Opinion – UKSIF

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

This website should not be taken as financial or investment advice or seen as an endorsement or recommendation of any particular company, investment or individual. While we have sought to ensure information on this site is correct, we do not accept liability for any errors.

Homes of the future need finance that recognises their value

Oliver Breen, Senior Sustainability Manager, Climate Strategy, Santander

The UK’s housing transition is often framed as a technology challenge. We debate heat pumps, insulation and solar panels. Yet the way we value and finance homes has not fully caught up with the economics of energy efficiency. For decades, mortgage lending has largely assumed that all homes create similar household costs. But that assumption is becoming increasingly outdated. A home designed to generate and store its own energy, with little or no exposure to volatile energy markets, presents a very different financial picture to a traditional property.

As energy efficient housing becomes more mainstream, lenders, policymakers and investors face an important question: should housing finance start recognising lower running costs as part of a home’s value proposition?

Recognising the value of efficient new-build homes
The recent collaboration between Santander UK and Octopus Energy’s Zero Bills homes highlights why this question matters. Octopus’ world-first Zero Bills tariff means eligible new-build homes with solar panels, battery storage and heat pumps come with a guarantee of no home energy bills for at least ten years. Santander UK has responded by recognising those lower household outgoings within its affordability assessment for qualifying homes, reflecting the reality that a household without home energy bills has a different spending profile compared to one with conventional energy costs. While the proposition focuses specifically on housing, its broader significance extends far beyond one lender or one type of home.

The UK faces a substantial challenge in improving energy efficiency in housing. Santander UK’s Tomorrow’s Homes research highlights that much of the country’s housing stock remains inefficient, with millions of homes requiring upgrades to improve energy performance and reduce exposure to high energy costs. At the same time, consumer interest remains strong. More than half of UK adults (52%) believe improving their home’s energy efficiency would have a significant impact on their lives, while 80% cite lower energy bills as the primary benefit.

But enthusiasm alone is not enough. The research also points to a persistent gap between intention and action. People overwhelmingly support energy efficiency in principle, but many remain unwilling or unable to make major investments in their homes. Energy efficiency is also still relatively low on the list of factors people consider when purchasing a property, behind more traditional considerations such as location, price and size.

Innovations like Octopus’ Zero Bills tariff have the potential to close the gap between intent and action by demonstrating how upfront investment in energy efficiency can deliver meaningful reductions in household running costs. This is where finance has a potentially transformative role to play.

If policymakers want households to choose lower-carbon homes, and if investors want capital to flow towards sustainable assets, then market signals need to reflect the real-world benefits those homes create. Lower energy consumption doesn’t only reduce emissions. It also reduces monthly expenditure and creates greater certainty over future costs.

These are tangible economic outcomes that traditional financial models have often struggled to capture.

Importantly, recognising lower running costs shouldn’t be viewed as a relaxation of lending standards. Quite the opposite. A core principle of prudent lending is that affordability assessments should reflect a customer’s actual financial position. Where evidence demonstrates materially lower and more predictable household expenditure, incorporating that information can improve the accuracy of affordability calculations and risk assessment.

Extending the opportunity to existing homes
While Octopus’ Zero Bills tariff is already being applied to qualifying new-build homes, the implications extend much further. If financial markets begin to systematically recognise the value created by energy efficiency, propositions like Zero Bills could support retrofit activity, stimulate private investment and accelerate the adoption of low-carbon technologies across existing housing stock.

Real-world experience already demonstrates the potential benefits. Santander UK funded the transformation of a 4-bedroom family home into an Octopus Zero Bills Retrofit home, using the right specification of solar panels, battery storage and a heat pump for the Octopus Zero Bills model. Alongside eliminating home energy bills, the improvements increased the home’s EPC rating from C to A and provided greater certainty over household finances. The family said the upgrade means they now think differently about savings, future planning and everyday spending because of the reduction in monthly household costs.

The broader lesson is that sustainable homes should not be viewed only through an environmental lens. They’re increasingly financial assets that deliver measurable economic value to households.

As the UK seeks to decarbonise its housing stock while addressing affordability pressures, innovation in housing finance may prove as important as technological innovation. The most successful transition will not simply build better homes, it will create financial systems that properly recognise the benefits those homes provide.

The future of sustainable housing depends not only on how we build and adapt homes, but on householders seeing the added value in having no monthly energy bills. And increasingly, those two conversations should be one and the same.

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Culture is a stewardship issue and a fraud risk indicator

Rupert Evill, Founding Director, Ethics Insight

Culture is a stewardship issue and a fraud risk indicator

By some estimates, cybercrime alone (a subset of fraud) is emerging as the world’s third-biggest economy. Fraud is any activity that relies on deception to achieve illicit or unethical gain. By that definition, fraud would also include corruption, bribery, theft, misstatement, misrepresentation, and all the ‘washings’ and ‘hushings’ (green, blue, etc.).

