State of OECD Pension Funds' Climate Transition: Insights and recommendations from the Net Zero Finance Tracker

Are pension funds' climate targets shifting capital out of fossil fuels?

Frederick Fabian, Claris Parenti, Maddy Taylor, and Valerio Micale at Climate Policy Initiative examine the net-zero transition of OECD pension funds in their report "State of OECD Pension Funds' Climate Transition" (2025).

They draw on the Net Zero Finance Tracker to assess 594 pension funds based in OECD countries, together holding $22.5T in assets, following progress on targets, implementation, and real-economy impact from 2020 to 2024.

Their main conclusions include:

• The share of pension assets held by funds with targets beyond the planning stage rose from 9% in 2020 to 63% in 2024, yet only 1% reached advanced quality.
• Across 96 funds holding together $310B in energy, 55% sits in companies expanding fossil fuel operations and only 38% in clean energy, leaving portfolios misaligned with net-zero pathways.
• Funds moving beyond planned implementation rose from 38% to 68% of assets across the period, and climate risk disclosure now reaches 55% of assets.
• Targets and transition plans are more than symbolic. Funds that adopt them hold ~45% of their energy portfolio in clean energy, against 27% to 29% for funds that have taken no action.
• Once they integrate climate into strategy, pension funds match or surpass other financial institutions, leading peers on fossil fuel exclusion targets, policy engagement, climate risk management, and emissions disclosure.
• Leading funds embed climate expectations into mandates, screen managers on stewardship, and reclaim voting rights, with some withdrawing mandates from managers they consider misaligned.

This report shows climate risk management and strategy are the most mature practices, and the relationship with external managers is a decisive lever for institutional investors.

It frames climate alignment as a governance problem, not a target-setting one: institutional investors have to enforce adapted mandate terms, manager selection criteria, and voting policies.

The analysis however relies on uneven coverage: the energy portfolio findings cover just 96 funds, representing 2.1% of the funds' assets, and the manager governance framework rests on only 32 large funds.

Look-through into the assets held inside delegated and pooled funds would show whether stated ambition matches where capital actually sits.