A group of UK lawmakers has backed the government’s stance on stewardship as more effective than divestment as a means for investors to contribute to the delivery of international climate goals, and called for it to set out how its pension scheme policies are in keeping with this.

In a report on an inquiry into “pension stewardship and COP26”, the cross-party Work and Pensions Committee said it welcomed a statement from the pensions minister, Guy Opperman, who said he believed “that divestment is the very last resort and is a fundamentally misguided policy”.

It also relayed written evidence from the Department for Work and Pensions (DWP) that “whilst tilting towards or away from certain stocks, will at the margin lower or raise the cost of capital, some argue that such strategies lead only to a change in asset ownership rather than real economy change”.

The committee said it recommended that the DWP set out, in response to its report, “what specific steps it was taking to ensure its policies do not incentivise divestment over good stewardship – while making clear that schemes could nevertheless consider divestment when there is no other option”.

More broadly, the committee called on the government to show global leadership on pensions and climate change in connection with its presidency of COP26, the UN climate conference in Glasgow in November.

In its report, it said the government should “seize the opportunity of COP26 to make every endeavour to build an international consensus on the role of pension schemes in achieving the goals of the Paris Agreement”.

Disclosure harmonisation push

The committee also said the UK should use COP26 to secure international commitments on global harmonisation of climate-related financial disclosures.

Stephen Timms, a Labour Party politician and chair of the committee, said the government should not, however, “let up in implementing high standards of reporting and disclosures domestically”.

Earlier this year G20 finance ministers and central bank governors agreed to work towards a “baseline global reporting standard” for climate and biodiversity-related financial disclosures. The decision followed G7 support for mandatory climate-related financial disclosures during a meeting in London.

Another recommendation made by the Work and Pensions Committee was for the pensions regulator to report annually on the progress made in consolidating pension schemes, with the committee saying that larger pension schemes were usually better placed to meet the costs of making green investments.

In addition to questioning the pensions minister, the MPs also interviewed pension fund executives Paul Bucksey, managing director of Smart Pension UK, Morten Nilsson, CEO of BT Pension Scheme, and Mark Fawcett, CIO of NEST.

James Alexander, CEO of the UK Sustainable Investment and Finance Association, was also one of the witnesses, and he said the group was pleased to see many of UKSIF’s recommendations reflected in the final report.

“This crucially includes the necessity of the UK maximising its COP Presidency to secure international agreement on greater harmonisation on climate reporting standards for schemes and other investors, and a call to government to ensure its policies incentivise good stewardship, which is a far more effective approach to making change in the real economy than divestment, which should be used as a last resort.”

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