Estimates of fraud’s cost range from 1% to more than 7% of revenue. Whatever the exact percentage, it’s too much, financially and reputationally. Fraud is now a globalised organised criminal franchise. By enabling fraud, we’re helping the people behind our very worst (personal and professional) nightmares: human traffickers, corrupt politicians, and destroyers of the planet.

A three-headed hydra

Cressey’s Fraud Triangle suggests that fraud is a function of opportunity, pressure, and rationalisation. Most organisations gravitate towards the ‘how’ (opportunity), neglecting the seemingly more nebulous ‘why’ (pressure and rationalisation). That is missing a trick. Yes, it’s important to close control gaps. But even the most sophisticated externally originated fraud needs someone inside the organisation to do something they shouldn’t.

For example, in 2024, the UK engineering firm Arup lost ~£20m to a single fraud. A relatively junior employee was pressured into transferring large sums during a fake video call (AI clones of senior officers).

This case demonstrates the power of well-applied pressure.

But what of rationalisation? Well, that’s a trickier beast to summarise briefly. But in my experience, organisational culture creates that context. I crowdsourced the Ethical Excuses Bingo below a few years back. When you start to hear these phrases, know that there’s institutional rationalisation of wrongdoing.

Beyond the benighted employee survey

Pressure and rationalisation are measurable and can become the early warning indicators of integrity health. But we need to know where to look.

How many of you have been asked to complete employee engagement surveys? How many of you trusted that process and spoke freely?

Furthermore, many such surveys ask poor questions. A brief search for “good examples of employee feedback questions” yields: (more…)

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Extreme heat should be a wake up call

Ernst Hobma, Economic Researcher, Triodos Bank

The fact that climate change affects long-term economic growth is by now an established scientific consensus. Through diverse channels such as sea level rise, lower crop yields and deteriorating human health, the long run effects could add up to uncontrolled collapse: one recent estimate suggests a long-run loss in world GDP at over 20% for every degree of global warming.

But this summer in Europe we witnessed extreme heat first hand, a direct product of climate change. We should interpret this as more than an anomaly. What seems extreme now might become structural given global warming.

We assessed the impact of this year’s extreme heat in Europe, both in terms of GDP and wellbeing. Multiple channels are involved in transmitting extreme heat and drought to the economy. Human and animal health suffers, including excess deaths, both from heat and events like wildfires. There are related (public) costs, such as containing and restoring degraded areas.

While the negative effects above do not directly affect GDP negatively, others do. GDP-losses happen through various channels from general labour productivity losses to lower production in agriculture and energy, and transport disruptions. We have conservatively estimated the GDP-impacts of all of these channels including expected excess heat in the seven largest EU economies. We estimate about 180 billion euros or 1% of EU GDP will be lost due to extreme heat in 2026. Per country, the expected damages are visible below.

Our full methodology is detailed in the ‘Hot Summer Economics’ report and accompanying background document published in August. It was picked up by media around the world including the BBC, Guardian, Forbes, CNBC and many more.

Here we will focus on what needs to be done in the face of these damages in general, and how financial institutions and their regulators can contribute.

Some heat damage can and should be reduced through adaptation. But adaptation is only ever partial. One modelled European estimate suggests adaptation could cut labour-productivity losses by around 40% but not eliminate them. Many measures also carry their own trade-off: more air conditioning raises electricity demand at exactly the moments supply is most constrained.

Adaptation alone is therefore simply not enough. Further warming raises damages, and does so non-linearly. So, the more durable answer sits upstream: we need to draw a forceful line to halt further climate change through mitigation.

Mitigation, in turn, cannot rely on technological substitution alone. A recent IMF working paper documents the “Generalized Jevons Paradox”: efficiency gains and the deployment of low-carbon technologies have tended to coincide with rising, not falling, total energy and material use, including rising fossil fuel use. This matters for how mitigation policy is designed. Rather than stimulating clean energy, policy should actively reduce total energy and resource demand.

The message for financial institutions is simple. Divestment is the most powerful way for individual financial institutions to draw a line. Customers of financial institutions can similarly vote with their money; if your bank, pension fund or insurance company does not invest ethically, they will switch to a better alternative. Divesting from fossil fuel producers and polluting companies without a timely and credible transition plan should be a no-brainer for any responsible financial institution.

Of course, less responsible financial institutions might step in and finance polluting companies anyway. Governments and regulators should recognise such continued dirty financing as a significant threat to social, economic and financial stability and make policy accordingly.

Introducing financial guidance policy would be best placed to support on-going industrial policy and enable a rapid decarbonisation. The first instrument of such a policy could be a ban on financing fossil fuel expansion. Forward-thinking financial institutions can help by advocating for such policy. If implemented, this would be a step towards treating climate change like the (literally) burning emergency it presents to our wellbeing and our economies today.

