Question to the Department for Work and Pensions:

To ask the Secretary of State for Work and Pensions, what steps her Department is taking to promote environmentally sustainable investments by pension funds.

For several years the DWP has taken action to ensure that sustainable investment by pension funds is both possible and encouraged. This has been in several different ways.

In 2018 we brought forward the ESG Regulations. These require trustees of schemes with 100 or more members to publish a policy on environmental considerations including climate change, and defined contribution schemes are required to publically report annually on how they have implemented their policy. This policy was expanded upon in 2019.

In 2020 the Government brought in the Pension Schemes Bill; Section 124 provides powers to impose a wide range of climate-related requirements, including to report in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), and to take account of the Paris Agreement goal. This is a world first. This, the first pensions-related bill to specifically cover climate change, completed its passage of Parliament on 19^th January 2021. We will bring forward detailed draft regulations and statutory guidance to in the coming days. Subject to approval by Parliament, these duties will come into force in October 2021.

Whilst many schemes can and do invest in environmentally sustainable opportunities within the charge cap, the Government is seeking to make it easier for pension scheme trustees to invest in ‘productive finance’ that funds infrastructure, small businesses and the transition to ‘net zero’. To that end we have consulted upon changes to the rules and requirements relating to the investment by pension funds in illiquid investments.

The fragmentation of the UK pensions market is holding us back. The Government will introduce changes in October of this year to drive consolidation of the UK Defined Contribution pensions market. Without a faster rate of consolidation and greater scale, members of smaller schemes simply cannot benefit from the potential returns and greater diversification that investments such as green infrastructure or the sustainable businesses of the future can offer.

Finally, the government is also creating a Green Gilt to provide another investment vehicle for pension funds in sustainable investments.