Source · Select Committees · Work and Pensions Committee
Recommendation 9
9
Paragraph: 42
The idea of “net zero alignment” does not have a single clear definition.
Recommendation
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.
Paragraph Reference:
42
Government Response
Acknowledged
HM Government
Acknowledged
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 Work and Pensions and the Pensions Regulator will work together to encourage pension schemes to align their investments with net zero targets. The Department for Work and Pensions intends to continue its ground-breaking work in this area. As highlighted in our response to recommendation 1, the Government is consulting on measures to require occupational pension schemes to calculate and report a metric setting out the extent to which their investments are aligned with Paris Alignment goal of pursuing efforts to limit the global average temperature increase to 1.5˚C above pre-industrial levels. These new requirements would apply to all trustees who are subject to The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021.This would include trustees of occupational pension schemes with £1bn or more in relevant assets, trustees of authorised master trusts and trustees of authorised collective money purchase schemes (once such schemes are established). Trustees would become subject to the new requirements from 1 October 2022 and have the flexibility to choose one of three types of portfolio alignment metric: binary; benchmark divergence; or implied temperature rise. While trustees will have methodological flexibility to choose which type of metric they calculate and report, we anticipate that these proposals will also provide a degree of comparability between schemes.