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Seeds and Sparkles: Investing in solutions for the clean economy

Lauren Juliff, Head of Investor Relations and Sustainability, Clean Growth Fund

We are at an inflection point for net-zero investment strategy – recent announcements by large asset owners, both in the UK and abroad, demonstrate a shift in focus from portfolio decarbonisation to investing in solutions. The regulatory emphasis on corporate and portfolio emissions accounting and transparency has led to an increasing industry recognition that emissions reduction trajectories are missing a vital piece of the transition pathway. As we transition away from our traditional fossil powered economy, our new clean economy requires solutions – alternatives for power, industry, transport, food, agriculture, waste and the whole value chain of petrochemical products. The transition requires productive capital flowing into innovation, growing new companies, industries and good-quality jobs.

Decarbonisation trajectories and individual company science-based targets (SBTi) still matter – they show us where value chain decarbonisation pinch points exist and where start-up technologies are needed. So, although net-zero terminology may no longer be en vogue and investors are reconsidering their emissions intensity reduction targets, the actions behind the statements are encouraging. Asset owners are now shifting their attention to how they can grow exposure to the clean economy through private markets allocations, to benefit from the clean industrial revolution and simultaneously engage in real, local, place-based impact.

The UK government has indicated that it strongly supports the growth of the clean economy and its associated co-benefits. The net zero economy is growing more than three times faster than the overall UK economy, further supporting our investment thesis at the Clean Growth Fund. The latest CBI report shows that the clean economy is bringing growth and higher productivity to all regions across the UK, generating £1.85 in economic value for every £1 invested and creating jobs with 11% higher wages than the UK average. The targets set under the UK’s climate commitments forecast a continued investment of £26 billion p.a. demonstrating that a huge investment opportunity exists to continue expanding the UK’s net zero growth engine.

The UK is a breeding ground for technological innovation, home to some of the world’s best universities and innovators. It is also Europe’s largest venture capital market and its leading unicorn engine – yet it overwhelmingly benefits overseas investors, who provide the lion’s share of early-stage capital.

The Chancellor’s Mansion House proposals aim to change this by consolidating local government pension schemes (LGPS) into pools and channeling UK capital into homegrown innovation. Our experience demonstrates that the place-based investment logic is best applied at the national level at the early, incubation stage for technological innovation. The R&D innovation location is not necessarily the location of the ongoing place-based impact as companies scale and grow to open facilities further afield.

Investing in a UK wide, diversified fund with a range of innovations helps to de-risk novel VC allocations for UK pension schemes, while also offering place-based opportunities and the potential for follow-on regionally specific co-investments. Climate solutions investments can offer opportunities for investors to engage in system level thinking; contribute to place based impact; and take part in the clean industrial revolution. There are also strong links between climate investment, social impact and nature-based outcomes.

Consolidating pension capital into super-funds theoretically broadens access to diversifying and productive investment opportunities such as VC. Writing smaller cheques into a diversified set of underlying funds can resolve the cheque-size mismatch that consolidation risks creating, allowing pools to channel capital into regional growth and net-zero innovation. Without this, UK pension capital will arrive only at Series C and later – by which point promising start-ups will have been swept up by US or European funds. The UK ranks fourth globally for unicorns, behind only the US, China and India. If UK pension capital is to benefit from those unicorns, it needs to be prepared to invest in the sparkles (apparently the term for a baby unicorn) -and accept the occasional dud.

The recent fossil fuel crisis further underscores the case for the clean transition – in terms of cost to the economy, energy and food security, and sovereignty. The net cost of achieving the government’s 2050 net-zero target is “cheaper than a single major fossil fuel price shock.”

Net zero is an economic imperative with multi-faceted co-benefits for society. Where asset owners can make the greatest difference is by directing capital into the companies of the future, stimulating growth in UK clean-tech innovation – a more powerful lever than corporate or policy engagement alone.

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Investors need to get over their aversion to real economy climate policy engagement

Richard Roberts, Head of Research, Volans

Most investors I speak to recognise the crucial role of public policy as a driver of the transition to a net zero, climate resilient future. They know that policy is vital to make the transition investable – and to ensure both mitigation and adaptation happen fast enough to avoid the worst-case scenarios of severe climate instability leading to widespread capital destruction.

A decade ago, when the ink was still wet on the Paris Agreement, it was plausible to believe that a gradual ratcheting up of the ambition and robustness of climate policy was more or less locked in. Even Donald Trump winning the Presidency for the first time did little to puncture this belief. In the middle of his first term, PRI commissioned a new initiative called the Inevitable Policy Response, designed to help investors prepare for the policy-driven transition that was surely to come. Many believed that the (first) Trump Administration was just a blip.

This framing of climate policy action as inevitable was widespread in the investment community in the run-up to the Glasgow COP in 2021. Many of the institutions that made net zero commitments at that time did so on the basis that they expected policymakers to do what was needed to make the transition investable.

