Large pension schemes will be compelled to report on their climate change strategies under an amendment to the Pension Schemes Bill published today.
The PLSA has attacked the amendment as a dangerous assault on trustees’ fiduciary duty, which will initiate a DWP consultation, as giving ‘unprecedented powers’ to government bodies to interfere in investment policy it said.
The move would give the government to require schemes to go further than the existing obligation on DC master trust schemes to set out their climate change policy in their statement of investment principles, potentially requiring them to conduct broader climate-related scenario modelling and demonstrate their ownership of climate issues throughout their organisation.
It would significantly increase the ESG requirements on large single-employer trusts, although the DWP is yet to confirm the size threshold at which the rules will apply.
Work and Pensions Secretary Therese Coffey says: “Pension schemes shouldn’t be dragging their heels when it comes to their climate change strategy.
“We’ve already introduced regulations that require pension trustees to set out their policy on climate change, but now we’re taking things a step further.
“I want the UK to continue leading the way on the climate emergency defining the twenty-first century.”
PLSA Head of DB, LGPS and standards Joe Dabrowski says: “We fully support initiatives that help pension schemes with assessing climate change risks. Achieving common forms of disclosure throughout the pensions and investment industry has the potential to make a significant difference to reporting and informing decision making.
“However, parts of these new amendments appear to go significantly beyond current requirement for schemes to disclose what they are doing on scheme investment around climate change and would give unprecedented new powers to Government bodies to interfere and request changes to private sector schemes’ investment strategies. If that’s the case it would set a dangerous precedent and be wholly inappropriate. Nothing should cut across schemes’ fiduciary duty and freedom to invest in members’ best interests – and this will vary scheme by scheme. We urge the government to redraft the amendments and clarify its intent and respect for this principle.”
ShareAction head of UK policy Fergus Moffatt says: “Financial institutions must take responsibility for their impact on the planet and the money they manage on our behalf, so we’re delighted that the UK government is taking steps to implement TCFD on a mandatory basis. ShareAction has been working closely with DWP on guidance for pension schemes, and we’re very hopeful these world-first reforms will accelerate climate action. Warm words will no longer be enough – the level of disclosure required under these laws will make it plain to see which pension schemes are really walking the talk on tackling the climate crisis and the risks it poses to our savings. As the UK hosts COP26 this year, all eyes will be on the current government to ensure this ambition reaches all areas of finance.”
Vassos Vassou, a professional pension trustee at Dalriada Trustees says: “Making climate change reporting for pension funds compulsory helps trustees to meet their duties to savers. It will help to ensure savers’ assets are invested in the way they want them to be and give trustees a better metric to deliver against. At the moment, trustees want to do the right thing but find the investment industry is opaque when it comes to climate change. This change should help improve the transparency of the impact investment decisions have on our climate.
“Another layer to this is for the asset management industry itself. If the money starts moving in a direction that is more protective of our climate then it will put more pressure on managers to develop products that meet this new demand thus changing long-term investment trends.”
Pinsent Masons head of pensions and long term savings Carolyn Saunders says: “These amendments are a potential game changer for trustees. The resulting obligations on trustees could extend far beyond the disclosure that is the main focus of the current statutory regime to require trustees to place climate change risk and opportunity at the heart of their investment strategies. And the need to publish information relating to the effects of climate change on a scheme will increase reputational risk for trustees and scheme sponsors.”
UKSIF head of public policy Ben Nelmes says: “This amendment should strengthen the government’s ability to nudge schemes towards implementing the work of the Task Force on Climate-related Financial Disclosures. This gives the government more granular powers to place requirements on schemes to set out what their strategy on climate change actually is.
“Under the current rules schemes can say ‘yes, we looked at climate change and we think it is not a problem’.
“This amendment would give the power to require schemes to do things like scenario analysis, modelling what different increases in climate would mean for their investments, effectively requiring schemes to spell out in greater detail their thinking on climate change.”