Pension Schemes Bill [HL]

Baroness Jones of Whitchurch Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Baroness Jones of Whitchurch (Lab)]

My Lords, I intend to speak relatively briefly. I welcome the Bill and echo the excellent points made by my noble friend Lord McKenzie in his opening statement. I agree with many of the points made by noble Lords around the Chamber this afternoon. Like the noble Baroness, Lady Hayman, I do not claim to have any expertise in this matter and, also like the noble Baroness, I will concentrate my remarks on the environmental impact of pension investments and the lack of controls in the Bill. The noble Baroness mentioned Peers for the Planet, so perhaps I should say that I have had some involvement with it. I do not know whether we have to formally declare that, because in an ideal world all noble Lords would be members of Peers for the Planet and it would be a badge of honour. Perhaps we should aspire to that.

I believe that this is a lost opportunity to use the pensions dashboard, and the powers of the Pensions Regulator, to address how pension schemes are meeting the challenge of the climate change emergency. As things stand, we are currently on track for an increase of 2 to 4 degrees centigrade of global warming by the end of the 21st century. This will have profound consequences for the global economy, and therefore for the investments and financial returns of occupational pension schemes.

The Bank of England Governor, Mark Carney, has stated that pension fund investments held by millions of people could become “worthless” unless the financial sector reacts quickly to the climate change crisis. As the noble Baroness, Lady Hayman, said, the Environmental Audit Committee produced an excellent green finance report last year, which recognised that, due to their size and influence, pension investment portfolios have a vital role to play in delivering our climate commitments. At the same time, recent polling by the charity ClientEarth has shown that the majority of savers want to move their money away from fossil fuels and would consider moving their pension to another provider if they found out that their fund had significant fossil fuel investments.

This is a rare opportunity to align pension funds with the Government’s stated commitments in the Paris Agreement, which will be reviewed and updated at COP 26 in Glasgow later this year. We can do this through the Bill by requiring pension funds to disclose information about their investments to individual savers via the pensions dashboard. We can also require trustees to align their investment and stewardship activities with the objectives of the Paris Agreement.

The new pensions dashboard will quickly become the primary means through which savers will obtain information about their pension fund. Obviously, it is an important step forward to empower savers with details of fees and charges, the benefits of their scheme and other issues we have debated this afternoon. But full transparency requires more than this. Very few savers have a good understanding of the steps their pension fund is taking to manage climate change risks. Obtaining this information is time-consuming, slow and difficult. Given the potential high impact and the systematic nature of climate change risks, reporting through the dashboard would enable savers to judge whether the risks are being properly mitigated. It could also help build trust and stronger engagement between savers and pension fund providers. Does the Minister accept the principle that savers should have easy access via their dashboard to information about how their fund is mitigating the damaging effect that climate change could have on their savings?

There is also a wider challenge for pension funds to play their part in meeting our obligations under the Paris Agreement. Increasingly, evidence shows that the long-term best interests of savers are most likely to be met where global warming is held as close as possible to 1.5 degrees centigrade. As stewards of a significant portion of the UK’s capital, pension funds clearly have a critical role to play in shaping corporate business plans so that they de-risk their capital investment by switching to green alternatives. Some are already playing their part and rising to the challenge, but we clearly need a level playing field for consistency across the sector. This can be achieved only if it is done not on a voluntary basis but under an obligation to comply with our Paris Agreement promises.

Given the acute nature of the climate change emergency, does the Minister accept that this Bill could be used to require pension funds to align their investments with Paris-compliant business models? Does she agree that the regulator’s role could be enhanced to ensure compliance with these objectives? I very much hope that, when she replies, she accepts that the Bill would indeed be an excellent vehicle for achieving these objectives. I look forward to hearing that she agrees with those views.