In 2026, this story about the inevitability of governments acting rationally on climate is no longer plausible. The first post-Paris decade has seen both massive divergence between countries in terms of their approach to climate policy, and extreme oscillations from one administration to the next within countries. These oscillations undermine investor confidence. Policy instability has an adverse impact on the risk profile of investments in climate solutions, while at the same time increasing the likelihood that systemic, non-diversifiable physical risks will hit portfolios hard.

Investors therefore have a necessary and legitimate role to play in advocating for government policies that accelerate decarbonisation and boost resilience. But, to date, notwithstanding the advocacy that organisations like UKSIF do, the investor community has been pretty timid on climate policy.

At Volans, we’ve spent the last 18 months researching how investors globally engage on climate policy. Our headline conclusion is that, ‘while the number of institutional investors that engage to some extent is growing, in most cases, climate policy engagement remains a poorly resourced add-on, rather than a core strategic function.’ What’s more, when investors do engage on climate policy, this is ‘mostly limited to support for climate-related disclosure regimes and aspects of financial regulation that directly affect investors.’

This needs to change and there are signs that it is starting to. In talking to leading practitioners across the asset owner and asset manager community, we found that there is a growing recognition not only that policy matters, but that the policies that matter most are what we term “real economy policies”. That means things like sectoral transition plans, mandates and subsidies that promote uptake of clean technologies, public investment in grid infrastructure and climate adaptation, energy efficiency standards, carbon pricing schemes and more.

Right now, investor engagement on real economy policies is very lightly resourced. Many investors feel uncomfortable engaging on real economy policy, citing concerns about lack of expertise or legitimacy. But the consistent message we got from those actually doing climate policy work on behalf of their institutions was that a re-ordering of priorities is overdue.

We polled groups of practitioners across different regions (Europe, Asia-Pacific, North America) to understand how much time, money and effort they currently put into engaging on different aspects of climate policy. Then we asked them what an optimal distribution of their resources would be. The chart below shows the aggregated results of these polls.

My hope is that highlighting this discrepancy between what investor engagement on climate policy looks like today and what the individuals actually doing it think it should look like will embolden those pushing for a greater focus on real economy policy. Because that, ultimately, is where the fight for a secure and sustainable future will be won or lost.

This article draws on Volans’ latest report, Time To Get Real: Current and future best practice for investor engagement on climate policy

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Will the finance sector rise to the deforestation challenge?

Pei Chi Wong, Strategic Finance Engagement Lead at Global Canopy

Deforestation poses well-documented financial and systemic risks. Forests are cleared to make room for agricultural commodities, with destabilising consequences for climate, water cycles, soil health and more. The production of just nine commodities – beef, cocoa, coffee, leather, palm oil, pulp and paper, rubber, soy and timber – was linked to 68% of global deforestation between 2013 and 2023. The EU, recognising their significance, has passed a Deforestation Regulation (EUDR) requiring companies to scrutinise imports of these commodities. But deforestation risk is not yet widely recognised and addressed by global finance.

Every year Global Canopy’s Forest 500 project assesses and ranks the 150 financial institutions with the greatest influence on global deforestation through their financing of the production, processing and sourcing of these nine forest risk commodities. The latest data reveals that, while a few financial institutions act on deforestation risk, the majority have failed to set a deforestation policy. Yet it is easier than ever for financial institutions to act on deforestation: there are a multitude of open access tools like Forest IQ that allow banks and asset managers to screen loan and investment portfolios for deforestation exposure, financial materiality and performance. Guidance on setting and implementing policies is readily available.

There are some examples of good practice. A large global asset manager based in the UK saw its Forest 500 score increase to 71% in 2025 from 56% in 2024. This reflects improved reporting, including on the outcomes of risk assessments made when onboarding clients, the number of clients and holdings covered by a deforestation policy, and the number of clients and holdings compliant with its deforestation policies. The transparent reporting of these risk assessments and outcomes makes expectations clear, increases accountability and encourages sector-wide action.

The asset manager also gained points for reporting the number of clients and holdings it had engaged on deforestation. Engagement allows financial institutions to use their leverage with companies to drive change and manage risk. As with screening and monitoring, there are advanced data and metrics to support financial institutions in this, as well as collaborative initiatives such as PRI’s Spring initiative and the Deforestation Investors Group. In September, leading data platform Forest IQ will launch DEFT Pathway, a product designed to facilitate engagement by highlighting priority actions for the 500 companies most exposed to deforestation.

Another bright spot in the Forest 500 assessment was the move by a UK-based investment manager to extend its deforestation policies to cover cocoa, coffee and rubber. With this move the investment manager now has policies for all nine high risk forest commodities that are in scope for the incoming EUDR. Full scores are available here.

These examples of progress are notable – they make it clear that action is feasible. But a broader look at the 150 assessed financial institutions is not encouraging. A majority – 59% of institutions – lack a deforestation policy for any of the high risk forest commodities. Included in this group are three of the world’s largest assets managers: BlackRock, State Street and Vanguard. In 2025, four institutions dropped a commodity deforestation policy.

