Pension Funds: Financial and Ethical Investments

Debate between Clive Lewis and Alex Sobel

Wednesday 22nd May 2019 Westminster Hall

[Alex Sobel (Leeds North West) (Lab/Co-op)]

I welcome this important debate, secured by the right hon. Member for Kingston and Surbiton (Sir Edward Davey). It follows the Environmental Audit Committee’s inquiry into green finance, which he clearly read because his recommendations seem to mirror our own. It is good to see Committee members who served on that inquiry in the Chamber.

The physical impacts of climate change, such as rising sea levels and increased frequency and intensity of extreme weather events, will pose increasing economic risks for a range of businesses and investments, from food and farming to infrastructure, homebuilding and insurance. In the UK alone, climate change is projected to increase the risk that business assets and operations are damaged and disrupted by flooding, degrade some of our most productive agricultural land, to reduce water supplies, to increase the frequency and intensity of heatwaves, and to stress transportation, energy and water infrastructure. There are a great many risks for investors to consider.

For instance, climate change may result in liability risks when those who suffer losses as a result of climate change take legal action to recover damages from those who can be found responsible. For example, the city of New York is currently seeking to recover costs from BP, ExxonMobil, Chevron, ConocoPhillips and Shell as a result of flooding. Transition risks could also be faced by companies in high-carbon sectors that fail to diversify and adapt to policies introduced in response to the Paris climate change agreement. Firms that do not make a timely transition and remain over-invested in climate-changing activities could face costly regulatory action, suffer reputational damage, or see their assets become stranded as carbon prices rise. Our inquiry found several examples of stranded assets, such as oil refineries or fracking infrastructure. A Bank of England paper published in 2016 warned that

“a sudden, unexpected tightening of carbon emission policies could lead to a disorderly re-pricing of carbon-intensive assets”.

These are real challenges for pension providers and pension investors.

Our Committee heard about a range of worrying practices in the pension industry, including the fiduciary duty of pension scheme trustees often being misinterpreted as a duty to maximise short-term returns; remuneration for investment consultants and fund managers encouraging a pursuit of short-term returns rather than long-term value creation; and a tendency to under-invest in physical assets, technology innovation and employees’ skills in preference for nearer-term gains from financial mergers, acquisitions or restructuring. In the context of our climate change risk, we want none of those things.

[Clive Lewis (Norwich South) (Lab)]

It is really good to hear hon. Members talk about climate change and greenhouse gases, but there are in fact nine planetary boundaries, of which greenhouse gases are one. I wonder whether people understand that it is entirely possible that we save the planet from climate change yet kill ourselves through eight of the other planetary boundaries, two of which we are in the red for. Is it not the case that financial markets, pension schemes and so on actually need to see their remit as wider than just greenhouse gases, also covering a range of other areas, including biodiversity and carbon?

[Alex Sobel]

Absolutely. A range of factors, including air quality and the insect population and pollinators, should be taken into account. It is not just about fossil fuels, but as the debate mainly concerns fossil fuels and climate change, I will concentrate on those. I recently led a debate on insect populations. It is good that we are looking at all of that in the round.

There are structural incentives in the UK for maximising short-term returns over long-term investments, which are much more climate-sensitive. The Government should clarify that pension schemes and company directors have a fiduciary duty to protect long-term value and should consider environmental risks in the light of that. Some pension companies are taking that up, and investors are also looking for better, fossil-free pension options. A 2017 YouGov poll for Good Money Week found that more than half of 18 to 34-years-olds—the pensioners of tomorrow—would like fossil-free investments offered as standard.

We need to make progress, and the Government need to bring in stricter rules. The Committee found that the current rules are that trustees or governance committees legally must have good reason to think that scheme members would share their concerns, and that decisions should not involve a risk of detriment to the fund. However, the European Commission’s action plan on sustainable finance proposes that institutional investors and investment managers should consult their beneficiaries on their sustainability preferences and reflect those in their investment decision making, regardless of whether they are financially material. The European Commission plan states that

“institutional investors and asset managers do not sufficiently disclose to their clients if and how they consider these sustainability factors in their decision-making. End-investors may, therefore, not receive the full information they need, should they want to take into account sustainability-related issues in their investment decisions.”

I call on the Government to adopt the action plan in full; the Minister intervened earlier to say that the Government have only partially adopted it.

Pension savers should be given the greatest opportunity to engage with decisions about where their money is invested. As I said, younger generations want fully fossil-free pension options. Divesting from fossil fuels makes sense not just in terms of ethics and the climate, but as a sound long-term financial strategy. As soon as I joined the parliamentary pension scheme, I also became a supporter of Divest Parliament. According to the latest annual report, as my hon. Friend the Member for Warwick and Leamington (Matt Western) said, the fund includes stakes in BP at £7.33 million, Shell at £6.6 million, Rio Tinto at £3.67 million and Total at £2.93 million. Our own funds are being invested in those companies. It is time our own trustees heard our voices in this debate and in this place, divested our pension funds and reinvested in renewables and clean tech for our future and for the planet.

Insect Population

Debate between Clive Lewis and Alex Sobel

Wednesday 20th March 2019 Westminster Hall

[Alex Sobel]

If we need to intervene and if we have to replace the natural pollinators with artificial pollinators, there will be a huge cost to the economy.

[Clive Lewis (Norwich South) (Lab)]

I praise my hon. Friend to the rafters for securing this debate, because it is quite clear to many people that it would be entirely possible for this country and this planet to save ourselves from climate change, yet destroy ourselves in myriad other ways that breach the other eight planetary boundaries. Picking up on that, does he agree that it is the world’s poorest—both internationally and domestically—who will be disproportionately impacted by the systemic climate shocks that these breakdowns in biodiversity will have on our economies?

