• Workplace pension savers will be given more information about the environmental impact of their investments after the DWP rubber-stamped the plans (New measures to propel 'superpower' of pensions in UK’s net zero journey - GOV.UK (www.gov.uk))
• Pension schemes will be required to show members the extent to which their investments are aligned with the Paris Agreement goal of limiting the global average temperature increase to 1.5˚C above pre-industrial levels
• Proposals will shed light on the environmental impact of billions (or potentially trillions) of pounds of pension investments
• New rules come amid growing demand from savers for environmentally-friendly funds
Tom Selby, head of retirement policy at AJ Bell, comments:
“Environmental, social and governance (ESG) investing is now bang in the mainstream, with well-known figures including national treasures David Attenborough and Love Actually director Richard Curtis urging pension schemes to do more in the battle against climate change.
“Pensions are an obvious target for environmental campaigners because of their sheer scale. Total private pension wealth in the UK is estimated to be north of £6 trillion, while automatic enrolment is bringing millions of new savers into the system.
“Many of these new savers, particularly younger generations, would rather their money be invested in a way which doesn’t damage the planet. If pension investments can be marshalled effectively, it could fundamentally shift the way companies seeking that valuable investment behave.
“To that end, the DWP has rubber-stamped proposals which will require big occupational pension schemes to show members the extent to which their investments are aligned with the Paris goals of limiting global temperature rises to 1.5˚C above pre-industrial levels.”
Will sunlight be the best disinfectant?
“The hope here is that sunlight will be the best disinfectant, with greater transparency forcing firms to adjust their behaviours and processes in order to meet the demands of pension investors.
“One of the key challenges will be ensuring the plans don’t result in a blanket anti-emissions approach being taken by pension schemes. Encouraging businesses operating in high emissions sectors who are making genuine efforts to reduce those emissions, for example, could be just as valuable as boosting firms that are already ‘green’.
“In reality, these new rules will simply codify something that is already happening in response to growing demand from investors.
“Over the longer-term we expect savers to take a much keener interest in how and where their retirement pots are invested, so there is every chance firms will need to go above and beyond these requirements to satisfy members.”
