The international climate conference in Glasgow this autumn should be a chance to create a worldwide rule book for making pension schemes “green”, the UK Government has heard.
Westminster’s Work and Pensions Committee has told the Government that hosting COP26 in Glasgow “provides the UK with a unique opportunity to build an international consensus” on the future of pension funds.
British pension schemes “lead the world” in investing in green companies across the world, according to a report published by the group of MPs on Thursday.
But the committee has recommended that the UK should work to “harmonise reporting standards” for pensions schemes of workers across the world, so that all investments are held to the same green standards.
Stephen Timms MP, chair of the Work and Pensions Committee, said: “With pension investments unrestrained by borders, international agreement is going to be key if the potential for pension schemes to contribute to cutting carbon emissions is to be realised.
“Hosting COP26 provides the UK with a unique opportunity to build an international consensus on reporting standards and stewardship and the Government must seize it with both hands.
“While taking a lead on pushing for the global harmonisation of climate-related reporting requirements, the UK must not let up in implementing high standards of reporting and disclosures domestically.”
The Work and Pensions Committee also added that the Government’s planned “green taxonomy” for which pension investments are environmentally sustainable should meet international standards.
It also warned there could be a “green bubble” in the future, as pension funds pour money into the relatively small number of specialist environmentally-focused companies.
But it said that divesting, or taking money out of unsustainable companies, should only be done as a last resort, and favoured encouraging companies to go green.
Timms added: “Pension schemes can play a major role in helping the real economy transition to net zero but encouraging companies to become more sustainable through good and effective stewardship should always be the first step before moves to sell off assets that are unable to reduce their contribution to climate change.
“The Government needs to ensure that its policies do not incentivise divestment over good stewardship of schemes.”
COP26 begins on October 31 in Glasgow, and will see politicians from around the world meet to agree actions on how to prevent global temperatures from rising more than 1.5C as a result of humans burning fossil fuels.
The UK’s work and pensions minister Guy Opperman said: “The UK leads the world in tackling climate change, and we are set to become the first country in the world to introduce mandatory reporting of climate risks for occupational pension schemes.
“I have made clear that pension scheme trustees and providers who do not consider and act on managing these risks for their savers are negligent in their duties. We are seeing fantastic progress among schemes in managing these risks.”