Recommendations & Conclusions
20 items
1
Recommendation
Fourth Report - Pension stewardship and…
COP26, which will take place in Glasgow in November, may well be the largest summit ever hosted in the UK and it provides a major opportunity for the UK to show global leadership. We recommend that the UK Government should use this opportunity to make every endeavour to build an …
Government response. The Government is working to build an international consensus on the role of pension schemes and other parts of the finance sector in achieving the goals of the Paris Agreement. The Government is committed to raising ambition on climate change …
Department for Work and Pensions
2
Recommendation
Fourth Report - Pension stewardship and…
The Minister for Pensions and Financial Inclusion told us that the Government as a whole is responsible for sharing best practice internationally on investment reporting. We recommend that, in order to increase the prominence and accountability of this important task, a single Minister should be responsible for leading this work. …
Government response. The Government does not agree with this recommendation. Global best practice on sustainability investment reporting requires co-operation and leadership from a range of stakeholders across countries. At COP26, the Government announced the UK will be the world’s first Net Zero-aligned …
Department for Work and Pensions
3
Recommendation
Fourth Report - Pension stewardship and…
Global harmonisation of climate-related reporting standards would considerably reduce the burden on pension schemes and the associated costs of meeting different reporting requirements. It would also improve the comparability of different assets across international borders. COP26 provides a significant opportunity for the Government to secure international commitments to work towards …
Government response. Work on consistent international climate reporting standards is underway. The Government has been proactively working with other countries to drive this forward and will continue to use international fora to progress the uptake of climate- related disclosures such as TCFD. …
Department for Work and Pensions
4
Recommendation
Fourth Report - Pension stewardship and…
We welcome the Government’s decision to include provisions in the Pension Schemes Act 2021 to require pension scheme trustees to fully consider and disclose their climate-related financial risks and opportunities in line with recommendations by the Task Force on Climate-Related Financial Disclosures (TCFD). We recommend that, as the first economy …
Government response. Work on consistent international climate reporting standards is underway. The Government has been proactively working with other countries to drive this forward and will continue to use international fora to progress the uptake of climate- related disclosures such as TCFD. …
Department for Work and Pensions
5
Recommendation
Fourth Report - Pension stewardship and…
Trustees will need detailed and regularly updated guidelines provided by the Pensions Regulator to explain how they should consider the effects of climate change on pension scheme members. We recommend that the Pensions Regulator continuously monitor and update these guidelines.
Government response. The Government notes the Committee’s concern that trustees need detailed and regularly updated guidelines to explain how they should consider the effects of climate change on pension scheme members, including guidance on TCFD reporting. The Pensions Regulator expects guidelines on …
Department for Work and Pensions
6
Recommendation
Fourth Report - Pension stewardship and…
A green taxonomy will be vital to the success of measures introduced by the Government to tackle climate change. It will support pension schemes, especially smaller schemes, in assessing the merits of different investments and avoiding the risk of “greenwashing”. We recommend that as far as possible the taxonomy should …
Government response. The Government is committed to developing a Green Taxonomy aligned with international standards as far as possible, whilst also reflecting the UK context. This month, the Government announced that the UK will become the first ‘Net Zero Aligned Financial Centre’21 …
Department for Work and Pensions
7
Recommendation
Fourth Report - Pension stewardship and…
We have not considered wider environmental, social and governance factors in detail during our inquiry. The Department for Work and Pensions’ consultation on social risks and opportunities by occupational pension schemes closed recently and it is important that these factors are considered holistically. We expect to look closely at the …
Government response. The Department for Work and Pensions plans to publish a Government response to the call for evidence in 2022. The Call for Evidence was an information gathering exercise and any changes in policy would be subject to further public consultation.
Department for Work and Pensions
8
Recommendation
Fourth Report - Pension stewardship and…
Making green investments, particularly in infrastructure, can be complex and costly. Larger schemes are usually better placed to meet those costs and to provide the high level of scheme governance required. We welcome the intent of the Department for Work and Pensions and the Pensions Regulator in encouraging scheme consolidation. …
Government response. Annual reporting on the progress made to consolidate schemes is already available. The Pensions Regulator DC trust scheme return data26 and the Purple Book published by the Pension Protection Fund on DB schemes27 provides year on year breakdowns of the …
Department for Work and Pensions
9
Recommendation
Fourth Report - Pension stewardship and…
The idea of “net zero alignment” does not have a single clear definition. Without a standardised definition, there is a risk that different pension schemes will interpret “net zero” in different ways. That will make it more difficult for savers to understand the approach their scheme is taking or to …
Government response. The Government understands the concerns of the Committee; however, there are difficulties associated with defining concepts which are in a state of rapid and ongoing development. Following the publication of the recent consultation ‘Climate and Investment Reporting’,29 the Department for …
Department for Work and Pensions
10
Conclusion
Fourth Report - Pension stewardship and…
Many schemes have already set net zero targets voluntarily. We encourage other schemes to consider whether they should also set net zero targets. While we recognise that any target must not undermine trustees’ fiduciary duties, we believe that in many cases these will be aligned.
