The Government has introduced radical new amendments to the Pension Schemes Bill which allows it to force effective governance and disclosure of climate risk by occupational pensions schemes.
What’s “radical” is that these amendments give the DWP the power to lay regulations that change the way pension schemes invest.
I am told that while there is no immediate change to requirements, the DWP expect by this summer to be consulting on detailed regulations which will include requirements proportionate to the size of scheme and proposed timings for compliance.
This will be highly controversial and has clearly been trailed to the pensions lobby. Writing in the FT , a couple of hours after the amendments were published, Jo Cumbo could report the PLSA (representing schemes with 20m members) as commenting.
“We fully support initiatives that help pension schemes with assessing climate change risks,
However, parts of these new amendments appear to go significantly beyond current requirement for schemes to disclose what they are doing on scheme investment around climate change and would give unprecedented new powers to government bodies to interfere and request changes to private sector schemes’ investment strategies. If that’s the case it would set a dangerous precedent and be wholly inappropriate.”
This is no time for the PLSA to be arguing legal precedents. As I have been writing for three years, trustees and IGCs have been mealy-mouthed on their responsibilities towards the planet, preferring to hide behind legal niceties than take action as active shareholders.
My initial impression is that this is an over-reaction from the PLSA, this is not an amendment that gives Government anything like the powers the PLSA suggest.
But clearly the Government has had enough of this shambolic procrastination and is giving itself the powers to enforce change.
Everything about these amendments suggests they have no doubt that they will get popular support for them, support they hope to be recognised by parliament.
It is a dramatic intervention
Here are the amendments, as clipped from the parliamentary website. You can read all the amendments in the bill for yourselves here
The Bill suggests regulations that would require each scheme to have its own carbon footprint (4.1 (3) b and c).
It suggests that trustees will have to adjust their investment strategy if the assessment of the scheme’s contribution to climate risk is below target.
It implies a radical overhaul of the mandates set out to fund and asset managers to ensure trustee and manager compliance.
This is why the Bill’s amendments are controversial and this is why they need popular support.
Why this matters
Britain is to a large degree owned by its pension funds. Our companies, the money they borrow, the properties they rent and the infrastructure they use are part of our pension portfolios. Whether these are owned in funds that determine our outcomes (DC pension funds) or funds where employers take the risk (DB pension funds) is secondary.
Of more importance is that if Britain is to play a part in the global plan laid down in the Paris accord, it is going to have to manage itself better. In recent blogs, especially my blog about the lack of “passive activism“, I contend that fund managers have been allowed to pay lip-service to ESG. Rather than embracing the principles of sustainability, many managers have green- washed and they’ve been allowed to by trustees and IGCs who frankly haven’t been doing their job
Recently UKSIF -the UK Sustainable Investment and Finance Association (UKSIF), found that only one-third of trustees had complied with the new rules on trustees to disclose their ESG strategy. These rules are well short of what the DWP is proposing.
So far, the fiduciaries and managers that organisations like the PLSA and ABI represent have moved too slowly for Britain to have any chance of playing the part in decreasing global warming, we have promised.
The interests of Britain and more importantly the planet are well served by these amendments. I am surprised and delighted to see them in the Bill and hope that they will be in the forthcoming Pension Schemes Act.