The UK’s department for work and pensions has announced it will require pension schemes of £1bn assets or more to measure and report how their investments are aligned with the Paris Agreement.
Following a consultation with the industry, the government has published its response and proposals for greening the UK’s pensions, addressing concerns such as lack of data, cohesive metrics, scope and timing, disclosure, costs and impact.
Just four out of 60 respondents offered comments on the impact of the government’s proposals on protected groups.
The government’s proposals allow schemes to select a portfolio alignment metric and use that in their TCFD report ‘as far as they are able’. Following industry feedback, the government will not include a voting template, as many found the PLSA’s useful, although the government said it would encourage this to be further developed.
Further changes to the initial proposal following feedback include a clarification of the definition of ‘significant vote’ to be “one that is linked to one or more of the scheme’s stewardship priorities/themes” and a simplification of how these must be reported.
Secretary of state for work and pensions Thérèse Coffey (pictured) said: “We are making sure our pensions can be a superpower delivering prosperity for people – and the planet – by making changes to the rules about how they are managed.”
Some respondents queried why trustees are encouraged to have a mechanism by which members may express views about the consideration of non-financial matters in the selection, retention, and realisation of investments, including about stewardship.
Eversheds Sutherland suggested that while trustees should clearly consider any views directly expressed by members, where they have a fiduciary responsibility for fund selection it is not clear why trustees should take member views on non-financial factors into account.
The Association of Pension Lawyers said taking non-financial factors into account “can be read as suggesting that although trustees are not required to take account of non-financial factors they are nevertheless encouraged to do so. This is, in our view, a dangerous misstatement of the legal position.”
The government clarified trustees are not required to take account of non-financial matters, they must just make arrangements to encourage their members to make their views heard.
Tom Selby, head of retirement policy at AJ Bell, said: “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.”
In May this year, M&S, Royal Mail and Co-op committed to halving the emissions of their pensions investments by 2030 at the latest in line with the Paris Climate Agreement, making more than £30bn of UK pension money at the time dedicated towards ‘tackling’ the climate crisis.