Asked by
To ask His Majesty’s Government, further to tax relief provided
to pension funds, what assessment, if any, they have made of the
actions taken by pension trustees to ensure their investments (1)
effectively manage climate risk, and (2) comply with treaties on
human rights.
The Parliamentary Under-Secretary of State, Department for Work
and Pensions () (Con)
My Lords, the Government have introduced legislation and
published guidance alongside the TCFD requirements
to help pension schemes improve the quality of governance and
manage climate risk. DWP committed to review the requirements in
late 2023. These reviews will utilise insights from the
regulator’s review of early reports and will also consider
clarifications of fiduciary duty. DWP also launched an
industry-led task force on social factors, which aims to produce
a guide for industry by this November.
(Con)
I congratulate my noble friend the Minister and the Government on
their work so far, but as at least 25% of all pension fund assets
originated from taxpayer reliefs, does he agree that the
Government have ample justification to expect pension funds to
invest responsibly, supporting national objectives? Does he share
my concern that this seems not to be happening? For example,
Corporate Adviser magazine’s February 2023 ESG report shows that
the three largest pension providers invest in cluster munitions,
even though the UK is recent president and signatory of the
international agreement to end their use, and that investment in
domestic companies and green projects has been weak. Will the
Government encourage or ensure that more of the taxpayer
contribution to all pension funds helps UK markets and supports
UK sustainable growth and climate and nature protections, to meet
social or national objectives?
(Con)
I hope I can answer a number of the points that my noble friend
made. On her general push, she is right: there is a lot more we
need to do to encourage pension funds to invest in net zero. The
introduction of the TCFD reporting
requirements for pension schemes was pioneering; these
regulations are still relatively new and it would be premature to
judge their effectiveness, but a lot more is happening in this
space, as my noble friend will be aware. As well as the task
force, we have a stewardship review, which will assess the
effectiveness of the guidance, and alongside this the Financial
Reporting Council, which works alongside the FCA, my department
and the regulator.
(Lab)
What legal authority do the Government have to attempt to create
a de facto sovereign wealth fund by manipulating our pension
assets? Unlike countries such as Norway, we do not have
experience of running a sovereign wealth fund. I feel uneasy. I
want the investment to be in this country—that makes sense—but
doing it in the way it seems to be being done is fraught with
difficulty. Will the Government take extra care over this attempt
to manipulate pension funds, because we now have trustees with
powers they did not have 30 years ago?
(Con)
I do not know about manipulation of pension funds, but I can say
that there are strong fiduciary duties on trustees. The noble
Lord will know that in the green finance strategy, published in
March, the Government committed to engaging with interested
stakeholders on how we can continue to clarify fiduciary duty
through a series of round tables and a working group of the
Financial Markets Law Committee. I think it fair to say that many
larger schemes consider climate change risk, which I think is the
gist of his question, to be financially material; we have made
this clear in guidance.
of Childs Hill (LD)
My Lords, debate on how pension fund assets can be used more
productively has focused on defined contribution pensions, rather
than traditional defined benefit or final salary-type pensions.
Given the large sums currently held in defined benefit pension
schemes under a very tight regulatory regime, what plans do the
Government have to allow such schemes to invest more
productively, as other speakers have said in other contexts,
while ensuring members’ benefits continue to be secured?
(Con)
The noble Lord makes an important point about defined benefit
schemes, which he will know are still maturing, with decreasing
numbers of active contributing members and increasing numbers of
pensioner members. It is therefore important that their pensions
are properly protected and that these schemes are properly
funded. The majority of schemes in the DB sector are well run,
plan for the future and manage their risks effectively, but the
gist of the noble Lord’s question is that there is still more to
be done.
(Con)
What assessment has been made of the burdens placed on trustees
in respect of reporting? This must have a chilling effect on
getting people to become trustees of pension funds.
(Con)
We are not unaware of this. We have carefully considered the
balance between the burden of reporting requirements for trustees
on climate risk and the need for urgent action in this area. That
is why we have introduced TCFD requirements only
for the very largest schemes, as my noble friend will probably be
aware, which have, let us face it, more capability and capacity.
It gives us the widest coverage of pension scheme numbers while
minimising burdens on trustees.
(CB)
My Lords, I draw attention to my interests as recorded in the
register and to the fact that I have a son who works in this
area. The Minister referred to the complexities and nuances of
the clarification of fiduciary duty, an issue that was much
debated during consideration of the Financial Services and
Markets Bill. What interaction is His Majesty’s Government having
with the Financial Markets Law Committee, which is looking at
this, and the round tables? Will parliamentarians have the
opportunity to be involved in those?
(Con)
I would hope that parliamentarians have a role in this; I shall
certainly get back to the noble Baroness on that point. As she
will know, guidance states that trustees can consider climate
change, but we acknowledge that there is some ambiguity, which I
think is the gist of the noble Baroness’s question. That is why
we are engaging with the Financial Markets Law Committee working
group, which is discussing further fiduciary duty. The next
meeting will take place at the end of the month.
(Con)
May I encourage the Government to do what they have sought to do,
but to recognise too that the speed at which climate change is
happening is right at the top end of what the scientists thought?
Therefore, the fiduciary duty of pension funds to take that into
account becomes the more urgent. I hope that in the review later
on in the year, the Minister makes sure that they understand the
devastating effects on those investments.
(Con)
I know that my noble friend is extremely active in this area, and
I reassure him that we continue to encourage pension schemes to
commit to net zero in a way that works for them. As mentioned
earlier, from October 2022 we introduced this requirement in
the TCFD regulations, which
is specifically to calculate and report the extent to which their
investments are aligned with the Paris agreement goal.
(Lab)
My Lords, the Climate Change Committee has just reported that the
Government are missing climate targets on nearly every front,
which makes it all the more disappointing that they opposed a
recent Labour amendment to the Financial Services and Markets
Bill that would have required the Treasury carefully to review
the case for pension funds investing in green infrastructure
while maintaining the soundness of funds. Can the Minister tell
the House why?
(Con)
No, I cannot, but I can say that the introduction
of TCFD reporting
requirements for pension schemes was pioneering. We are a leader
in this field. As I say, these regulations are still very new and
there is a lot going on in this space, and we will be reporting
by the end of the year.
(LD)
I refer to my interests as per the register. The FCA, in its
consultation on AGM voting, proposes that standardised vote
reporting be wholly voluntary, with zero incentives for firms to
adopt the framework. However, earlier this month, the noble
Baroness, Lady Penn, in her role as the Minister taking the
Financial Services and Markets Bill through this House, said
that
“the Government will carefully consider whether its
recommendations go far enough to address existing issues of
transparency, and what further action may be
appropriate”.—[Official Report, 6/6/2023; col. 1326.]
It is now clear that they do not go far enough to allow trustees
to fulfil their fiduciary duty, so what further action does the
Minister think appropriate?
(Con)
Well, indeed. There is a point of contact, which may be helpful
for the noble Baroness, called the UK National Contact Point,
which is part of the Department for Business and Trade. It is
responsible for promoting the Organisation for Economic
Co-operation and Development. It may be helpful to know that
considerable guidance has been given for pension schemes in this
respect.
