Pension Schemes Bill

Baroness Hayman Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Baroness Hayman (CB)]

My Lords, I declare my interests as a past chair and present director of Peers for the Planet. It is a great pleasure to follow the noble Lord in what he has just said. We have worked together on these issues before, and I feel somehow that on the issue to which I will return, fiduciary duty, we have the very good beginnings of a cross-party amendment with him, me and the noble Baroness, Lady Bowles—and I hope we will recruit from the Labour Benches as well.

The noble Lord, Lord Sharkey, some hours ago—not long hours, interesting hours—mentioned the absence in the Bill of any reference to the Paris Agreement and the Climate Change Act. The noble Baroness, Lady Bennett, mentioned the previous Pension Schemes Bill, in which we both participated six years ago.

That Bill, thanks to a cross-party amendment and great support from the noble Baroness, Lady Stedman-Scott, who was the Minister at the time, included references to the Paris Agreement and the Climate Change Act. I am assured that it was the first piece of pensions legislation in the world that mentioned those things, and it has been followed by many pieces of pensions legislation in many jurisdictions since then. Therefore, I am hopeful that we may make some progress on this.

As the Pensions Regulator has said, pension schemes are

“uniquely placed to understand that short-termism in the face of systemic risk is not the right approach for … pension savers”.

Successive Governments have recognised that the UK’s long-term prosperity will depend on our ability to lead the transition to a greener financial system. However, financial experts, such as the Institute and Faculty of Actuaries and the Pensions Regulator, warn that many schemes continue dramatically to underestimate climate and environmental risks. The Pensions Regulator has stressed that climate change and nature loss are not “abstract concerns” and that

“awareness of and managing systemic risks is … a core part of effective trusteeship”.

The Chancellor recognised the centrality of the issue in her Mansion House speech last year. In letters to the Bank of England and financial regulators, she said:

“The climate and nature crisis is the greatest long-term global challenge that we face”.


She recommended that they

“consider how these risks could impact financial stability over the near and longer-term”.

She also reaffirmed her commitment to make the UK a global leader in sustainable finance.

There are clear benefits to placing the UK at the centre of global financial flows that will drive the economy of the future, creating high-quality jobs and enabling the investment we so urgently need in the face of ongoing economic and cost of living pressures. The pension sector must be central to that endeavour. With the third-largest stock of pension assets in the world, the UK has the capacity to set a global benchmark for responsible investment. The £3 trillion held in UK pensions represents an enormous opportunity to align long-term investment with long-term risks and long-term economic stability.

However, significant exposure to environmental and supply chain risks and fossil fuels leaves savers at risk of holding stranded assets or seeing significant reductions to their pension pots in the years ahead. This is neither in members’ interests nor in our national interests. Therefore, in our discussions on the Bill, I will be very interested to hear how pension schemes investments can align with our climate and nature goals.

As the Bill stands, it remains silent on how the major pension reforms it contains will support the delivery of our nature and net-zero targets, despite the risk to both savers and our economic prosperity that institutions, such as the International Energy Agency and the Climate Change Committee in this country, have highlighted. UKSIF has estimated that approximately £88 billion-worth of UK pensions are directly invested in fossil fuel assets, and that, even if the limited decarbonisation pledges made so far by countries are fulfilled by 2040, £15 billion of UK pensions are at risk of loss due to stranded assets.

The Bill offers a practical, incremental opportunity to put a direction of travel in statute on the need to move away from investment in carbon-intensive assets in a managed and orderly way. It could send a clear signal about the long-term risks we face and help pension schemes to prepare for the transition in a considered way.

One of the measures we could take, and something that I will certainly be focusing on, as I said, as we go through the remaining stages of the Bill, is the clarification of fiduciary duty. For too long, many pension schemes’ trustees have reported confusion about what they should take into account when making investment decisions, particularly when those decisions involve long-term structural risks such as climate change, nature loss and other systemic factors. This can lead to unnecessary and unjustified caution and reinforce a bias towards short-term financial returns, even when the long-term risks are clear.

I think we all absolutely understand and agree that trustees of pensions have a fundamental responsibility to act in their members’ financial interests. However, the clarification of fiduciary duties in legislation, far from detracting from that responsibility, would enable trustees to fulfil it more effectively. So, while I welcome the commitment made on Report in the other place for guidance on this issue to be brought forward, guidance alone falls short of providing the legal certainty that is needed, as the noble Baroness, Lady Bowles, said so clearly.

