• Pension schemes will be required to publish a metric showing how ‘green’ their investments are under plans unveiled by the Department for Work and Pensions (DWP) today (Climate and investment reporting: setting expectations and empowering savers – consultation on policy, regulations and guidance (publishing.service.gov.uk))
• The metric will show the extent to which investments are aligned with the Paris Agreement goal of limiting global temperature rises to 1.5oC above pre-industrial levels
• DWP says new requirement will mean the climate risk of over £1.3 trillion of investments will eventually be visible to pension savers
• Policymakers hopes metric will drive more sustainable investments and pressure energy intensive firms to ‘decarbonise’
Tom Selby, head of retirement policy at AJ Bell, comments: “The fight against global warming now has a firm footing in the pensions of millions of Brits, with the Pension Schemes Act 2021 placing a new emphasis on schemes to consider the climate change impact of the investments made on the behalf of members.
“Today’s proposals take this a step further by proposing the UK’s largest pension schemes publish a metric which shows how aligned people’s retirement pots are to achieving the Paris Agreement goal of limiting global temperature rises to 1.5oC above pre-industrial levels.
“The Government hopes that by shining a light on the environmental impact of pension investments, over £1.3 trillion of assets will be marshalled towards companies and funds that are either sustainable or have set out concrete plans to ‘decarbonise’.
“Given the significant investment heft of retirement funds it makes perfect sense for policymakers to use pensions legislation to try to force through change.
“However, this will not be easy – devising reliable metrics on the environmental impact of stocks and funds is not an exact science, while trustees of pension schemes will continue to prioritise maximising long-term investment returns for members. Many would argue these aims can – and indeed should - go hand-in-hand.
“What’s more, just because climate reporting metrics are mandated, it doesn’t necessarily guarantee either a shift in investment focus or the broader member engagement needed to really push through meaningful behavioural change.
“Ultimately achieving the Paris goal requires a seismic shift in the way we as a society act, with improved disclosure representing just one piece of the puzzle.”