Only 10 (7%) of the 150 financial institutions have set deforestation policies for all nine high-risk commodities. The slow pace of progress, concentrated in a small group of leaders, underscores the limits of voluntary action. The impetus to act decisively is missing for most of the sector. Policy and regulatory leadership is needed to drive change across the finance sector by creating a level playing field.

Beyond the EU, the UK is also regulating on deforestation, which could have direct implications for the finance sector. Now that the government has indicated that it will lay secondary legislation to implement the forest risk commodities regime under the Environment Act 2021, the Treasury will be required to assess the extent to which regulation of the UK financial system is adequate for the purpose of eliminating the financing of the use of prohibited commodities that drive deforestation.

At this moment of global uncertainty, politicians and the private sector may be tempted to neglect nature and deforestation, but this is short-sighted. Nature is a fundamental economic engine and healthy ecosystems are vital to economic resilience. We will all suffer when the impacts of deforestation and nature loss become more severe and frequent, as extreme weather and crop failures threaten food security. Now is the time for action.

Find out more about DEFT Pathway

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Electrification: investing in the backbone of the energy transition

Harriet Topham, Product / Sustainability Specialist, Montanaro Asset Management

Renewable energy and electric vehicles dominate the conversation around the energy transition. Yet both ultimately depend on a quieter, more structural shift: the growing electrification of the global economy. In our view, one of the most important and often overlooked questions is no longer whether enough clean power can be generated, but whether electricity networks can expand quickly and reliably enough to transmit and distribute that power where and when it is needed.

Electricity currently accounts for only around 22% of global final energy consumption. The vast majority of the world’s energy is still supplied by fossil fuels such as coal, oil and gas. As transport, buildings and industry move away from those fuels, much of that demand could ultimately be electrified, highlighting the scale of the long-term investment opportunity across electricity infrastructure.

The direction of travel is clear. As economies build-out data centres, adopt electric vehicles, and electrify heating and cooling of buildings and industrial processes, McKinsey estimates that electricity demand could more than double by 2050.

Chart: IEA

Beyond decarbonisation, electrification also strengthens energy security, reducing dependence on imported fossil fuels and giving countries greater control over supply and pricing, a priority that has sharpened following recent disruption to global energy markets. Rising demand, energy security and long-term decarbonisation targets together point to a substantial and sustained investment cycle across electricity infrastructure.

The grid: a critical bottleneck

Renewable generation capacity has expanded rapidly in recent years, but electricity networks have struggled to keep pace. The constraint is not the ability to generate clean power, but the ability to transmit and distribute it reliably across ageing grids. Much of today’s infrastructure was originally designed for centralised, fossil-fuelled systems rather than decentralised, renewable-heavy networks, with rising demand from electric vehicles, heat pumps, industrial electrification and AI-driven data centres.

The result is mounting bottlenecks across electricity systems globally. BloombergNEF estimates that around 1,000GW of solar projects and 500GW of wind projects across Europe and the US are currently waiting for grid connection. Together, that queue exceeds the capacity of the entire US power system. Without significant network expansion and modernisation, large parts of the energy transition may simply struggle to scale at the pace that policymakers, businesses and consumers increasingly require.

Chart: BloombergNEF

The investment required to fix this is enormous. According to International Energy Agency analysis, approximately 80 million kilometres of electricity grids may need to be added or modernised by 2040 to meet national energy and climate targets, equivalent to rebuilding the world’s entire existing grid network. Much of what already exists is old: in the US, for example, BloombergNEF estimates that around 70% of transmission lines are more than 25 years old. As systems become more reliant on intermittent renewable sources, grids will need to become not only larger, but also more flexible, resilient and interconnected. That, in turn, supports sustained demand for a broad range of enabling equipment.

The impact of data centres and AI

The rapid growth of AI and cloud computing is emerging as a structural driver of electricity demand in its own right, tying the expansion of digital infrastructure ever more tightly to the availability of physical electricity infrastructure. According to Ember, data centres already accounted for between 33% and 42% of electricity consumption in Amsterdam, London and Frankfurt in 2023, while Dublin approached almost 80%. European data centre electricity consumption is projected to rise by more than 150% between 2024 and 2035.

The same pressure is visible in the US, where demand is concentrated in hubs such as Northern Virginia, already the world’s largest data centre market, and where utilities are warning of mounting strain on local networks. In some established markets, waiting times for grid connections have already stretched to between seven and ten years. Large-scale projects are facing delays linked not only to grid bottlenecks, but also to hurdles over permits, labour shortages and limited availability of critical electrical equipment such as transformers and turbines. In some regions, projects requiring power loads comparable to a nuclear reactor are competing for already constrained grid capacity, as highlighted in Financial Times reporting.

This reinforces an important point: the ability to deploy AI at scale now depends not only on software and semiconductors, but on the physical capacity to generate, transmit and distribute electricity reliably. Electrification and grid modernisation are becoming critical enablers not just of the energy transition, but of the broader digital economy itself.

