A parliamentary committee has demanded the Financial Conduct Authority (FCA) issue guidance on climate change financial risk for contract-based pension schemes.
The Environmental Audit committee (EAC) yesterday (4 June) published the final findings of its green finance inquiry, Greening Finance: embedding sustainability in financial decision making.
In it MPs described what they call a “worrying disparity” between guidance issued by the FCA and The Pensions Regulator.
According to the committee, while TPR has issued guidance for trust-based pension schemes, the FCA is apparently "reluctant to act on the Law Commission’s recommendations on clarifying the duty of contract-based schemes in relation to environmental, social and governance factors”.
The MPs argued the regulator should rectify this by the end of the year.
The FCA has been approached for comment.
The committee said that considering climate change risk from the perspective of pension regulation “is especially important given the long timescales involved and the many hundreds of billions of pounds in UK pension schemes”.
Pension fund trustees have a fiduciary duty to act in the best interests of their beneficiaries, and this include taking account of long-term risks, such as those arising from climate change, it added.
The committee revealed it is “deeply concerned to hear how structural incentives also promote the pursuit of short term returns by investment managers acting on behalf of pension funds, often leading to the neglect of longer-term considerations—including environmental sustainability and climate change-related risks and opportunities”.
In light of this, the government should clarify in law that pension schemes and company directors have a duty to protect long-term value and should be considering environmental risks, it stated.
MP Mary Creagh, chairwoman of the committee, revealed last week a minority of pension funds appear worryingly complacent about the risks of climate change to investments.
The MPs also argued that pension savers “should be given greater opportunities to engage with decisions about where their money is invested”.
“There is evidence that younger generations would often prefer to see their money invested in a fossil fuel-free manner. They should be given the opportunity to express this preference,” they said.
Paul Gibson, managing director of Granite Financial Planning said, “no one would argue that climate change is a huge issue".
"That said, I personally have not had too many clients expressing concerns in this area.
"I can’t help feeling that the FCA has so many projects going on at the moment that adding another at this time might be ill advised.
"Personally I think that encouraging savers to save more and preventing scams should take precedence.“