Paris-alignment for UK Pension Schemes Defeated

Pensions minister rejects Labour Party amendment as unnecessary “blunt measure”.

An opposition amendment requiring occupational pension schemes to align their investment strategies with the goals of the Paris Climate Agreement was defeated yesterday as the UK Government’s Pension Schemes Bill completed its report stage and third reading.

The amendment was defeated by 100 votes after a House of Commons debate in which Pensions Minister Guy Opperman said the measure was unnecessary due to the bill’s existing provisions on mandatory climate risk governance and reporting.

“The reality is that the government already requires trustees to set targets in relation to the management of climate risk,” he said, calling for the bill’s rules to be allowed to take effect before introducing stricter requirements.

Opperman also rejected the call for mandatory requirements on grounds that several pension schemes had already gone beyond their legal obligations in terms of aligning their investment strategies with net-zero targets. “Fiduciaries do not need this blunt measure in order to act,” he said.

In October, BT Pension Scheme announced plans to reinvest its entire £55 billion portfolio to achieve net zero carbon emissions by 2035.

Jonathan Reynolds, Shadow Secretary of State for Work and Pensions, denied the amendment would lead to forced divestments or would compromise trustee independence, saying it would “just ensure trustees have a strategic plan to be Paris-aligned over a period of time”.

The rejected amendment called for trustees to “develop, set and implement, and from time to time review and if necessary revise, a strategy for ensuring that their investment policy, objectives and practices (including stewardship activities) are aligned with the Paris Agreement goal or other climate change goal”.

It also required annual reporting on the implementation of the Paris-alignment strategy and progress against the objective of net-zero greenhouse gas emissions “by 2050 or sooner, consistent with the Paris Agreement goal or other climate change goal”.

During the debate, members of parliament (MPs) for the ruling Conservative Party objected to the amendment on grounds that it was unnecessary, ineffectual or even counter-productive.

Mandatory climate-risk targets

Mandatory targets would undermine the duty of pension trustees to invest in high-quality assets, while having no impact on emissions levels, said Robbie Moore, MP for Keighley. “It would force pension schemes to sell to others with no regard for environmental concerns,” he asserted.

Gareth Davies, MP for Grantham and Stamford, there were currently insufficient volume of assets meeting ESG criteria, especially in the emerging markets, private equity and small- and medium-sized enterprise market, to enable trustees to implement a Paris-aligned strategy. “At this point in time, the market is not sufficiently mature,” he said.

But Anna McMorrin, Labour MP for Cardiff North, said stronger provisions in the Pension Schemes Bill would force climate change further up the agenda at board level and avoid the future risk of stranded assets.

“We stand at the crossroads between complacency and inaction, which locks us into a future of climate chaos, or bold action, which combines expertise and resource to minimise climate risk and help build resilience and jobs for the future,” she said. “We need climate action to be embedded across all sectors, particularly finance.”

In written evidence, the Pensions and Lifetime Savings Association supported the bill’s intent “to make it clearer how trustees should consider climate change and the goals of the Paris agreement”, but warned that any guidance “should not cut across schemes’ fiduciary duty and freedom to invest in members’ best interests”.

The bill will now pass to the House of Lords before receiving Royal Assent and becoming law before the end of the year.

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