THE UK today becomes the first major economy to implement plans to make pension schemes mitigate against the risks of climate change.
Climate change is the number one issue of our generation.
The UK leads the way in combating climate change, and this matters for our constituents, who face the environmental and social consequences of unchecked global temperature rises; but it also matters for the saver who has a pension whose value will be compromised by climate change.
This Government will be able to stand up at COP26 in Glasgow in November and make the case that the UK is leading the world in the steps it is taking.
And this is a win win. Because we will not get to net zero without a reinvention of the economy, as it is retrofitted for a net zero world where our energy, our transport, and so much more is going to have to change.
Critical to this is unleashing the billions in private and public sector finance required to make those investments and changes, for which pensions will play both a critical role of funding, but can also profit from the investment in the new markets that are out there.
The regulations laid today will see the UK become the first major economy in which trustees of pension schemes must consider, assess and report on the financial risks of climate change within their portfolios.
They make the Taskforce for Climate-Related Financial Disclosures (TCFD) mandatory for occupational pensions schemes with £1bn or more in assets.
TCFD is a world-wide industry led initiative which has developed recommendations on how to assess and disclose climate risk that have fast become the industry standard. The TCFD recommendations are supported by more than 1,440 organisations, representing a market capitalisation of over $12.6 trillion.
The effects will be both significant and transformative. It means that by the end of 2023, the risks – and opportunities – climate change poses to £1.33 trillion worth of pension savings will be assessed and published for all to see.
Critically, this develops a system of accountability we have never had before and trustees will be required to show how climate change will affect their portfolio.
This work fulfils a major part of the TCFD roadmap, published in November 2020, which outlines steps the UK Government and regulators will take towards rolling out mandatory climate reporting requirements across the whole of the UK economy by 2025.
We have already committed to ambitious climate targets – a 78 percent reduction on 1990 emissions levels by 2035 and complete net zero by 2050.
It means many opportunities for pension schemes to make investments in the technologies that will help get us to net zero, while also achieving strong returns.
As we build back better from the pandemic, new jobs will be created as we support sustainable technology across the United Kingdom.
There is now an exciting pathway ahead for pension funds to invest – as part of a balanced portfolio – in a range of investments that not only produce an appropriate return, but also help get this country to net zero. Today is a great day, where the UK is showing real leadership.
