Britain quit coal – so why are our pensions still funding it?
Eggborough, a coal-fired power station in North Yorkshire, England, 2006 (Alamy)
4 min read
For more than a decade, the UK has spoken with rare political unity on one issue: thermal coal has no place in a modern economy.
From the creation of the Powering Past Coal Alliance under Theresa May to the end of support from UK Export Finance under Boris Johnson, and finally the elimination of coal from our domestic power mix under the current Labour administration, the direction of travel has been clear. Coal is out, clean energy is in, and the UK has rightly positioned itself as a global leader in the transition.
And yet, beneath this success story lies a contradiction that is becoming harder to defend. While we have removed coal from our own electricity system, UK pension schemes continue to invest billions in companies involved in the extraction and burning of thermal coal overseas.
Recent estimates suggest the figure exceeds £10bn. Millions of UK savers – often without their knowledge – are defaulted into pension schemes that fund precisely the industries the UK is trying to phase out. Their employers and we the taxpayer are required to match savers’ contributions.
This is not simply a question of climate consistency, important though that is. It is also a matter of financial prudence. Thermal coal is widely recognised as a high-risk, declining asset class. As rapidly advancing clean technologies overtake mature fossil fuel technologies, and as most countries accelerate decarbonisation and implement stricter climate policies, these assets face the growing likelihood of becoming stranded – losing value rapidly and permanently. For pension savers, that is not an abstract concept. It is a direct threat to long-term returns and retirement security.
The global economic impacts of the war in Iran have reopened old discussions in the UK and elsewhere about the pace of the transition and whether countries have a responsibility to curb the supply of new fossil fuels, or only demand. But consensus remains on at least one thing: nobody is talking about going back to coal.
Perhaps most concerning is how little the government currently knows about the scale of this issue. There is no comprehensive picture of how much of the UK’s pension industry – the biggest in Europe – is invested in thermal coal and other highly polluting fossil fuels, how that figure is changing over time, or how exposed savers are to the risk of stranded assets. This lack of transparency is a serious blind spot. Before we can solve a problem, we need to measure it.
Pension schemes are powerful investors in the economy. The decisions they make today will shape not only financial outcomes for retirees, but also the kind of world those retirees will live in. It is entirely reasonable to ask for greater transparency about how pension capital is being deployed, especially when it may be pulling in the opposite direction to our national objectives and commitments on climate and nature.
This is not about dictating investment decisions. It is about ensuring that policymakers, regulators, and savers themselves have access to the information needed to make informed choices. Transparency is the foundation of accountability. Without it, neither markets nor governments can function effectively.
The timing for action could not be better. The Pension Schemes Bill, currently progressing through Parliament, presents a clear opportunity to address this gap. By introducing requirements for pension schemes to disclose their exposure to thermal coal, and in due course other high-risk fossil fuel assets, the government can take a pragmatic and proportionate step which will better protect pension savers, the economy, and the environment.
The UK has shown leadership in moving beyond coal domestically. The next step is to ensure that our financial system is not quietly undermining that progress.
Greater transparency would not solve the problem overnight, but it would shine a light. Meaningful change begins with measurement. Let’s give the government and the pensions industry the tools they need to tackle the job.
Lord Sharkey is a Liberal Democrat peer
