The full power of pensions needs to be used to reduce climate risk in savers' portfolios and help push the UK towards achieving net zero in the future, Work and Pensions Secretary of State Thérèse Coffey has urged.
In a speech to mark Finance Day at COP26, Coffey outlined how billions of pounds sitting in pension funds could be used to push for a greener future and set an example to the rest of the world.
She explained pensions was a sector that had a massive part to play in helping the UK get to net zero, with about 85 per cent of defined contribution pension savers already being in a scheme which has a net zero target.
But this needs to go further as there are currently tens of trillions of pounds of pension funds investment globally, Coffey said.
“With the capital clout to drive investment in things like green infrastructure and technology, pension schemes can become a superpower in the fight against climate change,” she said.
“At the same time, they are also vulnerable – exposed to the systemic financial risk inherent in our transition to a net zero economy.
“And that is why we have been helping pension funds mobilise so they are both better protected from, and can play their part in tackling, climate change.”
Coffey said while savers had shown interest in moving their pension towards more sustainable investments, they needed to be better informed so they can see how green their scheme’s climate credentials really are.
The government is introducing a number of rules for schemes to this effect.
Trustees will have to publish the financial risks of climate change within portfolios, giving members the information they need to ask questions, challenge and make their views known.
The government has also set out how it expects pension schemes to measure and report on how their investments align with the Paris Agreement - which has a goal to limit global warming to 1.5 degrees celsius.
Coffey said: “Pensions may not always be at the forefront of our minds, but the changes we have made over the last decade have been hugely positive in helping people save.
“Our latest reforms will empower savers to clearly see how their money is being managed by trustees – giving them the tools to protect savings from the effects of climate change and make the most of the opportunities from the transition to a low-carbon economy.
“The measures may seem techy, but they are transformational – placing pension schemes further at the heart of our response to climate change and transition to net zero.”
She added that the more schemes “invest in, seize and promote green opportunities” the more they reduce climate risk in their portfolios and help “propel us towards net zero and our greener, more sustainable future”.
But other people are more sceptical about whether net zero will be achieved this way.
The chief executive of Ninety One, Hendrick du Toit, hit out at “portfolio purity” practices yesterday, saying they were not helping to fix the climate crisis and threatened to exacerbate an existing problem.
He said many investors were focussing on reducing their own reported carbon emissions in an attempt to prevent climate change.
But this meant divesting from heavy polluters when instead more engagement is needed in this area.
amy.austin@ft.com
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