UK pension funds embrace private equity for sustainability and returns
A new study by Pensions for Purpose has revealed growing interest in impact private equity among UK pension funds. The research highlights how these funds are increasingly turning to private equity to meet sustainability goals while maintaining strong financial returns.
The findings also point to challenges, including a need for clearer strategies and better understanding of key concepts like 'additionality' in impact investing.
The study focused on UK local government pension schemes and defined contribution (DC) plans. It found that 60% of respondents view private equity as the most effective way to pursue impact investing. Many funds are now prioritising this approach to secure long-term sustainability in their portfolios.
A third of pension funds (33%) aim to use impact private equity to achieve measurable environmental and social outcomes. Another 25% see it as a way to balance risk and return effectively. The research also dismissed the idea that impact investing harms financial performance, with many funds reporting positive returns from such strategies.
However, the report identified gaps in understanding, particularly around 'additionality'—the idea that investments should generate extra positive impact beyond what would happen anyway. Pensions for Purpose urged asset managers to develop more accessible strategies for DC schemes, ensuring they can adopt impact private equity within existing fee structures.
The study also called for a broader, global approach to impact investment. This would help address major challenges like the transition to net-zero emissions, ensuring pension funds contribute to wider sustainability targets.
The findings suggest a clear shift toward impact private equity in UK pension funds. With 60% favouring this method, the trend reflects a growing demand for investments that deliver both financial and sustainability benefits.
To make progress, asset managers will need to simplify access for DC schemes and improve education around key concepts. This could help pension funds play a bigger role in global sustainability efforts, including the net-zero transition.
