Pension Funds can be the spring board to real change to a Net Zero Economy
Britain is already leading the way to net zero greenhouse gas emissions.
The choice of how we proceed as a society does not need to be between profits or the planet.
Britain is already leading the way to net zero greenhouse gas emissions. It is right that we acknowledge the existential risks from climate change, but also grasp that this has the potential to be turned into the greatest commercial opportunity of our time.
Pension funds can be at the forefront of seizing these sustainable opportunities. The best way for our British-based pension funds to exploit that opportunity is through financing the green tech and energy revolution that we need.
As a department, we are committed to doing all we can to support these funds and to providing savers with the information they need to make informed choices, as they prepare for financial security in later life.
The Department for Work and Pensions has already taken significant steps to make progress towards the government’s net zero targets, including our 2019 Environmental, Social and Governance (ESG) regulations that require occupational pension schemes to take account of climate change in their investment practices.
Coupled with our commitment to effective climate action, we want to ensure that the record number of people saving for retirement are provided with the necessary information to make informed choices about their financial futures.
On that basis, we welcomed the launch last week of the Make My Money Matter campaign by film director Richard Curtis. The campaign’s call to engage savers with their pensions savings and encourage sustainable investments chimes very much with the department’s priorities.
We have recently passed legislation that requires occupational pension schemes with 100 or more members to explain how they take account of climate change in their investment strategies. By October 2020, all schemes will be required to report publicly how they do so, as transparency is key to informed decisions and informed change.
In addition, the Pension Schemes Bill, currently making its way through Parliament, includes provisions to allow the government to mandate schemes to adopt and report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). This was set up and supported by many key figures and organisations, including the G20 Financial Stability Board and the UK Government’s Climate Change Advisor, Mark Carney, the former Governor of the Bank of England.
These recommendations ask trustees to take into account climate change within their governance as a financially material risk to their members’ investments. And they suggest trustees should disclose how they have done so to their members and the public. Again with this transparency comes accountability, change and empowerment.
Further amendments to the Bill, tabled by the government, take things a step further by allowing schemes to be required to take into account the Government’s net zero targets, as well as the Paris Agreement goals of limiting the rise of average global temperatures.
The government’s progress on one of the most important global issues has been widely welcomed by industry and civil society groups but some believe trustees should automatically divest from certain high-carbon stocks. I strongly believe this is the wrong approach, and I welcome the clarification from Make My Money Matter that they are not a divestment campaign.
Government believes a partnership with business is the way to achieve the innovative change required to get us to net zero. Holding such assets places trustees in an influential position to nudge, cajole or vote firms towards lower-carbon business practices. The tactic of simply selling them to others without the same environmental concerns is counterproductive.
Similarly, I do not believe, as some have argued, that government should force pension schemes to align immediately to the well below 2°C Paris Agreement goal. Forcing schemes to divest from firms that are still working towards Paris alignment would prevent their constructive engagement with the firms in which they invest.
Collaboration is the best approach. The UK can and will lead the way both in terms of achieving net zero, but also in the provision of green tech and the financial know-how to get us there.
Business is going to need long-term finance, a view to a sustainable future and the City of London’s expertise to get us there. Net zero is the long-term challenge facing our country.
By engaging savers with their pensions and encouraging sustainable investments, as the Make My Money Matter campaign says, we can do this.
This article was previously published in The Telegraph, on 7 July 2020.