Asked by
To ask His Majesty’s Government, further to the report by
Pensions For Purpose One year on—TCFD reporting for pension
funds, published on 1 February, whether they intend to produce
guidance for pension schemes in relation to their fiduciary
duties.
The Parliamentary Under-Secretary of State, Department for Work
and Pensions () (Con)
My Lords, by October 2022 occupational pension schemes with
assets above £1 billion fell into scope of DWP’s requirements to
report in line with the task force on climate-related financial
disclosures, the so-called TCFD recommendations.
The department published guidance alongside the requirements to
help pension schemes improve the quality of governance and manage
climate risk. DWP committed to review the requirements in late
2023 and will consider whether pension schemes require additional
guidance in relation to their fiduciary duties.
(Con)
My Lords, I thank my noble friend for that Answer and declare my
interests as set out in the register. The Pensions for Purpose
report highlighted a dilemma, in which some say that considering
the real-world impacts of pension fund investments, including
green or net-zero assets, infrastructure and housing, could be
portrayed as trading off risk-adjusted returns against doing
good. But does my noble friend agree that this is a false
dichotomy? A failure to consider the climate and nature impacts
of investments is likely to increase long-term risks and reduce
returns, as opposed to pension funds that typically look at
short-term performance measures. Can my noble friend ask relevant
Ministers in the Treasury whether they will consider accepting
relevant amendments that have been laid to the Financial Services
and Markets Bill?
(Con)
Well, I will not be drawn on that by my noble friend, but the
comments that she makes are broadly correct. It is very important
that pension schemes, particularly those for purpose, encourage
investments that align with the environment and society, and that
includes climate change. I believe that the report, One Year On,
outlines some pointers, insights or challenges. For example, most
funds are using their investment consultants, while some are not
yet using or including carbon offsets in their TCFD reports, but
nothing in the findings so far is unfamiliar to DWP. We know
there is work to do to improve the reports and build an element
of expertise across the industries more generally.
(Lab)
My Lords, I welcome the report. The question is whether the
advice can effectively come from the Government against the
background—I hope the Minister will agree—that it is the members’
money that is intended to provide them with a retirement income
and should be used in accordance with their wishes and views. Can
the Minister confirm that that is his view of how money in
pension funds should be used?
(Con)
I think it is important that the right advice is given. I start
by saying that this is pretty ground-breaking, because the UK is
the first country in the world to make occupational pension
schemes consider, assess and report on the financial risks of
climate change. In terms of what I would call “the push”, we have
consulted with the pensions industry and certainly think it is
right that guidance is given. For example, my department has
introduced guidance alongside the TCFD requirements
to help pension schemes understand how to identify, manage and
assess climate-related risks and opportunities.
(LD)
My Lords, actually, I think we were second after New Zealand; we
were the first in the G20. The Financial Conduct Authority
recently surveyed TCFD returns and found
weaknesses in two areas: data or metrics, and targets. These are
key areas. How will the Government try to put that right?
Secondly, will the Government move forward, as I think they have
said they will, with external assurance—in other words, audit—of
those returns, to make sure that we banish greenwashing in this
area?
(Con)
The noble Lord makes a good point. He has pointed out a few
issues that were in the initial outlines. He mentioned data,
which is an issue. Metrics and the use of implied temperature
rises—for example, carbon offsetting and scenario planning—are
definitely challenges that are being worked on domestically and
internationally. As I said, we are the first country in the world
to do this. It is good work, which needs to be built on.
(Con)
My Lords, I declare an interest as a trustee of the Parliamentary
Contributory Pension Fund. I hope that those who are members have
received the annual report and will recognise the performance of
our fund, which grew from 104.3% in April 2020 to 130% in April
2022. However, that is not really the key point. My key point is
that a fair number of pensions—though not our pension—have
suffered from LDI and the chaos in the financial markets in
September last year. Against that background, I suggest to my
noble friend on the Front Bench that all those who are
affected have more than enough on their plate at this time
tackling those challenges, without having any further advice from
anywhere else.
(Con)
Well, I do not really agree with the general points my noble
friend has made. The main thing is that the regulator has a
particularly strong role here, and it plans to publish its
findings on what we are doing soon to provide schemes with
examples of good practice. The regulator has found so far that
most reports were published on time. This is to do with the
publishing of reports. Almost all were substantial documents
showing trustee engagement. In terms of my noble friend’s point
about LDI, he will know that much progress has been made, led
largely by the independent Bank of England working closely with
the Treasury.
(Lab)
My Lords, I declare my interest in the register as a trustee. The
report raises key questions about fiduciary duty. In summary, we
need clearer guidance from the Government on three key issues:
the extent to which environmental and social factors form a core
component of investors’ fiduciary duties; the fact that pension
scheme fiduciary duties are not a substitute for what government
should do; and the fact that government desire for more pension
fund investment in UK productive investment has to align with
pension trustee fiduciary duties. Can the Minister confirm that,
when issuing more guidance on the fiduciary issue, they will
address these particular three issues where the contours of
fiduciary duty need clarity?
(Con)
As I have said before, it is the case that more progress needs to
be made, and the noble Baroness has much experience in this
field. Let us start with climate change, which poses major
financial risk to pension schemes and savers’ returns, with
almost £2 trillion in assets under management. I reassure her
that pension schemes in scope of the DWP’s requirements, as I
think she will know, must produce the annual TCFD report, which is
based on four key pillars: governance, strategy, risk management,
and metrics and targets. That might be five, but I think it is
four.
(CB)
My Lords, I declare my interests as set out in the register. Has
this afternoon’s discussion not illustrated that there is a lack
of clarity about how fiduciary duties are interpreted in terms of
the long-term risks and possibilities of climate change-related
investments? Therefore, would the Minister reconsider having a
conversation with his colleague, the noble Baroness, Lady Penn,
about the amendments on this point to the Financial Services and
Markets Bill?
(Con)
I can certainly pass the message on to my noble friend. On
fiduciary duty, the noble Baroness will know that trustees have a
duty to act overall in the best interests of members. This has
been traditionally interpreted as covering risk-related returns
as well. We made clear in our 2022 stewardship guidance, perhaps
as an assurance, that trustees should be considering whether
climate change risk is financially likely to be a material
risk.
(Lab)
My Lords, the report has said that, since the law was changed to
require pension funds to do climate reporting as a way to nudge
the companies and assets in which they invest to do better, two
broad problems have emerged. First, the data out there are not
consistent in timeframes or formats, or across asset classes or
managers. Secondly, the regulatory regime seems to focus more on
positioning pension funds than on the climate transition plans of
the companies; as the report puts it,
“the world needs greening, not the pension fund”.
So will the Government look again at this?
(Con)
Not only will we be looking again, but this is an iterative
process. As I have said, we are yet to come back on the report,
One Year On, but we will come back soon. I also reiterate the
fact that we are the lead in the world; I will have to check the
figures from the noble Lord, . For example, since our
department introduced TCFDs, over 70% of occupational pension
schemes—a value of £1.4 trillion—are now subject to climate
disclosure, and over 80% of scheme members, some 20 million
people, will be able to access their pension schemes’ disclosures
on climate risks and see how they are being managed. That is
being published for the first time.
