These will compel pension funds to assess and report on how their investments contribute to the Paris Agreement’s climate aim of keeping global warming to 1.5 degrees Celsius over pre-industrial levels.
Through climate risk reports provided by their pension plan, pension savers will be able to see the impact of their investments and gain a greater understanding of how climate risks are being assessed and mitigated for the first time.
Together with existing climate legislation, the additional measures will result in more than 80% of UK pension scheme members being invested in pension schemes subject to the new requirements as of October this year.
This is paving the way for greener pensions in the midst of an economic transition to net zero, which will allow investors to participate in green enterprises, support future jobs, and eventually contribute to the growth of a stronger and more sustainable economy.
Thérèse Coffey, the Secretary of State for Work and Pensions, said:
We are making sure our pensions can be a superpower delivering prosperity for people – and the planet – by making changes to the rules about how they are managed.
We’re paving the way for greener pensions which can offer sustainable returns for members while accelerating our net zero ambition and supporting local jobs.
The measures are part of a consultation response published on 17 June 2022 as the Secretary of State visited Abbey View Produce in Bury St Edmunds. Developed with financial backing from UK pension funds managed by Greencoat Capital, the greenhouse is a world first low carbon heating and greenhouse facility – demonstrating the power of pensions and their role in net zero.
James Samworth of Greencoat Capital said:
The greenhouses are a brilliant example of how pension funds can have a direct impact. Abbey View at Bury St. Edmunds are decarbonising UK horticulture, improving food security, and creating employment whilst delivering secure income for pensioners. Renewable energy more broadly is a great asset class for pension funds, matching their liabilities with long-term, inflation linked returns.
The announcement comes ahead of a three-week ‘Green Nudge’ trial, in which members of pension schemes will be urged to learn more about how to make greener retirement decisions.
In recent years, the Department of Work and Pensions (DWP) has opened up a wider range of investments for occupational pension schemes, known as illiquid investments, making it easier for them to invest in projects that will help move the dial toward a carbon-free economy, such as infrastructure projects.