COP26: MPs urge government to lead global push for net zero pension standards
UK should use position as host of UN climate summit to drive global harmonisation of climate-related reporting standards for pensions, according to Work and Pensions Committee
MPs on Parliament’s Work and Pensions Committee (WPC) have urged the government to lead a global push to align pension schemes with climate goals when it hosts world leaders in Glasgow next month for the COP26 UN climate summit.
A report published today by the parliamentary committee sets out a number of recommendations on reporting standards, pension scheme governance and investment and stewardship aimed at driving up climate action across the pensions sector.
The WPC stressed that COP26, set to take place in one months’ time, offered a “significant opportunity” for the government to secure international commitments to work towards the global harmonisation of climate-related financial disclosures.
However, it added a caveat that work towards this goal “must not be a barrier to the UK implementing its own high standards”.
The MPs argued that global standardisation climate-related reporting standards would “considerably reduce the burden and the associated costs to pension schemes of meeting different reporting requirements”. They said it would also improve the comparability of different assets across international borders.
The WPC said it welcomed the intent of the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) to encourage pension scheme consolidation due to the “complex and costly” nature of “making green investments, particularly in infrastructure”.
Additionally, the report warns that some trustees are concerned that acting on environmental, social and governance (ESG) issues and climate change matters may be contrary to their fiduciary duty. The Committee said while it does not believe fiduciary duty should be changed, the TPR should establish a working group to develop guidance for schemes looking to set net zero targets in order to address the uncertainty.
The WPC also suggested the government should set out a UK climate roadmap, including sector specific pathways to meet the Paris Agreement goals. It said the roadmap would provide greater certainty for pension schemes to make long-term investments for their members.
The Committee also said government policy must “prioritise good pension scheme stewardship over divestment”.
It stated divestment should only ever be a last resort where assets are unable to reduce their contribution to climate change. The report noted encouraging behaviour change in companies through good stewardship “is more likely to be an effective approach to help the real economy transition to net zero”.
“The challenges of climate change can be met only by countries coming together,” said WPC chair Stephen Timms MP. “With pension investments unrestrained by borders, international agreement is going to be key if the potential for pension schemes to contribute to cutting carbon emissions is to be realised. “Hosting COP26 provides the UK with a unique opportunity to build an international consensus on reporting standards and stewardship and the government must seize it with both hands.”
He added that while taking a lead on pushing for the global harmonisation of climate-related reporting requirements, the UK “must not let up in implementing high standards of reporting and disclosures domestically”.
“Pension schemes can play a major role in helping the real economy transition to net zero but encouraging companies to become more sustainable through good and effective stewardship should always be the first step before moves to sell off assets that are unable to reduce their contribution to climate change,” he explained. “The government needs to ensure that its policies do not incentivise divestment over good stewardship of schemes.”
The report’s conclusions received a positive response from investors and sustainable finance leaders. UK Sustainable Investment and Finance Association (UKSIF) chief executive James Alexander said the group “strongly welcomed” the “timely” report ahead.
“We are pleased to see many of UKSIF’s recommendations reflected in the final report,” he said. “This crucially includes the necessity of the UK maximising its COP presidency to secure international agreement on greater harmonisation on climate reporting standards for schemes and other investors, and a call to government to ensure its policies incentivise good stewardship, which is a far more effective approach to making change in the real economy than divestment, which should be used as a last resort.”
Royal London director of policy and external affairs Jamie Jenkins similarly welcomed the findings. “We welcome further exploration of harmonising reporting standards if it helps raise the bar on responsible investment,” he said. “As an investor our engagement with companies give us an opportunity to positively influence behaviours and practices, and reduce the negative ESG impacts of the companies in which we invest. Divestment may be a moral consideration but divesting from an unsustainable company does not guarantee their emission removal from the real economy.”
Tony Burdon, chief executive of Make My Money Matter – the campaign group pushing for a climate-friendly pensions industry – urged the government to go even further and call for all pension schemes to explitly align themselves with climate goals at the Glasgow climate summit.
“We are pleased to see that pensions, and the role of wider finance, are on the agenda for our government at COP26 this year, and echo the committee’s calls to build a consensus on the role of schemes in tackling climate change and meet UK emissions reduction targets,” he said. “But with the majority of pension schemes still failing to make robust net-zero commitments, time is running out, and we must act with greater urgency if we are to use our pension power to truly tackle the climate crisis.
“That’s why we’re calling on the government to mandate for all schemes to align to net zero at COP26 this year,” he continued. “That way, we can ensure our pensions take advantage of the green industrial revolution, while protecting savers from the ravages of global warming.”
This article was originally published at Professional Pensions.