Government response. The Government agrees with the Committee’s recommendation. The Department for Work and Pensions welcomes the ambition of a growing number of schemes voluntarily setting net zero targets and will continue to encourage pension schemes to sign up. As acknowledged in …
Department for Work and Pensions
11
Recommendation
Fourth Report - Pension stewardship and…
While larger schemes are setting net zero targets, it is likely that many smaller schemes will not have the resources to do this effectively without support and guidance. Ambiguity about whether net zero targets would put trustees at risk of breaching their fiduciary duty to act in the best interests …
Government response. The Government does not agree with the Committee’s recommendation. Significant progress has been made this year in encouraging pension schemes to sign up to a net zero target, and investor groups such as the Institutional Investors Group on Climate Change …
Department for Work and Pensions
12
Recommendation
Fourth Report - Pension stewardship and…
Defined contribution schemes used for automatic enrolment are required to have a default option into which the member is enrolled, unless they specify an alternative. We recommend that the Government consult on the case for mandating that these default options should align to UK Government climate goals.
Government response. The Government understands the intention of this recommendation, though is concerned that mandatory alignment with climate goals might force immediate divestment from high carbon stocks, regardless of whether or not companies are making meaningful progress towards net zero. In this …
Department for Work and Pensions
13
Conclusion
Fourth Report - Pension stewardship and…
As a large scheme the Local Government Pension Scheme (LGPS) could be well placed to demonstrate and develop best practice in pension scheme governance, including on climate change. The Minister for Pensions and Financial Inclusion told us that, in his view, the Local Government Pension Scheme should be run by …
Government response. The Government’s Net Zero Strategy,35 which was published on 19 October, provides a cross-economy climate roadmap on the UK’s transition to net zero by 2050, including the action government will take to keep the UK on track for meeting its …
Department for Work and Pensions
14
Conclusion
Fourth Report - Pension stewardship and…
There are a limited number of suitable green assets in which pension schemes can invest. That means that there is a risk of a “green asset bubble” in the short term, as the market for these products develops. It is important that the Government continues to support the development of …
Government response. The Government does not agree with the Committee’s recommendation. It would not be practically feasible to publish information on direct investments. It is typical for an occupational pension scheme to have thousands of stocks in just one fund alone and …
Department for Work and Pensions
15
Conclusion
Fourth Report - Pension stewardship and…
Pension schemes may already be exposed to brown asset bubbles. Investments, such as non-renewables, may be overvalued if investors have not yet adequately accounted for the cost of changes resulting from either climate change or policies to mitigate climate change.
Government response. The Government agrees with the Committee’s recommendation. The Department for Work and Pensions is keen to ensure that its policies do not incentivise divestment over good stewardship. The Department has set out specific steps in relation to recent policies below. …
Department for Work and Pensions
16
Recommendation
Fourth Report - Pension stewardship and…
Pension schemes make long-term investment decisions for their members. A clear UK—and, where possible, international—climate change strategy will provide greater certainty for pension schemes to make long-term investments. We recommend that the Government set out a UK climate roadmap—including sector specific pathways for meeting the Paris Agreement goals—to provide greater …
Government response. The Government’s Net Zero Strategy,35 which was published on 19 October, provides a cross-economy climate roadmap on the UK’s transition to net zero by 2050, including the action government will take to keep the UK on track for meeting its …
Department for Work and Pensions
17
Recommendation
Fourth Report - Pension stewardship and…
Direct investment by pension schemes in green infrastructure and other illiquid assets has the potential to benefit savers and the environment. We recommend that the Department for Work and Pensions publishes information about levels of direct investment by pension schemes in its annual report.
Government response. The Government does not agree with the Committee’s recommendation. It would not be practically feasible to publish information on direct investments. It is typical for an occupational pension scheme to have thousands of stocks in just one fund alone and …
Department for Work and Pensions
18
Conclusion
Fourth Report - Pension stewardship and…
The charge caps on default pension saving products used for auto-enrolment are an important part of ensuring good value for savers who have not made an active decision about where their pension should be invested. However, we support the Government’s decision to review whether there are other charging structures which …
Government response. The Government notes the Committee’s concern that charge caps on default pension saving products used for auto-enrolment are an important part of ensuring good value for savers who have not made an active decision about where their pension should be …
Department for Work and Pensions
19
Conclusion
Fourth Report - Pension stewardship and…
The purpose of pension schemes setting net zero targets is not solely that the schemes themselves should be net zero aligned, but that they should make an impact in reducing the real economy’s contribution to climate change. Good stewardship is a method of achieving that change. Last year the Department …
Government response. The Minister for Pensions and Financial Inclusion set up the TPSVI in December 2020, to address problems in the voting of equity shares by pension schemes. The Taskforce focused on two areas to help strengthen pension schemes’ stewardship activities: (1) …
Department for Work and Pensions
20
Recommendation
Fourth Report - Pension stewardship and…
Divestment is the process of selling assets already held by a pension scheme. Divestment remains a fallback strategy for pension schemes with investments in assets which are unable to reduce their contribution to climate change or where a good stewardship approach has failed. Nevertheless, widespread divestment by pension schemes is …
Government response. The Government agrees with the Committee’s recommendation. The Department for Work and Pensions is keen to ensure that its policies do not incentivise divestment over good stewardship. The Department has set out specific steps in relation to recent policies below. …
Department for Work and Pensions