PENSIONS funds and insurers in the UK should be investing more in climate transition in emerging markets and developing economies, a new report from the C of E Pensions Board suggests.
Even “modest shifts” in investment could unlock tens of billions of pounds over the next decade, mitigating the systemic risks posed by climate change while realising positive returns in high growth markets, the report suggests.
Baku to Belém and Beyond: Strengthening the UK investment landscape to support climate transition in emerging markets and developing economies (EMDEs) was drafted by the Pensions Board and Institutional Investors Group on Climate Change. It responds to the recommendations of a roadmap produced by the United Nations Framework Convention on Climate Change (UNFCCC) in the lead up to COP30 in Belém (News, 24 November 2025).
This roadmap laid out a plan to mobilise external public and private capital to meet climate finance needs in EMDEs over the coming decade. A target was set to channel $1.3 trillion annually by 2035 into EMDEs for climate action: a 15-fold increase from the $196 billion provided in 2023.
The new report draws on data on 18 UK Asset Owners to assess the potential for an increase in their overall allocations to EMDEs. The 18 represent almost £1.7 trillion of assets under management — more than half the UK pension market, although the report cautions that they are “unlikely to be representative of the entire market”.
On average, they allocate 4.2 per cent of assets under management to EMDE investments, with a focus on listed debt and equity and EMDE sovereign debt. Most of the investment is directed to a few larger markets, such as China, Taiwan, and India, and large-cap multinationals.
“In addition to having limited exposure to EMDEs, the surveyed investors are likely contributing either no or negligible capital towards climate transition in EMDE,” the report says.
It warns: “Without a scale-up in investment, the world risks locking in high-carbon infrastructure which will translate in escalating macroeconomic risks affecting global investment portfolios, including those in the UK. Mobilising private institutional capital is essential to bridging this gap and ensuring that EMDEs become engines of the global transition rather than bottlenecks.”
The report suggests that roughly doubling allocations to EMDE investments, to eight per cent, would mean a rise to £119 billion. Allocating two per cent of total assets to EMDE private markets (up from 0.2 per cent currently) would amount to £64 million.
The report acknowledges barriers to such a shift, including limited resources to assess opportunities in such economies, and “mixed signals from government regarding where to focus efforts between domestic and global concerns, product availability, and both real and perceived investment risk”. There is, it says, a perception that EMDE returns have failed to justify higher risks.
But it argues that risks in EMDE private markets might be lower than often believed and that EMDEs are among the fastest-growing regions in the world. It suggests that directing “even a modest share” of pension and insurance portfolios towards EMDEs could deliver a “wide range of benefits”, including “mitigating systemic risks and reducing the chances of a failed transition” and “positioning the City of London as a leading climate finance hub”.
In 2025, the C of E Pensions Board invested £241 million in emerging market equities and debt — about seven per cent of its £3.5-billion assets under management.
The director of climate and environment at the Pensions Board, Laura Hillis, said that while the investment sat “well above” the industry average, and the Board held some investments in emerging-markets renewables, “we recognise there is much more to do across the whole pension sector to address systemic risk and ensure we are supporting the energy transition, both at home and in emerging markets.”
It was hoped that the report would “help unlock those opportunities” and the Board was “looking forward to continuing this work and seeking to invest where it makes sense for us as a responsible investor”, she said.
Among the report’s suggestions is that the UK government should frame investment in emerging markets and in the domestic market as “complementary, not competing”. The Minister for Development and Africa, Baroness Chapman, said: “This is our new modern development approach in action, as the UK moves from a donor to an investor, using the best of our British expertise and leadership in green finance for the benefit of all.”
Samuel Williams, head of Christian Aid’s Resilient Futures Fund — set up to mobilise capital to support “climate-smart enterprises” — said that climate finance was “not reaching communities who need it most”. But “private finance is only part of the solution, and must not be used as an excuse by the UK government and others not to meet their commitments to climate finance.”
At the annual general meeting of Volvo Group last week, Sara Taaffe, representing the Pensions Board, asked how its Board evaluated “whether the Group’s climate-related policy engagement is actively supporting — and not inadvertently hindering — its ambitious product strategy and net-zero objectives?” She challenged it to publish a climate lobbying report “to provide greater transparency and accountability in this area”.