Senior UK pension industry stakeholders today called for both the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) to urgently translate messages from a recent legal report on pensions’ fiduciary duty regarding climate change into clearer guidance for trustees.

These calls for action were given today by a panel representing organisations with a focus on sustainable investments in oral evidence before the Committee on their view that the pension sector is falling short of its sustainable investment duties and what can be done to tackle the issue. The committee then went on to question pension scheme representatives.

Both the legal report published earlier this month by the Financial Markets Law Committee (FMLC) and today’s hearing seek to address concerns that the law may not allow for assertive sustainability investment strategies.

Giving evidence in the first panel, Tony Burdon, chief executive officer of Make My Money Matter, said: “Our view is that we currently have a system of pension systems whose investments are destroying the very retirement of people who were saving into those schemes.”

Burdon’s firm today launched a 2024 climate action report ranking the top 20 defined contribution workplace pension providers against a range of climate actions.

Burdon highlighted to the committee how the report found all pension schemes were investing in oil and gas companies, which will break any chance of achieving the limiting of global warming.

While almost all panellists either pushed for, or accepted that TPR should now give trustees official guidance on its findings. Lewis Johnston, director of policy at ShareAction, went a step further saying that a greater focus on responsible investment should be enshrined in legislation.

While Charlotte O’Leary, CEO of Pensions for Purpose, called for a change in The Companies Act to better align company director duties beyond short-term profit maximisation, thereby aligning the financial sector as a whole.

Pension scheme evidence

Today’s hearing – a follow up to the Committee’s report from 2021, which concluded that there should not be a change to trustees’ fiduciary duties – also heard from pension scheme representatives, whose evidence broadly centred around the tensions between fiduciary duty and addressing climate change in pension fund investment.

Contrary to the first panel, the pension representatives appeared to collectively feel that fiduciary duty allows pension schemes to take account of climate change challenges. Adding that duty does not pose a barrier to considering climate change.

However, when probed it was accepted that more sophisticated economic models should be developed to better reflect climate impacts, adding there did seem to be a “disconnect”.

Models that had been described as a “travesty” by Burdon in the first panel, who said that “flawed” economic predication models, led to investment consultants advising trustees that the future impacts of projected temperature rises are marginal on GDP, and therefore marginal on future returns.

Wider engagement needed

Giving evidence on behalf of pension representatives, Carol Young, CEO of Universities Superannuation Scheme, stressed that pension schemes’ size, scale and skills influence their ability to address climate change effectively.

Incorporating the FMLC messaging into codified guidance TPR pension trustees was something the pension representatives said they would consider but appeared to draw the line at the idea of reframing legislation, stressing instead for wider engagement from governments and regulators to develop a UK net zero transition plan, rather than putting greater responsibility on trustees.

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