Pathway to Cop26: We can get to net zero by unleashing the productive power of our pensions
Britain is leading the way to net zero. I was proud to vote for the Paris Agreement, and we have made great progress in reducing carbon emissions, which have fallen by more than 28% since 2010, by far the best rate of reduction in the G20. 1
But getting to net zero requires new and innovative ideas. The UK remains the premier destination for sustainable energy investment, and globally, more than 61% of green investors would consider investing in the UK.2
We all need to play our part, from the consumer, to big business. The Chancellor’s Summer Statement demonstrated the Government’s commitment to environmental action through a new Green Homes Grant, with vouchers to pay at least two-thirds of green home improvements for consumers, such as loft, wall, and floor insulations.
But there is something that millions of us have that can play its role in cutting carbon emissions too: a pension.
Saving for retirement is something that we all need to think about. For too long, many of us saw saving for a pension as a problem for the distant future. Auto-enrolment has changed that.
Since its introduction in 2012, more than 10 million employees have been auto-enrolled into a workplace pension, with the biggest increases for young people, women, and the lowest paid. In the five years following its introduction, participation for women jumped from 40% to 84%, for young people from 35% to 79%, and for the lowest-paid from 34% to 76%.3
But with trillions in assets under management, our pensions can do so much more than we think. If we can unleash the productive power of our pension funds, they can be at the forefront of seizing sustainable opportunities by financing the green-tech and greenenergy revolution we need.
With the UK hosting COP26 in Glasgow next year, it is vital we become a world leader in promoting sustainable and ethical investment, so we can harness the financial muscle of our massive pension portfolios going forward.
I want to see our British pension funds investing in new technologies such as wind, solar, and hydrogen. These innovative technologies can turbo charge the way we travel, help us achieve net zero, and provide the long-term return that savers need.
Last year I introduced new Environmental, Social and Governance regulations – ESG for short. When it comes to pensions, the E means sustainable and ethical investment.
These regulations mean that since last October 2019, occupational pension schemes with more than 100 members must take due account of climate risk in their investment practices. And from this autumn, all schemes will be required to report publicly on how they do so, as transparency is key to informed decisions and informed change.
But we need to go further. That is why we are introducing the Pensions Schemes Bill – a new bill that aims to make your pension safer, better and greener. Safer, by cracking down on unscrupulous pension bosses. Better, by making your pension more accessible to you. And Greener, by investing in a more sustainable and ethical way.
I want to talk about the third of these points – greener.
To facilitate the financial world in helping get Britain to net zero, the Task Force on Climate-related Financial Disclosures was set up and supported by many key figures and organisations, including the G20 Financial Stability Board, and the UK Government’s Climate Change Advisor, Mark Carney, the former Bank of England Governor.
The Pensions Schemes Bill includes new provisions that will allow the government to mandate schemes to adopt and report against the recommendations of the Task Force. These recommendations ask trustees to consider climate change within their governance as a financially material risk to their members’ investments. And they suggest trustees should disclose how they have done so to their members and the public. Again, with this transparency comes accountability, change and empowerment.
The Bill will also give the government the power to require schemes to take account of the Government’s net zero targets, as well as the Paris Agreement goals of limiting the rise of average global temperatures.
More people than ever before are thinking about how their pension is invested. Many people are now taking a personal interest in how their own savings can play their part in getting Britain to net zero.
In July this year, Richard Curtis – the brilliant British screenwriter and producer, behind classics like Mr Bean and Love Actually – launched the Make My Money Matter campaign. His new campaign aims to engage savers with their pensions and encourage sustainable investments.
Some people believe that government should simply force pension trustees to divest from high-carbon stocks. I fundamentally disagree. Simply selling these assets to others without the same environmental concerns is counterproductive and will do nothing to get Britain to net zero.
The Make My Money Matter campaign is not calling for divestment. They are encouraging savers to engage with their pensions and encourage sustainable investments. That very much chimes with my priorities, and the priorities of the DWP.
It is a partnership with business that is the way to achieve the innovative change required. By investing in assets, trustees can nudge, cajole, and vote firms towards lower-carbon business practices.
Collaboration is the best approach. The UK can and will lead the way both in terms of achieving net zero, but also in the provision of green tech and the financial know-how to get us there.
Net-zero is a long-term challenge facing our country. By unleashing the productive power of our pensions and engaging with savers, we can get there.
1 HM Government. 2020. Provisional UK greenhouse gas emissions national statistics 2019. [Online]. [Accessed 2 October 2020.] Available from: https://www.gov.uk/government/statistics/provisional-uk-greenhouse-gas-emissions-nationalstatistics-2019
2 Octopus Energy. 2019. The green investor: why institutional investing holds the key to a renewable energy future. [Online]. [Accessed 16 September 2020.] Available from: https://octopusgroup.com/wp-content/uploads/sites/2/2019/02/OE003-Octopus-RenewableEnergy-Investment-Report-Final-web.pdf
3 Department for Work and Pensions. 2017. Automatic Enrolment Review 2017: Maintaining the Momentum. [Online]. [Accessed 16th September 2020] Available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_dat a/file/668971/automatic-enrolment-review-2017-maintaining-the-momentum.PDF