Pension Funds: Financial and Ethical Investments

Anna McMorrin Excerpts

Wednesday 22nd May 2019 Westminster Hall

[Helen Hayes (Dulwich and West Norwood) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I congratulate the right hon. Member for Kingston and Surbiton (Sir Edward Davey) on securing this important debate.

I commend the climate change protesters who have taken to our streets in recent weeks, including many schoolchildren from my constituency who will be out again on Friday. They have succeeded in putting climate change where it should always have been, at the top of the political agenda. They are right to protest and they are right not to rest until the action that we need is taken and carbon emissions are falling.

It is good that Parliament has declared a climate emergency, but we need action now that is commensurate with an emergency. Divestment is critical to that. One of the essential systemic changes that we need to make is to look at the big flows of investment finance in our economy, divert them away from harmful, polluting and exploitative fossil fuels and reinvest them to scale up sustainable zero-carbon change.

[Anna McMorrin (Cardiff North) (Lab)]

My hon. Friend is making an excellent speech. There are hundreds of billions of pounds in UK pension schemes, and asset owners sit on top of the investment scheme without realising the financial power that they wield. Should not it be made mandatory, so that there can be a transition to a low-carbon economy, for them to examine the situation and take action on the climate risks?

[Helen Hayes]

My hon. Friend is absolutely right. To my mind, divestment is a no-brainer. As far as we can we must keep fossil fuels in the ground. We do not have the luxury of doing anything else. Yet for as long as the fossil fuel giants can draw down big investment finance they will keep extracting and selling their damaging products. As long as the development of sustainable alternatives is starved of investment finance, limiting their availability and keeping their cost high, consumers will remain addicted to fossil fuels. It is that simple.

Divestment is a big, systematic change that we can make now. I pay tribute to both local councils in my constituency, Lambeth and Southwark, which were among the first local authorities to divest their pension funds from fossil fuels. I am proud of their commitment, which shows that divestment is completely possible within the strict fiduciary duties of pension fund trustees. More than that, retaining funds in fossil fuels is increasing the risk of those investments over time. At City Hall Sadiq Khan is also showing great leadership on divestment, divesting the Greater London Authority’s assets, working to support boroughs and encouraging them to divest.

The parliamentary pension scheme remains invested in fossil fuels. Five of the top 20 investments of our pension fund are in fossil fuel companies. The pension fund trustees have been far too slow to react to calls for divestment and are still refusing to do so, despite the fact that more than a third of MPs have written to them about it. The divestment of our pension funds is a straightforward leadership action that Parliament should take. No increased risk is entailed and in fact the opposite is true. The climate change emergency demands it.

Finally, we need the law to drive a further change in divestment. Although arguably the law currently requires pension fund trustees to invest in line with the Paris agreement, new legislation is needed to clarify and strengthen the duty. Reporting of fossil fuel-based investments should be mandatory and there should be a duty on all investors to report on the alignment of their portfolios in relation to the Paris agreement. This cannot be left to chance. We will not tackle climate change by retaining the status quo and fiddling around the edges. We need systemic change and it must start with our own leadership and a legislative framework that drives investment finance nationally and globally away from fossil fuels and towards the sustainable investment we need.

--- Later in debate ---

[Mike Amesbury]

That is a very good point, which I will come on to.

Pension schemes should be required to report on their management of climate risks in line with the Task Force on Climate-related Financial Disclosures. Transparency could also be enhanced by mandating scheme member representation—I think that my hon. Friend the Member for Leeds North West (Alex Sobel) argued for this—on the governance boards of the new auto-enrolment schemes, as well as by requiring pension schemes to consult their members on key policies.

We need to send clear signals that tackling climate change and other environmental, social and governance risks is not distinct from the core purpose of financial markets, but an integral part of it, as the hon. Member for Ochil and South Perthshire (Luke Graham) argued in his intervention. Of course, as we divest from fossil fuels, we must ramp up investment in clean and green technology. Labour has set out plans to fit 1.75 million homes with electricity-generating solar photovoltaic panels, creating thousands of quality skilled jobs across the UK. That is a Labour green deal that will shift energy generation via renewables to 85% by 2030. It will provide a major boost to an industry that is still recovering from the effects of the coalition Government’s ill thought out slashing of feed-in tariffs, which was such a blow to a growing and vital industry.

[Anna McMorrin]

Does my hon. Friend agree that to really address this issue, we need legislation like that in Wales, the Well-being of Future Generations (Wales) Act 2015, which is transforming how the public sector takes decisions? Legislation like that could and would address this very issue if we had it in the UK.

[Mike Amesbury]

I do agree with that point, which was powerfully made.

Labour will transform corporate environmental responsibility by making compliance with key environmental criteria a condition of firms listing on the stock exchange, so we will be applying that more broadly. Of course, to deliver the change needed to respond to this emergency, all parties need to show leadership.

Does the Minister agree that we are in a crisis, an emergency, and that nothing less than transformational, revolutionary change is needed? If that is the case, does the Minister believe that rolling out the red carpet for the current President of the United States, who is perhaps the most high-profile and influential denier of climate science in the world today, sends the right message? Will the Minister look at giving further strength to the ESG regulations? They are a welcome step forward, as we have already said, but we could go considerably further. Will the Minister offer Government support for the parliamentary schemes divesting from not only fossil fuels but environmentally damaging investments more broadly and doing so as quickly as possible? Finally, if the Government support the move away from fossil fuels, why do they continue to support the fracking revolution, as highlighted in their party’s 2017 manifesto? We need more than warm words. We need emergency action now.