Pension Schemes Bill

Baroness Penn Excerpts

Monday 23rd February 2026 Grand Committee

One of the elements of being here in London, and which we should take advantage of, is that we have such a powerful financial system. The TNFD has been welcomed in Japan, the USA, the European Union and Switzerland. We are not talking about being isolationist in this regard but rather about how we can use our regulatory process, established a few years ago, to progress our thinking about the fact that so many people rely on their private long-term pension investments, and about the biodiversity risk. That risk is very real. It may not personally affect any of us in Committee today—except perhaps a few of the younger officials at the table behind the Minister—but I am keen to understand what the Government are seeking to do with the TNFD in relation to the development of pension schemes. I hope other noble Lords will support this amendment.

[Baroness Penn (Con)]

My Lords, I will speak in support of Amendment 218A. Before I do so, on Amendment 212, the noble Lord, Lord Sharkey, made a valiant attempt to square the circle of opposing some forms of mandation while supporting others, but it did not quite get me over the line. So I do not support that amendment.

However, I am interested in my noble friend’s Amendment 218E on the TNFD. We have spoken many times in the House about nature and climate being two sides of the same coin, and we now have a framework that enables organisations to understand nature risk properly. It therefore seems logical that it is integrated into our thinking on pensions.

Although I acknowledge my noble friend’s concerns, the reason why I support Amendment 218A is that, at its heart, its point is to clarify that pension schemes trustees can take systemic-level risks into account when carrying out their fiduciary duty. We could have debates on other aspects, such as taking members’ views into account, but the amendment is attractive because it still has fiduciary duty at its heart rather than seeking to overrule it. That is a beneficial approach because it does not put those of us in Committee, or the Government, in the position of taking those views and making those decisions for people—that remains with the trustees, which is, I think, appropriate.

The noble Baroness, Lady Hayman, eloquently made most of the points to be made in relation to Amendment 218A. The Government agree that we need to clarify that fiduciary duty can include a consideration of systemic risk; that point was accepted by the Pensions Minister in December. So the question then becomes: what form should this improved guidance take? Should it be legislative or statutory? I think that it should be legislative because so much of the understanding of fiduciary duty relies on the interpretation of case law. Therefore, we need a clearer legal underpinning of our understanding of this duty for it to be robust and for trustees to use it, which is the barrier that we are already trying to solve.

I would like to understand from the Minister why the Government have a preference for statutory guidance over legislative change. In the past, the Government have pointed to the importance of flexibility and consultation—those are allowed for through this amendment, but it would have the added benefits of proper parliamentary scrutiny and consultation with outside bodies.

I also want to ask the Minister about the scope of the Government’s proposed approach; this was touched on by the noble Baroness, Lady Hayman. Why is it limited to occupational trust-based schemes, if that is the case? We have about half of pension assets in local government pension schemes and personal pensions, so why would this not extend to those?

Finally, I wish to press the Minister on timing. We have heard about transition plans in this debate. Work on those has been under way for a long time, and we have heard about the extended timeline, which may extend even further—one never knows. We have heard about the TNFD and the time it takes to get momentum behind this. We have heard about the fact that we were debating these issues three years ago in the then Financial Services and Markets Bill. We had one of our round tables before the election was called and I think that the Government have had further round tables to try to corral their efforts to address this issue.

However, the point remains: there needs to be a legislative basis for this statutory guidance. That is my understanding. We now have a pensions Bill. Let us hope that we do not have another one. We hear the phrase, “We will bring forward proposals when parliamentary time allows”—well, this is that parliamentary time. I am sure that the Government have lots of other things they want to do with future Bills in future Sessions of Parliament. May I encourage the Minister to seize this time? If she does not agree with Amendment 218A, at least on the statutory guidance, bring forward the legislative basis so that the Government can get on with the thing they say they want to do.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I will speak in favour of all the amendments in this group, particularly Amendment 212, to which I have attached my name. As has already been widely noted, it has broad, cross-party support. I would have attached my name to Amendment 218A had there been space and to Amendment 218E had I caught up with it; I will certainly talk to the noble Baroness, Lady Coffey, should she be thinking about bringing it back on Report, having at Second Reading praised the noble Baroness’s contributions in that direction.

Like that of the noble Baroness, Lady Hayman, my speech at Second Reading majored on the fiduciary duty issues, which this group very much gets to the heart of. I was very interested in the comments made by the noble Baroness, Lady Penn, on the TNFD. It is great to hear such broad political support for that; I hope that it is something we can take forward.

I will mostly focus on Amendment 212. Noble Lords might expect me, as the Green, to get up and talk about the climate emergency—that is standard—but what I am really getting up to talk about today is financial risk. I am talking about the carbon bubble, which is a very severe risk, among many other risks, that all pension savers face. There is a strong economic case for green pensions reform. UK pension schemes have been estimated to hold at least £88 billion in fossil fuel companies and £10 billion in thermal coal alone. Here, I will drop in statistics relating to the biodiversity point: UK pension schemes hold £300 billion in companies linked to deforestation, more than 85% of leading schemes have been found to lack credible climate action plans, and only 4% of pension assets are invested in climate solutions, the things that could be providing the long-term future.

One of the issues that this amendment brings forward is the fact that there is a lack of monitoring of this situation by both the Government and the Pensions Regulator. There were a number of Written Questions in the other place in September about the risks of stranded assets, contribution to fossil fuels expansion and investments in fossil fuels. The Government’s response was that they did not have any estimates on these matters. Subsequent Written Questions led to the understanding that the Pensions Regulator also has no estimates on these matters. There is already some data on this, which is being captured by independent organisations—but I am afraid that is really not good enough. The carbon bubble is something the Government really need to have a handle on.

As some other speakers have already said, we know that many of the largest pension schemes, including some of the biggest names, continue to be invested in thermal coal, as well as other very marginal fossil fuel extraction, which will swiftly become uneconomic as global demand tails off. That is already happening with thermal coal. The International Energy Agency’s Electricity 2026 report, out earlier this month, suggested that global demand for coal has already peaked. China and India, as well as Europe, all saw declines in 2025, yet these investments are still happening.

It is common for the idea to be floated that pension schemes should not exit these investments, despite holding them solely for short-term benefit and for the ruination of other holdings in pension savers’ portfolios, but should try to engage in the companies concerned. However, this has not had any discernible impact. After decades of so-called engagement, no coal mining firm has set strong decarbonisation targets, and it is very hard to see how they might actually do so.

Many oil and gas firms are nominally signed up to far away 2050 targets. I am sure we have all heard the phrase that having a 2050 target is the same as having no target at all. Barely any have anything like a fast enough transition to come anything close to being Paris-aligned. We saw with BP and Shell how quickly firms row back from hard-won targets when their CEOs change or a few shareholders start to grumble. What we are talking about here, I stress, is an approach to protect pension savers’ financial interests. When the UK Government’s policy is moving towards decarbonising the economy, UK pension policy should not be undermining that, particularly when it comes to thermal coal overseas.