Pension Schemes Bill [Lords]

Debate between Felicity Buchan and Gareth Davies

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Monday 16th November 2020 Commons Chamber

[Gareth Davies (Grantham and Stamford) (Con)]

It is a great pleasure to speak in this debate today, as it was on Second Reading and in Committee. I would like specifically to address amendment 16 to clause 124. Let me start by saying how great it is that we have cross-party support for policies that push forward our efforts on climate change. We should all be very proud of the fact that we are one of the first major countries to legislate to become a net zero country by 2050. I have long talked about the influence and power of financial services and financial markets to move things forward, but sadly I cannot support amendment 16. I will set out three reasons. The first is the unintended consequences, the second concerns divestment and the third relates to focus.

First, amendment 16 is well-meaning, but it would have unintended consequences. I fear fund managers would be limited in what they were able to invest in. I say that because of the limited environmental, social and corporate governance data in certain asset classes in certain markets around the world. If we look at emerging markets, private equity or in small-cap companies, ESG data is sporadic at best. It is getting better all the time, but at this point in time the market is not mature enough for the amendment to apply for managers. I fear that managers would be limited, and that would result in sub-optimal investments and mean that they could not fulfil their fiduciary responsibility.

[Felicity Buchan (Kensington) (Con)]

Is my hon. Friend aware that industry agrees with his position? For instance, the Pensions and Lifetime Savings Association has stated that on behalf of industry.

[Gareth Davies]

I am aware that the PLSA has stated that it is concerned about this amendment, for the reasons I have described. The second reason why I would agree with the association is my fear that the amendment will imply to trustees that they have to adopt a policy of divestment. As has been seen over decades, a divestment policy, as well-meaning as it is, does not actually change the things that people are seeking to change. Part of the reason is that a stock market is essentially a marketplace, so if someone wants to divest, somebody has to invest, and therefore there is a negligible impact on the underlying company. That is why for tobacco, for climate change and for guns in the United States, the divestment policies adopted by other pension funds just have not worked. I fear that such provision would cause confusion around divestment for pension trustees. It is very hard to draw a line where the policy ends. Some may claim, or desire, that they divest from oil and gas, but where does it end? There are other sectors that clearly contribute to climate change—whether it be haulage companies, taxi companies, car companies, or aviation companies—so where does it end? That causes some confusion for trustees. An investment policy should be put in place at a ground level.

Thirdly, when compared with engagement as an investment strategy, a divestment approach is just a very weak policy. I say that as somebody who comes from fund management and managing an ESG business. As owners of companies, we could call on chief executives and chief financial officers to engage on ESG issues such as climate change. We could vote at annual general meetings. We had those companies at the table to be able to influence them. If we divest, we lose that influence—we lose that ability to change and influence a company.