[Alex Sobel]

Absolutely. The majority of the world’s poor live towards the middle of the planet, and with climate change those populations will have to move north and south to get further away from the equator, which will mean huge shocks to countries if we do nothing or if we do not do enough. That will have the biggest impact on the world’s poor and will increase desertification of the planet.

Finance (No. 3) Bill (Seventh sitting)

Debate between Clive Lewis and Alex Sobel

Committee Debate: 7th sitting: House of Commons
Thursday 6th December 2018 Public Bill Committees

[Clive Lewis]

It is a pleasure to serve under your chairmanship, Mr Howarth. I am pleased to have the opportunity to speak to the clause and our amendments. As the Minister might outline shortly, the clause provides for changes to certain levels of vehicle excise duty, which I will refer to as VED, by amending the Vehicle Excise and Registration Act 1994, which will now be known as VERA—there are lots of acronyms in this.

Changes to the rates are due to take effect in relation to vehicle licences taken out on or after 1 April 2019. VED is chargeable on vehicles, dependent on various factors, such as vehicle type, engine size, date of first registration, carbon emissions data—indirectly—and other emissions’ impacts, such as air quality and public health. I will not go through all the changes to the various excise duty rates as they apply to the different types of vehicle covered by the clause. At this stage, I will simply note that they are relatively small.

The amendment would require the Chancellor to review the revenue impact of the clause and to publish the findings. That would allow the House, not to mention the drivers of those classes of vehicle and the public at large, to understand the impact on the public purse. Without such an assessment, neither the Government nor indeed Committee members would know how much additional money was available to redirect into measures to help drivers—in particular those on low incomes—to take up cleaner vehicles to the benefit of the natural environment and public health. Will the Minister tell us whether the Government have undertaken any such assessment? If so, will he commit to publish it? If they have not, will he undertake to do so?

The amendment would require the Chancellor to review the impact of the clause on carbon dioxide emissions and the UK’s climate change targets, and to publish that analysis. As the Minister might confirm, road transport accounts for 22% of total UK carbon dioxide emissions—a major contributor to climate change. The European Union has agreements with motor manufacturers that aim to reduce average CO₂ emissions from new cars. Colour-coded labels, similar to those used on washing machines and fridges, are now displayed in car showrooms, showing how much CO₂ new models emit per kilometre. However, as traffic levels are predicted to increase, road transport will continue to be a significant contributor to greenhouse gas emissions.

Given that light vehicles and other vehicles covered by the clause contribute substantially to carbon and greenhouse gas emissions, will the Minister explain why no such climate impact assessment has been carried out? How will the Government take a lead internationally in the fight to keep average atmospheric temperatures below 1.5° C in the absence of full monitoring and measurement of all greenhouse gas emissions from all sources? He will surely also need to apply “polluter pays” disincentives in the form of increased taxes, for example, including relevant changes to VED.

Finally, will the Minister give a commitment that any such planned or future increase in VED will be recycled into helping drivers to adopt low-emission fuel alternatives, such as electric vehicles or, in future, hydrogen-powered vehicles—that is particularly important to help drivers who must use their vehicles for work purposes as well as for leisure activities—or, where convenient, into helping public transport alternatives, which are rarely available in some parts of the country and many rural areas?

Amendment 110 would require the Chancellor to review the impact of the clause on road congestion and traffic levels and to publish the results. Vehicle use affects our whole quality of local life: traffic can be dangerous and intimidating, dividing communities and making street life unpleasant, while air pollution and traffic noise can make urban living uncomfortable. As the Institute for Fiscal Studies points out, taxing only fuel consumption and car ownership, no matter how the taxes are differentiated by emissions and engine size, cannot result in anything approaching an optimal tax, because neither is a good proxy for the impact of car use on congestion.

Many journeys occur on relatively empty roads. Those journeys are overtaxed because the congestion cost imposed on other road users is minimal. Rural road users are overtaxed relative to those who regularly drive in towns during busy periods. The result is too much driving in towns relative to the amount of driving in less congested areas, and the build-up of noxious fumes and climate-changing pollution. Those adverse impacts are in addition to the disruption for all drivers, who are less able to move freely and go about their business or other driving activities efficiently and without wasting so much time stuck in their vehicles. Not only is that personally frustrating and a contributor to so-called road rage, but the impact on economic and social productivity should be minimised. Will the Minister therefore explain why there has been no assessment of the impact of the clause on road congestion and traffic levels, or publish any that has been carried out?

Amendment 111 is similar, requiring the Government to assess the impact of the clause on air quality standards. As the Minister must be aware, air pollutants in transport include nitrogen oxide, particles, carbon monoxide and hydrocarbons, all of which have a damaging impact locally on the health of people, animals and vegetation. Air quality in the UK might be slowly improving, but many areas still fail to meet the health-based national air quality objectives and European limit values, particularly for particles and nitrogen dioxide.

In town centres and along busy roads, vehicles are responsible for most local pollution. Vehicles of all types tend to emit more pollution during the first few miles of a journey, when their engines are warming up. Although new technology and cleaner fuel formulations will continue to cut emissions of pollutants, these benefits are being eroded by the increasing number of vehicles on the road, including motorcycles, and the number of miles driven. Can the Minister please explain why he does not believe that any such assessment, as set out in our amendment, is necessary to understand the impact of the clause on such a critical aspect of road use?

Amendments 108 and 111 also allow us to address a particular aspect of the total revenue impact and the impact of the measure on air quality: the specific amount raised from VED in London and the extra amount that would be raised as a consequence of the clause, and the consequent impact on air quality.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

Are our amendments not particularly important in the light of fact that the Government have been taken to court three times by ClientEarth for failing European air quality standards and have lost three times?