Source · Select Committees · Work and Pensions Committee
Recommendation 20
20
Divestment is the process of selling assets already held by a pension scheme.
Recommendation
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
Government Response
Not Addressed
HM Government
Not Addressed
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. On the 1 October 2021, the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 came into force. By the end of 2022, the climate change risk to £1.33 trillion of pension savings will be assessed and, in time, published. On the 21 October 2021, the Department launched a consultation on proposals to require trustees of relevant pension schemes 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 increase to 1.5°C above pre-industrial levels.38 The Department has made clear throughout the consultation process on the TCFD measures, and in the 21 October consultation, that the Government does not advocate blanket divestment. These measures are solely concerned with ensuring proper consideration and effective governance of the risks and opportunities associated with climate change. Guidance on the Statement of Investment Principles and Implementation Statement The importance of stewardship has also been underlined by the Department’s proposals on draft statutory and non-statutory guidance, which formed part of the Consultation published on the 21 October.39 The proposed Guidance focuses on the areas where existing policies and reporting by trustees appear to be weakest – stewardship and, to a lesser extent, consideration of financially material environmental, social and governance factors and non-financial factors. It sets out the Department for Work and Pension’s expectations in relation to the Implementation Statement and effective stewardship best practice in relation to the Statement of Investment Principles. The proposed Guidance also provides examples of effective engagement and voting policies. The Occupational Pensions Stewardship Council (OPSC) The Department has also prioritised stewardship by establishing, in July 2021, the OPSC.40 The Council was launched in response to Recommendation 16 of the report “Investing with Purpose”,41 published by the Government-led Asset Management Taskforce. This suggested that a “dedicated council of UK pension schemes should be established to promote and facilitate high standards of stewardship of pensions assets”. The Taskforce on Pension Scheme Voting Implementation (TPSVI) 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) How to facilitate more voting and better-quality voting by occupational pension schemes by encouraging them to set voting policies. (2) Making recommendations relevant to the changes in behaviours needed from asset managers and service providers to meet this objective. The Taskforce published its report on the 20th September 2021.42 It includes 24 recommendations for Government, regulators, and industry. Nine recommendations are for DWP, six of which have been taken forward in DWP’s consultation on draft stewardship guidance. Moreover, the DWP is setting up a government-led working group to progress the remainder of the recommendations. 42 “The Report of the Taskforce on Pension Scheme Voting Implementation: Recommendations to Government, Regulators and Industry”, September 2021.