Recommendations & Conclusions
20 items
1
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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 …
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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 international consensus on the role of pension schemes and other parts of the finance sector in achieving the goals of the Paris Agreement.
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Government response AI summary
The government states it is already working to build international consensus and highlights existing actions, including new regulations mandating climate-related disclosures for occupational pension schemes, a launched consultation on Paris Agreement alignment metrics, and the proposed Sustainability Disclosure Requirements regime.
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Department for Work and Pensions
2
Recommendation
Fourth Report - Pension stewardship and…
Rejected
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. …
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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. (Paragraph 8) Reporting standards
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Government response AI summary
The government rejects the recommendation for a single Minister to lead this work, stating that global best practice requires co-operation and leadership from a range of stakeholders. It highlights existing multi-departmental efforts, including a high-level Transition Plan Taskforce and the proposed SDR regime.
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Department for Work and Pensions
3
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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 …
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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 the global harmonisation of climate-related disclosures. However, work towards global harmonisation of climate-related reporting standards must not be a barrier to the UK implementing its own high standards at pace. We recommend that the Government aims to secure international commitments to work towards the global harmonisation of climate-related reporting standards at COP26.
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Government response AI summary
The government states that work on consistent international climate reporting standards is underway, highlighting its proactive efforts with other countries and its support for the establishment of the ISSB, which it committed to launching at COP26.
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Department for Work and Pensions
4
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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 …
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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 to mandate TCFD reporting for its pension sector, the UK should play an active role in encouraging and facilitating other economies to do the same. The Government should write to the Committee setting out its plans to engage internationally on this matter after COP26.
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Government response AI summary
The government outlines its active international role in promoting climate-related disclosures like TCFD, including supporting the ISSB, securing agreement from 40 countries at COP26, and committing to implement ISSB standards, demonstrating its leadership in green finance.
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Department for Work and Pensions
5
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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.
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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.
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Government response AI summary
The government accepts the recommendation, stating the Pensions Regulator will ensure its climate reporting guidance adapts as requirements evolve. Additionally, the government's statutory guidance on TCFD reporting will be reviewed and updated at least every three years.
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Department for Work and Pensions
6
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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 …
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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 align with international standards, whilst also reflecting the UK context. (Paragraph 28) 32 Pension stewardship and COP26
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Government response AI summary
The government accepts the recommendation and commits to developing a UK Green Taxonomy aligned with international standards, with consultation on draft Technical Screening Criteria expected in Q1 2022 and legislation by the end of 2022. It has also established the Green Technical Advisory Group.
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Department for Work and Pensions
7
Recommendation
Fourth Report - Pension stewardship and…
Deferred
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 …
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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’s response to that consultation. We urge the Government to publish its consultation response within three months. In the response, it should outline its approach for developing regulations relating to climate change alongside other environmental, social and governance factors. (Paragraph 29) Scheme governance
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Government response AI summary
The government defers the recommendation, stating it plans to publish its response to the call for evidence in 2022, after the requested three-month timeframe. It clarifies that the call for evidence was information gathering, and any policy changes would require further public consultation.
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Department for Work and Pensions
8
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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. …
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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. We recommend that the Pensions Regulator report annually on the progress made to consolidate schemes within its existing research and analysis publications.
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Government response AI summary
The government states that annual reporting on the progress of scheme consolidation is already available through existing public publications by The Pensions Regulator and the Pension Protection Fund.
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Department for Work and Pensions
9
Recommendation
Fourth Report - Pension stewardship and…
Rejected
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 …
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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 compare schemes. We recommend that the Pensions Regulator define net zero alignment.
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Government response AI summary
The government rejects the recommendation for the Pensions Regulator to define a single net zero alignment, citing difficulties, and instead proposes requiring pension schemes to calculate and report one of three flexible portfolio alignment metrics.
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Department for Work and Pensions
10
Conclusion
Fourth Report - Pension stewardship and…
Acknowledged
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.
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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.
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Government response AI summary
The government agrees with the committee's encouragement for schemes to set net zero targets, welcoming the ambition of schemes already doing so and noting that a significant proportion of DC and DB assets are now covered by net zero commitments.
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Department for Work and Pensions
11
Recommendation
Fourth Report - Pension stewardship and…
Rejected
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 …
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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 of their members is also a barrier for trustees. We do not believe that the fiduciary duty itself needs to change, but schemes do need more clarity. We recommend that the Pensions Regulator should establish a working group to develop guidance for schemes looking to set net zero targets.
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Government response AI summary
The government rejects the recommendation to establish a working group, stating that significant progress is already being made and that the Pensions Regulator's existing climate change strategy and engagement methods are sufficient for developing and adapting guidance for pension schemes on net zero targets.
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Department for Work and Pensions
12
Recommendation
Fourth Report - Pension stewardship and…
Rejected
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.
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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.
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Government response AI summary
The government expresses concern that mandating climate goal alignment might force divestment, hindering stewardship, and therefore rejects the recommendation, instead focusing on consulting on guidance to encourage effective stewardship.
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Department for Work and Pensions
13
Conclusion
Fourth Report - Pension stewardship and…
Not Addressed
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 …
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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 the Department for Work and Pensions rather than the Ministry for Housing Communities and Local Government. This is an interesting view. We are not Pension stewardship and COP26 33 convinced that DWP setting pension policy for the whole sector while running one of the largest pension schemes would be straightforward or desirable given the inherent conflicts of interest. (Paragraph 48) Investment and stewardship
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Government response AI summary
The government's response details its broader Net Zero Strategy and its objectives, completely failing to address the Committee's specific conclusion regarding the Local Government Pension Scheme's governance or potential conflicts of interest.
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Department for Work and Pensions
14
Recommendation
Fourth Report - Pension stewardship and…
Rejected
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 …
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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 products, such as green gilts, to mitigate this risk.
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Government response AI summary
The government rejects the recommendation, stating it does not agree and that publishing information on direct investments (which was not the core of the recommendation) would not be practically feasible.
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Department for Work and Pensions
15
Conclusion
Fourth Report - Pension stewardship and…
Accepted
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.
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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.
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Government response AI summary
The government agrees with the committee's observation and outlines steps taken, including the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021, which require climate change risk assessment and disclosure for pension savings. It also launched a consultation on further reporting requirements.
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Department for Work and Pensions
16
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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 …
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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 certainty for pension schemes and other investors, particularly for those investing in in long- term investments such as infrastructure.
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Government response AI summary
The government states that its recently published Net Zero Strategy provides a cross-economy climate roadmap, including indicative sector pathways, which gives the financial industry the certainty needed to invest and addresses the committee's recommendation.
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Department for Work and Pensions
17
Recommendation
Fourth Report - Pension stewardship and…
Rejected
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.
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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.
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Government response AI summary
The government rejects the recommendation, stating it is not practically feasible to publish information on direct investments due to the complexity of pension scheme portfolios. It highlights existing regulations to drive assessment and disclosure of climate risk instead.
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Department for Work and Pensions
18
Conclusion
Fourth Report - Pension stewardship and…
Acknowledged
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 …
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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 could better enable long-term and resource intensive investments, such as in infrastructure, while continuing to protect savers’ interests.
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Government response AI summary
The government notes the committee's concern regarding charge caps and confirms its support for reviewing alternative charging structures to facilitate long-term investments while protecting savers' interests.
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Department for Work and Pensions
19
Conclusion
Fourth Report - Pension stewardship and…
Acknowledged
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 …
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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 for Work and Pensions set up the Taskforce on Pension Scheme Voting Implementation to make recommendations to drive better voting policies and vote reporting. We will be looking closely at its recommendations.
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Government response AI summary
The government acknowledges the importance of good stewardship and reports that the Taskforce on Pension Scheme Voting Implementation, set up by the Minister for Pensions, has published its report with 24 recommendations, six of which have been taken forward in DWP's draft stewardship guidance.
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Department for Work and Pensions
20
Recommendation
Fourth Report - Pension stewardship and…
Accepted
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 …
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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 unlikely to have the required impact on the real economy’s 34 Pension stewardship and COP26 contribution to climate change. Encouraging behaviour change in companies through good stewardship is more likely to be an effective approach to help the real economy transition to net zero. We welcome the Minister’s clear statement that divestment should be a last resort. We recommend that the Department set out, in response to its report, what specific steps it is taking to ensure that its policies do not incentivise divestment over good stewardship—while making clear that schemes could nevertheless consider divestment when there is no other option. (Paragraph 72) Pension stewardship and COP26 35
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Government response AI summary
The government agrees and outlines specific steps taken to ensure policies do not incentivise divestment over good stewardship, including new climate change governance regulations for pension schemes, a consultation on Paris Agreement alignment metrics, and implementing recommendations from the Taskforce on Pension Scheme Voting Implementation.
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Department for Work and Pensions