A long-term SmallCap opportunity

This is where we believe the most attractive opportunities lie, and where they are most often overlooked. Public discussion tends to focus on the visible names: renewable developers, electric vehicle manufacturers and AI platforms. Rather than trying to predict which of them ultimately wins, we invest in the specialist SmallCap businesses supplying the critical components, equipment and infrastructure across the wider electrification ecosystem. Many of these companies are sitting further up the value chain and benefiting from the broader trend irrespective of which end-market technology prevails.

Chart: Montanaro Asset Management

Electrification is likely to remain one of the defining industrial and infrastructure themes of the coming decades. Rising demand from AI and digital infrastructure, growing energy security priorities and the broader shift away from fossil fuels across transport, buildings and industry all point in the same direction: a long, sustained wave of investment in electricity networks. The market may still be underestimating both the scale and the duration of what is required to modernise electricity systems globally. We believe specialist quoted small companies, sitting at the heart of the electrification value chain, should be among the beneficiaries.

The views expressed in this article are those of the author at the date of publication and not necessarily those of Montanaro Asset Management Ltd. The information contained in this document is intended for the use of professional and institutional investors only. It is for background purposes only, is not to be relied upon by any recipient, and is subject to material updating, revision and amendment and no representation or warranty, express or implied, is made, and no liability whatsoever is accepted in relation thereto. This memorandum does not constitute investment advice, offer, invitation, solicitation, or recommendation to issue, acquire, sell or arrange any transaction in any securities. References to the outlook for markets are intended simply to help investors with their thinking about markets and the multiple possible outcomes. Investors should always consult their advisers before investing. The information and opinions contained in this article are subject to change without notice.

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Deforestation – What companies don’t tell you is hiding in plain sight

Henry Morgan, Co-founder, Frontierra

The data to meaningfully assess deforestation risk in your portfolio already exists. The question is whether you’re using it.

There is a quiet assumption embedded in how most institutional investors approach nature-related risk. It goes something like this: assess what companies disclose, screen their policies, consult sector-level data tools, and if a company scores well enough, proceed. The assumption is that disclosure is a reasonable proxy for reality.

It isn’t.

This is not a critique of sustainability data providers, many of whom do excellent work contextualising sector-level exposure. It is a structural observation about the limits of any framework anchored in what companies choose to report. And as the regulatory environment around nature risk accelerates through TNFD, the EU Deforestation Regulation, and growing shareholder pressure, that structural gap is becoming a material one.

The question fiduciary duty is increasingly demanding is not “does this company have a deforestation policy?” It is: is this specific company, at these specific locations, linked to actual deforestation on the ground, right now? Those are very different questions, and only one can be answered by reading a sustainability report.

The capability already exists
What is often underappreciated is that the tools to answer the second question are already here, and the underlying data is largely open-source.

Satellite-based Earth Observation now offers continuous, independently verifiable coverage of forest loss and land use change across the globe. Annual forest cover data can be interrogated at the site level, layered with land use classifications, filtered for non-deforestation signals, and cross-referenced with protected area boundaries, peatland maps, and Indigenous territory datasets. This is not experimental technology. It is operational.

The limiting factor has never really been the satellite data. It has been the ability to translate that data into decision-relevant formats that portfolio managers actually need: standardised, comparable, and actionable at portfolio level.

A recent project conducted by geospatial data and analytics firm Frontierra, in partnership with Norwegian asset manager Storebrand, illustrates what becomes visible when this approach is applied systematically. Working from nothing more than a list of company names, a geospatial database was compiled detailing over 3,500 operational sites and sourcing locations across 35 countries, spanning paper and pulp, mining, and palm oil. Government concession databases, RSPO mill lists, technical reports, annual report disclosures: the data existed. It required systematic effort to compile and verify, but it was there.

The satellite analysis that followed revealed material deforestation exposure that policy-level screening had not surfaced. Across the paper and pulp companies assessed, the majority received a Critical rating — with total forest loss running into the hundreds of thousands of hectares. Mining sites revealed high rates of natural vegetation conversion that a tree cover loss metric alone would have missed. Palm oil supply chains showed active, ongoing deforestation as recently as 2025, at roughly half of all sourcing locations assessed.

None of this required company cooperation. It required methodology.

Non-disclosure is not a neutral finding
One of the more significant outputs of this kind of analysis is what it reveals about the companies where location data cannot be found. Of 22 companies assessed, location data could be sourced for 14. For the remaining eight, including consumer goods businesses with significant palm oil exposure, no traceability information was publicly available.

This should not be read as an absence of risk. It should be read as an amplification of it.

When external verification is impossible, deforestation exposure can be neither confirmed nor ruled out. For investors operating under TNFD-aligned frameworks or zero-deforestation commitments, that uncertainty is not a neutral gap in the data. It is itself a risk signal, and arguably a more serious one than disclosed exposure, which can at least be measured, monitored, and engaged with.

