UK businesses should align their pensions investments with the government’s net zero targets for carbon emissions, according to a new ‘green pensions charter’ launched this month.
The charter calls on companies to put pressure on the pensions industry to agree net zero targets for all investments by the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow in November 2021, as well as engaging with trustees and pension providers to work on aligning pension schemes with net zero targets by 2050.
The Green Pensions Charter was drawn up by campaign groups Make My Money Matter and Count Us In, who said only 5% of companies currently align their pension schemes with sustainability targets. The groups said they believed green pensions could become “mainstream” for all businesses committed to tackling the climate crisis.
Pensions expert Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law, said companies were facing far greater scrutiny when it comes to their climate credentials, and needed to ensure their pension schemes were invested in line with their net zero ambitions.
“The Green Pensions Charter is yet another example of how the veil is being lifted on companies’ climate credentials. Companies which broadcast their net zero ambition, but which sponsor occupational pension schemes that are not aligned with those, will risk reputational damage,” Saunders said.
“This is also an issue for the trustees of those schemes – in part because anything that detrimentally impacts a sponsoring employer could impact on the funding available for a defined benefit pension scheme, but also because of the potential for trustees to be faced with challenges from members about discrepancies between a company’s public position on climate change and the manner in which its scheme assets are invested. Trustees must ensure they have the appropriate governance framework in place to assess the risks posed, and work together with the employer to mitigate those risks,” Saunders said.
The campaign groups said they would provide charter signatories with resources to help them meet the commitment of ‘greening’ their default and defined benefit pension schemes.
Employees of companies signing up to the charter are also encouraged to sign the ‘green pensions pledge’ which is a similar commitment for individuals to make pensions investments more sustainable.
The Green Pensions Charter comes ahead of the introduction of mandatory climate governance, strategy and risk management reporting requirements that will come into force for the largest occupational schemes and authorised master trusts later this year. The rules will require pension
schemes to assess the impact of climate change on their investments in line with recommendations from the international Taskforce on Climate-Related Financial Disclosures (TCFD), and to publicly report on that information.
The Financial Conduct Authority (FCA) also introduced requirements for large listed companies to make a statement in their annual report on whether it has made disclosures consistent with TCFD recommendations. The rule is expected to be extended to smaller companies in the future.
However a report from environmental legal group ClientEarth earlier this year showed that the majority of UK listed companies are currently failing to meet disclosure requirements.