Guidance can be challenged, ignored, and reversed without primary legislation. The legal ambiguity to which trustees are currently exposed will remain, even if in a slightly lesser degree, if there is only guidance on which to rely. Legislative clarification would dispel that uncertainty and future-proof the system to ensure that pension schemes are better able to recognise and to manage the systemic risks of climate change and nature loss. It would support trustees to act in the long-term interests of all beneficiaries and address issues of intergenerational fairness that are becoming of increasing importance as the longer-term consequence of the climate and nature crisis becomes clearer. It could also lead to better returns and increase new investment in the areas we need to future-proof our economy: clean energy, clean transport, clean infrastructure and, crucially, to unlock the economic opportunity of investing in nature-positive solutions.

I very much look forward to pursuing those issues as the Bill proceeds through your Lordships’ House.

Pension Schemes Bill

Baroness Hayman Excerpts

Committee stage
Monday 23rd February 2026 Grand Committee

[Lord Sharkey (LD)]

My Lords, Amendment 212 is in my name and those of the noble Baronesses, Lady Hayman, Lady Griffin of Princethorpe and Lady Bennett of Manor Castle. I thank them for their support and look forward to their contributions. I also thank the Better Pensions Coalition for its input and advice—I should probably say “guidance” rather than “advice”, since no money changed hands.

This amendment has a simple purpose: it seeks to restrict pension investments in companies that undertake certain significant levels of climate-damaging activity Specifically, it would require the Government to legislate to exclude firms with high thermal coal exposure from pension scheme portfolios within one year of Royal Assent. It would require regular reviews on whether to extend the exclusion, and would permit the Government to legislate to implement the outcomes of those reviews. The amendment sets out to do this by amending Section 41A of the Pensions Act 1995, which was inserted by Section 124 of the Pension Schemes Act 2021 under the previous Conservative Administration.

Section 41A allows the imposition of regulation on trustees of pension funds in order to secure

“effective governance of the scheme with respect to the effects of climate change”.

The location of this clause means that all exclusions must be legislated for on climate-risk grounds, not on ethical grounds or approval or disapproval of certain investments. That is why the primary focus of our amendment is the risk to savers’ retirements generated by climate change. It is the case that savers are at risk, not just from fossil fuel assets that have become stranded as the cost of low-carbon energy falls, but from their pension schemes’ investments in fossil fuels funding increased global emissions, contributing to runaway climate change, which would damage returns and the value of their other investments.

There are no safe-haven assets that will be immune from the 2.6 degrees centigrade global warming we are currently steering towards. The Institute and Faculty of Actuaries has assessed that the current suite of global climate policies could shrink the global economy to half its current size. Alltech finance research indicates that UK pension portfolios could face valuation declines of between 25% and 50% under plausible climate scenarios. Pension savers risk a much more expensive retirement and poor quality of life from continued fossil use. The cost of housing, energy and food is likely to be much higher, partly because their pensions have funded dangerous levels of climate change.

The amendment starts with thermal coal, the most damaging and least necessary fossil fuel. Here in the UK, of course, we ended the use of coal on the power grid in 2024, but despite that, UK pension funds risk undermining this progress by funding the continuous expansion of coal overseas. New research recently published by Finance Innovation Lab has found that pension schemes hold around £10 billion in thermal coal and that this could be responsible for around 17 million tonnes of greenhouse gases each year. Ironically, that is the same as the entire reduction in emissions from the UK power network under successive Conservative and Labour Administrations between 2019 and 2025. In other words, the UK’s main climate policy achievement at home, replacing coal-fired power with clean energy, may have been cancelled out by pension scheme investments in coal overseas, using contributions from savers, employers and taxpayers.

Pension schemes also continue to hold many more billions, around £88 billion at the last estimate, in fossil fuel companies as a whole, including those involved in new coal and gas and oil exploration. This has some of the characteristics of a collective action problem. The International Energy Agency has warned that there is no scope for additional fossil fuel production if the world is to stay within safe climate limits. Schemes fear missing out on short-term returns that other schemes may be generating, so each scheme staying invested and funding further oil, gas and, especially, coal investment is jeopardising long-term returns for themselves and for everybody else.

The UK pension sector is the largest in Europe. It has the potential to move markets, hasten the global exit from coal and, in due course, to do the same thing for oil and gas expansion. I make it clear that our proposed amendment does not sacrifice member returns. Any decisions to require exclusion must be made on climate risk grounds in accordance with the provisions of Section 41A of the Pensions Act 1995, not on the basis of ethical or political objections, as I said. The amendment cannot be used by the Government to mandate or forbid other types of investment because only the investments set out clearly in proposed new subsections (6B) and (6C) are in scope. Any attempt by the Government to use our amendment to exclude a wider range of investments without demonstration of the climate risk would be unlawful. I should also mention at this point that steelmaking would be unaffected by our amendment: the ban would be limited to thermal coal. Over time, we will need to phase out coking coal as well, but this can take place when it can be done without disrupting the sector.