The implication for investment practice is clear: non-disclosure of traceability information should carry a risk weighting. Institutions should seek to incorporate traceability requirements into stewardship expectations and, where possible, into investment criteria.

The direction of travel
UKSIF’s mission to advance sustainable finance depends on the quality of the information available to the market. Better data enables better engagement. Better engagement drives better outcomes. That chain only works if investors are willing to look beyond the report on the page to the ground beneath the company’s feet.

Location-specific, satellite-verified analysis is not a niche capability reserved for specialists. It is scalable, standardised, and increasingly automated. Geospatial analytics can be extended across portfolios of any size, applied across sectors, and is translatable into the kind of decision-useful output such as clear exposure ratings, visual evidence and engagement triggers, which investment professionals can act on.

The question for institutional investors, investment managers, and portfolio managers is not whether geospatial intelligence will become part of credible nature risk assessment. It is whether their processes are ready for it when it does.

Satellite imagery doesn’t lie. Public reports sometimes do. The gap between the two is where material risk lives.

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Corporate climate polluters liabilities for extreme weather event damages exposed

Dr Quintin Rayer, Head of Research & Ethical Investing, P1 Investment Services

New conceptual research provides an accessible pricing framework linking corporate values of high-emitting companies to the huge damages caused by extreme weather events.

Scientists have long known that emissions of carbon dioxide accumulate in the atmosphere, and together with other greenhouse gases, increase the likelihood of incredibly damaging extreme weather events. These include those leading to wildfires, life-threatening heatwaves, and the most intense hurricanes. Event damages can amount to hundreds of billions of US$ or more, with full damages from consequences being multiples of direct costs.

Our new conceptual research study, applies the emerging tool of emissions-based attribution from climate science and proposes an elegant and tractable framework linking individual company emissions to their extreme weather-related liabilities. Scientific climate attribution causally links emissions to extreme weather damages through three steps.

Firstly, firms’ activities emit greenhouse gases; that secondly, cause anthropogenic global warming; which thirdly, is linked to extreme weather by probabilistic attribution statements. Liabilities can therefore be attributed in a manner mirroring financial options.

The framework we propose is designed to be practical, combining academic rigor with commercial investment insights. A key strength is that it is accessible and straightforward to use by financial analysts, accounting and risk management professionals, policymakers, insurers and actuaries, for assessing climate risk exposures.

Climate scientists have long understood that carbon dioxide released to the atmosphere by extracting and burning underground carbon reserves takes exceedingly long times to return underground; geological timescales, over 10,000 years. Thus, such emissions effectively accumulate in the atmosphere and permanently change climate and weather patterns to increase probabilities of extreme weather events. This permanency of emissions’ atmospheric impacts means that firms’ climate polluting activities generate perpetual climate liabilities.

Beyond carbon dioxide accumulation, continuing emissions point to ongoing increases in extreme weather event frequencies, causing growing perpetual climate liabilities. For many extreme weather events, annual event probabilities increase linearly with increasing temperature, although past research has also suggested faster increases are possible. With global warming temperatures inexorably increasing ever higher from ongoing emissions, damages from extreme weather events should be treated as perpetual and with increasing frequency.

Our study estimates firms’ climate liabilities using a Gordon’s growth variant model. Under the innovative approach we develop, high-emitting firms’ exposures appear considerable, potentially 3% of market capitalisation from single events, implying similar reductions in stock value. We use scientific results to estimate extreme-weather-event liability growth rates. Our examples based on recent extreme weather events indicate liabilities growing at between 1.7% to 3.2% annually.

Comparing long-term discount rates with estimated climate liability growth rates shows the significant difficulties of hoping to outpace climate damages through economic growth which is accompanied by emissions. This insight is key for policymakers and our research includes allowance for societal responses to climate-damaging emissions.

Our novel and accessible approach to assessing climate liability costs can help stakeholders quantitatively estimate the corporate climate liabilities associated with emissions for risk management purposes. Governments can assess high emitting companies’ carbon cost implications when balancing against societal costs during policy design and considering assigning responsibility (and cost) to emitters. Accountants and analysts can explore company value sensitivities to extreme weather phenomena, emissions’ estimates and evolving societal positions on climate responsibility, including litigation. This will allow markets and decision-makers to better respond to corporate emissions’ regulatory or financial consequences.

Increasing transparency on emissions-related damages, may reduce societal acceptance of firms’ externalising emissions, perhaps through litigation, regulation or other measures. Consequently, following damaging extreme weather events, high-emitting firms’ valuations would better adjust to reflect their operations’ climate damages, stimulating transition to cleaner activities.

