting from 2019 to 2023, with the number of funds adopting some form of target increasing from 1% (four funds) in 2019 to 29% (98 funds) in 2023, representing over USD 5.5 trillion in assets under management or owned (AuM/O).
• While mitigation targets are the most common, their quality remains low; only 4% of pension funds (15 entities) have targets that exceed an 'Initial Response' level, which requires assessing both long-term (2030-2050) and near-term (2025-2030) goals and specifying portfolio coverage.
• Implementation of climate actions grew from 8% (26 funds) in 2019 to 29% (100 funds) in 2023, with a particular focus on climate risk management, strategy, and TCFD-aligned disclosures.
• Direct project-level investment by European pension funds is rare, totaling only USD 230 million in recent years, primarily in solar and wind, due to the illiquid nature of such assets and a lack of in-house specialized knowledge.
• Indirect impact is limited by fragmented ownership; although sampled funds had indirect ownership in over 1,000 projects valued at USD 331 billion in 2023, only USD 12.5 million can be demonstrably attributed to the funds when factoring in ownership shares and additionality.
• The clean energy ratio for investments indirectly supported by European pension funds is 1.3:1, which is significantly lower than the preliminary global average of 2.2:1 for 2023.
• There is a strong correlation between target-setting and implementation; 92% of pension funds with a 'Partial Response' for targets also achieved a 'Partial Response' for implementation.
• Regulatory leadership in the Nordic countries (Norway, Sweden, Denmark) and the Netherlands has driven higher levels of target setting and implementation, while France pioneered the integration of sustainability into financial regulations via the 2015 Law on Energy Transition for Green Growth.
• Membership in net-zero coalitions (such as NZAOA, PAAO, and NZAM) significantly boosts ambition; in 2023, coalition members were over six times more likely to have adopted a climate target than non-members.
• Investment in emerging markets and developing economies (EMDEs) remains very low, with only 4.1% of EU pension funds' broader investment portfolios allocated to low- and middle-income countries (LMICs).

APA

Micale, V., Li, S., Marini, N., Dilworth, E., Vishnumolakala, H., Zhang, T., Kudavelly, J., & Cheng, L. (2024). The State of European Pension Funds’ Net-Zero Transition. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2024/10/The-State-of-European-Pension-Funds-Net-Zero-Transition.pdf

Chicago

Micale, Valerio, Shengzi Li, Nikita Marini, Eddie Dilworth, Harsha Vishnumolakala, Tinglu Zhang, Jatin Kudavelly, and Li Cheng. The State of European Pension Funds’ Net-Zero Transition. Climate Policy Initiative, 2024. https://www.climatepolicyinitiative.org/wp-content/uploads/2024/10/The-State-of-European-Pension-Funds-Net-Zero-Transition.pdf.

Wikipedia

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BibTeX

@techreport{micale2024state, author = {Micale, Valerio and Li, Shengzi and Marini, Nikita and Dilworth, Eddie and Vishnumolakala, Harsha and Zhang, Tinglu and Kudavelly, Jatin and Cheng, Li}, title = {{The State of European Pension Funds’ Net-Zero Transition}}, institution = {Climate Policy Initiative}, year = {2024}, month = oct, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2024/10/The-State-of-European-Pension-Funds-Net-Zero-Transition.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }