Recommendation 1

HM Government Acknowledged

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 globally. On 1 October 2021, the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations came into force.1 This made the UK the first country in the world to mandate climate-related disclosures for occupational pension schemes, in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). Last month, the Department for Work and Pensions launched a consultation on proposals to require trustees of occupational pension schemes subject to the Climate Change Governance and Reporting Regulations to measure and report a metric setting out the extent to which their investments are aligned with the Paris Agreement goal of pursuing efforts to limit the global average temperature to 1.5˚C above pre-industrial levels.2 This could provide a common framework for the relevant occupational pension schemes to communicate their alignment with the Paris Agreement’s 1.5˚C climate goal. The Department for Work and Pensions is also consulting on proposed statutory and non-statutory guidance. One of the objectives for this guidance is to give the clarity that trustees have requested on content of the Implementation Statement and around stewardship, including voting and engagement.3 These proposals would enable pension schemes to strengthen their stewardship practices, as they play an important role in pressing and influencing the companies they invest in and own to set robust targets and transition plans to achieve the goals of the Paris Agreement. At COP26 the Secretary of State for Work and Pensions talked through the UK’s agenda- setting progress in the financial sector—including leadership on stewardship—during discussions with international counterparts, panel events and roundtables with industry. In a keynote speech to mark Finance Day, she also outlined how the UK is leading the 1 The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (legislation. gov.uk) 2 Climate and investment reporting: setting expectations and empowering savers - GOV.UK (www.gov.uk) 3 Climate and investment reporting: setting expectations and empowering savers - GOV.UK (www.gov.uk) world in mobilising climate finance, particularly through pension funds, to help power and transition the UK to net zero.4 The Government recognises that to build a global net zero emission economy and deliver the goals of the Paris Agreement, a whole economy approach to transition is needed. TCFD-aligned disclosures for occupational pension schemes are a core part of what is needed to drive the consistency and comparability of climate reporting that markets, and institutional investors need to make informed decisions on climate-related risks. For greater effectiveness, climate-related disclosures are required along the whole length of the investment chain. The UK Government is already taking steps to address this through its proposed Sustainability Disclosure Requirements (SDR) regime. As set out in the Government’s recent ‘Greening Finance: A Roadmap to Sustainable Investing’,5 SDR will create an integrated framework for decision-useful disclosures on sustainability across the economy. This will enable the flow of comparable, decision-useful information on how companies and financial flows impact and are affected by sustainability factors.