This research is published in the Journal of Applied Accounting Research:
Rayer QG, Andrikopoulos P (2026), “Extreme weather attribution: re-assessing company values using carbon emissions”. Journal of Applied Accounting Research, Vol. 27 No. 6 pp. 22–46, doi: https://doi.org/10.1108/JAAR-08-2024-0302

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

The UK’s £240bn Decommissioning Challenge Is the Investment Opportunity Hiding in Plain Sight

Julien Halfon, Head of Pension Solutions, BNP Paribas Asset Management

By any measure, the UK is standing on the edge of one of the largest industrial transitions in its history. The country’s legacy energy, manufacturing and nuclear estates are reaching the end of their operational lives. What they leave behind is not just rusting steel and contaminated land, but, according to BNP Paribas Asset Management’s new Policy White Paper (Mobilising UK Pension and Insurance Capital for Closure, Decommissioning, Remediation & Redevelopment), a staggering £240 billion in closure, decommissioning and environmental remediation liabilities.

For decades, these obligations have been treated as an inconvenient footnote: a cost to be pushed into the future, a problem for the next government, the next regulator, the next generation. But the era of deferral is over. Ageing assets, tightening climate policy, and accelerating transition pathways mean these liabilities are no longer distant abstractions. They are crystallising now — and they are growing.

Yet within this challenge lies a generational opportunity. If the UK chooses to see it.

The blind spot investors can no longer ignore
Asset Retirement Obligations (AROs) — the legal duty to dismantle and remediate industrial assets — behave like long dated debt. They accrete over time. They move forward when policy tightens. And when recognised prematurely, they can devastate corporate balance sheets.

Credit rating agencies are beginning to take notice. Fitch’s recent commentary on Canadian Natural Resources, explicitly referencing its CAD 8.6bn ARO liability, is a sign of things to come. The Institute for Energy Economics & Financial Analysis has warned that decommissioning risk remains systematically under priced in European oil and gas credit markets. And UK regulators and accounting standards specialists are increasingly clear: climate related financial risks include transition driven balance sheet impacts — and AROs sit squarely in that definition.

A national liability and a national opportunity
The numbers are sobering. The Nuclear Decommissioning Authority estimates the undiscounted cost of cleaning up the UK’s civil nuclear estate at £216 billion, with Sellafield alone accounting for more than 50%. The North Sea Transition Authority projects £44 billion in remaining offshore oil and gas decommissioning costs. Coal mine remediation, abandoned industrial sites, and contaminated land add billions more.

But these liabilities sit on land that is often strategically located: in freeports, investment zones, and future green industrial clusters. They are not just environmental burdens — they are redevelopment opportunities waiting to be unlocked. The question is: who will finance them?

UK institutional investors are the missing piece
The UK’s pension and insurance sectors collectively manage more than £3.2 trillion in assets. They are long term, inflation sensitive, liability driven investors — precisely the profile that matches the cash flow characteristics of decommissioning and redevelopment.

Decommissioning liabilities unfold over 30, 50, even 100 years. They are inflation linked. They are domestic. They are policy aligned. And they can be structured into stable, revenue backed investment vehicles that fit neatly into the portfolios of DB schemes, DC defaults, and annuity providers.

In other words: this is productive finance in its purest form.

The tools already exist but need to be scaled
The UK does not need to invent new financial engineering. It needs to scale what already works.

• Decommissioning Reserve Funds (DRFs), ring fenced, prefunded vehicles that invest contributions until liabilities fall due, are standard in nuclear and increasingly common in oil and gas.
• Climate Transition Bonds can prefund closure while linking repayment to revenues from repurposed assets — from solar farms to logistics hubs to small modular reactors.
• Redevelopment Trusts can pool public and private capital to transform contaminated land into productive infrastructure, accelerating regional regeneration.

Early pilots in nuclear, North Sea oil and gas, and coal to renewables conversions show that these models work. What’s missing is scale, policy clarity and a coherent pipeline.

A call to action for policymakers
If the UK wants to mobilise billions of pounds of private capital into decommissioning and redevelopment, it must do three things:

Legislate for DRFs across nuclear, oil and gas, and heavy industry — with clear governance, ring fencing, and investment mandates aligned with productive finance reforms.
Create a national framework for Transition Bonds and Redevelopment Trusts, enabling institutional investors to participate in structured, revenue backed vehicles.
Provide targeted co investment guarantees to crowd in private capital and de risk early projects, especially in regions undergoing industrial transition.

These are not subsidies. They are catalysts, mechanisms that unlock private capital for public good outcomes.

The UK could lead the world
The UK has a once in a generation opportunity to turn a £240bn liability into a national investment engine. To transform stranded assets into productive ones. To align pension capital with climate goals, regional regeneration and long term economic resilience.

Decommissioning is not the end of the industrial lifecycle it is the bridge to the next one. And if the UK gets this right it will clean up its past and finance its future.

The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

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Corporate climate polluters liabilities for extreme weather event damages exposed

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The UK’s £240bn Decommissioning Challenge Is the Investment Opportunity Hiding in Plain Sight

Julien Halfon, Head of Pension Solutions, BNP Paribas Asset Management

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