We have seen in our discussions in Committee that the Government would like to have a reserve power to mandate pension investment into private markets for member returns and wider economic benefits. For Peers who are opposed to the principle of mandation, as I am, I reassure noble Lords that the power to exclude contained in our amendment is very tightly constrained. It would permit a direction to exclude only on climate risk grounds, in accordance with the terms of Section 41A. The Government, as we have seen, are proposing a reserve power to allow direction on almost any grounds, as long as they produce a report first. Our amendment is limited to coal and other fossil fuels. The Government’s reserve power allows the direction of investment into any sector, jurisdiction or asset class, as long as it is not listed.

The Government may claim that the consolidation proposed in the Bill will help reduce investment in fossil fuels, but that seems unlikely on the basis of current behaviour. Industry research due to be published next month by Corporate Adviser Intelligence will show that seven of the largest 19 schemes used for automatic enrolment—including household names such as Aviva, Royal London and Scottish Widows—remain invested, via their default fund, in one or more of thermal coal, tar sands and Arctic drilling.

Transition plans also do not look likely to address our concerns. Labour’s manifesto proposed that schemes should be required to produce and implement Paris Agreement-aligned transition plans but, 18 months on, there does not appear to be a decision on whether to proceed with that. As I understand it, there is slated to be a consultation on policy detail in 2026 and there may be regulations in 2027, with plans perhaps to be produced in 2028—so probably no action before the next general election. But the Government have made strong commitments, both at COP and in their own targets, with the aim of an effective 40% reduction in greenhouse gas emissions between 2020 and 2030. Transition plans will be great for the 2030s and 2040s, but those plans can be built only on the emissions reductions that we achieve in this decade.

We need faster action to be able to achieve our targets. Our amendment will deliver some of that, and I beg to move.

[Baroness Hayman (CB)]

My Lords, I declare my interests as a director of Peers for the Planet and a previous chair of that organisation. In this group of amendments, we address long-term systemic risks and how pension schemes both assess and manage them. All three of the amendments that we are discussing recognise that it is pension savers who will pay the heaviest price if the financially material risks to their savings and standards of living posed by climate change and biodiversity loss are not properly accounted for.

I have added my name to Amendment 212, which was just introduced so cogently by the noble Lord, Lord Sharkey. It is important because, as he said, UK pension schemes and savers remain overexposed to the risks of stranded assets from fossil fuels—in particular, coal. New research by the Finance Innovation Lab suggests that UK pension funds have at least £10.5 billion invested in companies that are extracting or burning coal, which could pose significant risks to pension savers. To date, pension schemes have not been required to take mitigating actions, so the sector has not moved quickly enough or at the scale needed to insulate savers from the emerging market and physical risks linked to those very carbon-intensive investments.

I also welcome the constructive intentions behind Amendment 218E in the name of the noble Baroness, Lady Coffey, and I look forward to hearing her speaking on it later. This amendment seeks to solve a major blind spot in the pension system by equipping trustees with the tools to understand how nature loss may affect asset values, as well as how global efforts to restore nature may reshape markets.

I now turn to my cross-party amendment, Amendment 218A. I thank the noble Lord, Lord Sharkey, and the noble Baronesses, Lady Penn and Lady Griffin of Princethorpe, for their support in adding their names. I am grateful to the Minister and her officials for a useful and interesting meeting ahead of today’s debate, although I hope that she may be a little more optimistic in her response to my amendment today. I am also grateful for the briefings I have received from UKSIF, Unison and ShareAction, and I pay tribute to the Financial Markets Law Committee for both its work on fiduciary duty and its extremely valuable 2024 report.

That report highlighted the way in which the gap left in legislation relating to fiduciary duty causes confusion and uncertainty and can result in trustees interpreting duties in overly narrow ways. I do not want to repeat my Second Reading speech, but there is now a widespread acceptance that the current lack of clarity around fiduciary duty is a real problem for pension scheme trustees—for example, in how trustees balance maximising short-term returns, potentially at the expense of considering other material factors over the longer term, which can have real-world implications for members’ interests further down the line. Even the Treasury, in its recently updated Green Book, recommends that the business case for proposals with a lifetime beyond 2040 should now be appraised against warming scenarios of both two degrees and four degrees centigrade, a possibility under which scientists say that the risks to economic growth and financial stability go up and into uncharted territory.