Clause 124 - Climate change risk

Pension Schemes Bill [Lords] – in a Public Bill Committee am 12:00 pm ar 5 Tachwedd 2020.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Work and Pensions) (Employment) 12:00, 5 Tachwedd 2020

I beg to move amendment 17, in clause 124, page 118, line 23, leave out “an occupational pension scheme” and insert—

“(a) an occupational pension scheme, or

(b) a contract-based workplace scheme”.

This amendment would add contract-based workplace schemes to obligations under this clause, as well as occupational pension schemes.

I will keep my remarks on the amendment brief. In a sense, it builds on the positive work in the Lords on climate change by extending the provisions in the clause to contract-based workplace schemes as well as occupational pension schemes. I hope the Minister will agree that it is a common-sense extension of the welcome measures already contained in the Bill, and that it would ensure effective governance of all relevant schemes with respect to the effects of climate change.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

The clause introduces a variety of measures in respect of climate change risk. We believe the clause and the regulations that it allows the Government to make are a huge step forward in the UK’s fight against climate change and mark the first provisions of their kind globally.

We are proud that this Government are the first among the G7 to introduce a target for net zero by 2050. We are among the leaders in environmental, social and corporate governance with the pioneering way that we are transforming the pensions and asset managing processes of the City of London, and the pensions provision, on an ongoing basis. We have the green finance strategy that the Government have introduced. I respectfully suggest that the build-up to COP26, which is one year from today, gives us an opportunity to show the great work that we are doing in this country and to demonstrate how we can show leadership around the world.

I believe we all know and accept that climate change is a pressing and imminent threat not only to our planet, but to our investments and, therefore, to our pensions. Back in August, my right hon. Friend the Secretary of State for Work and Pensions launched the Government’s consultation on the measures they propose to introduce, which include powers to ensure that pensions are properly protected against the risk posed by climate change and can take full advantage of the investment opportunity it presents. I believe that there is an opportunity for this country to lead the way—an opportunity to be the first in the market as we create climate change-friendly investments and an investment strategy that genuinely transforms this country, helps us to get to net zero and provides sustainable long-term pensions.

Photo of Gareth Davies Gareth Davies Ceidwadwyr, Grantham and Stamford

I warmly welcome clause 124, which affirms the Government’s commitment to tackle climate change using the power of finance and investment to move things forward. Does he agree that the issuance of a green gilt and asset purchase facility is a good next step forward in enabling more pension funds in our country to invest in our bond markets in a way that will help us to meet our climate change targets?

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

My hon. Friend is a specialist in this field thanks to his profession prior to being elected to the House. It seems to me that as we drive forward the ESG reforms and the changes under clause 124, and as we have climate-related financial disclosure, pension funds will wish to invest in a sustainable way that produces an appropriate return but is supportable from an ESG point of view.

Effectively, only three forms of capital can provide the infrastructure renewal and retrofitting that will be required for us to get to net zero: Government money though taxes, private sector money brought forward by individual companies, and pension fund investments. Creating a green gilt, as the French, the Germans the Poles and some parts of California have already done, would be a very good way forward. To their credit, the Chancellor and Ministers at the Treasury are looking into it, and I believe that such a move will happen in the fullness of time.

I utterly support the efforts of my hon. Friend to ensure that a green gilt is an alternative form of investment for pension funds as they seek to invest in a sustainable long-term way that also supports the objective of this country. I utterly support the campaign that he has been fighting, both in word and in the House, on that issue.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Work and Pensions) (Employment)

It is a matter of cross-party pride that we are seeing the commitment to climate change risk come into pensions legislation, and that we are leading the way on this issue. Over the past few years, we have introduced flexibility for trustees to look at non-financial measures in relation to investment decisions, which is an important part of the journey. In the spirit of these legislative provisions, does the Minister agree that, to realise the potential of the Bill and the opportunity for trustees, it is important to continue dialogue and to seek international agreement? Some countries are making progress in the right direction, but others are not—for example, the legislation passed in Australia looks like it is going in the opposite direction.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

The hon. Lady makes a number of good points, all of which I endorse. It was noted in the record of the conversation between the Prime Minister and his Australian counterpart only last week that our Prime Minister tried to make the case to Mr Morrison that Australia should be doing more on climate change. The flipside of that is that, clearly, we should be using our advocacy. It is to his great credit that Edward Miliband, when he was the Secretary of State for Energy and Climate Change in the Labour Government, introduced the Climate Change Act 2008. That work has continued since under the coalition Government and the Conservative Governments. The direction of travel could not be clearer in this county, and I believe our legislation has made clear what we are trying to do.

Photo of Graham Stringer Graham Stringer Llafur, Blackley and Broughton

Order. I do not want to turn this into a full-blown debate on climate change. We are debating a proposed amendment to a clause, which takes into account climate change in a specific way. I would be grateful if the Minister focused his remarks on the amendment.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions 12:15, 5 Tachwedd 2020

I entirely endorse everything you say, Mr Stringer, and I apologise. I was answering too fully what I would suggest is probably a legitimate question from the hon. Member for Feltham and Heston about a clause entitled “climate change”.

However, to return to amendment 17, I respectfully suggest that that is not necessary. There are two fundamental reasons why. First, action has already begun on that specific issue; I have provided the hon. Lady with the exchange of correspondence between myself and Chris Woolard, the interim chief executive of the Financial Conduct Authority, dated 30 September and 22 September 2020, which specifically addresses the point. The FCA is the appropriate regulator to make proposals for its regulated sectors. The FCA, as Chris Woolard makes clear, will be making proposals on climate change with respect to personal pension schemes, otherwise known as contract-based schemes. The letter has been in the House of Commons Library since Second Reading.

I can assure the Committee that the FCA plans to consult on corresponding climate-related financial disclosures for personal pension schemes in the early months of next year and to finalise the rules by the end of 2021. That will mean that by 2022, subject to consultation and cost-benefit analysis, pension schemes, no matter whether they are occupational or personal, will be subject to TCFD reporting requirements. The whole point of the exchange of correspondence is that the FCA has effectively accelerated the process it has been going through to catch up with what the DWP and regulators are doing in this space. Given that announcement, I urge hon. Members to withdraw amendment 17.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Work and Pensions) (Employment)

I take on board the points the Minister has made. This is an area that may requires further dialogue, and we will reflect on what the Minister has said. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 124 ordered to stand part of the Bill.