Pension savers could be losing out on thousands of pounds in retirement income due to the impact of net zero investment strategies.
A new report warns that even small reductions in returns could significantly reduce long-term savings.
British pension savers face losing hundreds of thousands of pounds due to investments linked to net zero initiatives, according to a policy paper from the Prosperity Institute.
The report argues that Environmental, Social and Governance (ESG) rules have "undermined" pension schemes by steering asset managers towards social and environmental goals rather than prioritising financial returns.
The think tank is calling on Labour to introduce a legal fiduciary duty requiring pension providers to focus solely on maximising returns, rather than factoring in wider social considerations when making investment decisions.
The report suggests the long-term impact could be significant. A 25-year-old saving £150 a month into their pension could end up £178,000 worse off by retirement if their fund underperforms by just one percentage point each year.
This difference is based on annual returns of eight per cent compared with nine per cent.
Reform UK's deputy leader Richard Tice condemned the practice of using pension savings to fund Net Zero initiatives.
He said: "Alarm clock Britain should be able to trust that its pension savings are being invested in a way that will maximise their retirement income. Instead, their money is being used to fund net zero.
"This paper lays bare just how much worse off ESG makes British pension savers. Asset managers should beware of a future government committed to stopping this nonsense."
It also found that 55 per cent of workers do not know where their pension money is invested, meaning many may be unaware of how ESG policies could be affecting their savings.
Net Zero costs pension savers £178,000 in retirement
| GETTYIt follows data showing the Universities Superannuation Scheme (USS), one of the UK’s largest private pension funds managing £73billion, delivered annual returns of just 1.7 per cent over the past five years, while inflation averaged 4.4 per cent.
The USS has committed to making all investments net zero by 2050 and said it will "encourage the companies [it] invests in to transition towards a low-carbon world".
The report highlights a stark contrast in performance between green investments and traditional energy sectors.
The iShares Global Clean Energy ETF recorded negative returns of minus 11 per cent over five years, while Legal and General’s Clean Energy ETF rose by just 16 per cent.
By comparison, the FTSE 350 oil and gas index delivered returns of more than 140 per cent.
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The report sets out several legislative changes it argues are necessary to protect savers
| GettyDefence stocks, often excluded by ESG-focused funds, have also surged, with Rolls-Royce returning 717 per cent between 2022 and 2025, BAE Systems 213 per cent, and Babcock 60 per cent.
Mr Tice has been a vocal critic of Net Zero investing within the Local Government Pension Scheme since Reform took control of 10 councils in last year's local elections.
Shadow Business Secretary Andrew Griffith described the Prosperity Institute's findings as evidence of "quite probably the most profound misallocation of capital this century."
"The simplest ideas are often the most powerful," the Conservative MP said. "In the 'Death of the Fiduciary Duty', the Prosperity Institute shows how undermining a simple principle has left ordinary people poorer."
The report points to the Universities Superannuation Scheme as an example of underperformance
| GETTYMr Griffith called for lawmakers to "bury the well-meaning but toxic wasteland of 'ESG' forever," adding that if the current Government refuses to act, the next administration must treat reform as a priority.
The report sets out several legislative changes it argues are necessary to protect savers.
It recommends amending Section 172 of the Companies Act 2006 to reassert shareholder primacy and remove requirements for directors to consider multiple stakeholders.
The paper also calls for the Companies Act to enshrine a fiduciary duty legally obliging asset managers and pension providers to deliver maximum returns, while still permitting private savers to opt for less profitable investments with informed consent.
Further recommendations include reforming or repealing the Climate Change Act and Equality Act, which the report claims provide legal cover for ESG-focused investment strategies.
James Graham, the report's author, described the exclusion of defence investments by ESG funds as a "scandal," particularly given the Government's commitment to raise defence spending to 2.5 per cent of GDP by April 2027.