Pension schemes a 'superpower' for delivering net zero - Coffey

Secretary of State for Work and Pensions, Thérèse Coffey, has identified the pensions industry as a “superpower in delivering prosperity for people and the planet in our race to net zero”, emphasising that new requirements are "not about box-ticking".

Speaking at the Policy Exchange, Coffey argued that the sector "has a massive part to play in helping the UK get to net zero", noting that across the industry there has been leadership and important progress made.

In particular, Coffey pointed out that around 85 per cent of defined contribution pension savers are in a scheme with a net-zero target, while six of the top 10 defined benefit (DB) schemes have made net-zero commitments.

However, whilst Coffey acknowledged that this "is a vast improvement, even from 12 months ago", she clarified that more needs to be done to harness the full power of pensions.

She continued: “If you put all of the UK’s occupational pension schemes together, their combined total assets come to nearly £2trn – a figure boosted by the continuing success of automatic enrolment.

"That makes the trustees of pension schemes – who we entrust with our savings – the largest single group of institutional investors in the UK, with significant influence over the flow of investments in the economy.

"At the same time, they are also vulnerable – exposed to the systemic financial risk inherent in our transition to a net-zero economy. And that is why we have been helping pension funds mobilise so they are both better protected from, and can play their part in tackling, climate change.”

Coffey also discussed the importance of newly announced plans to require pension schemes to measure and report on how their investments align with the Paris Agreement, arguing that "it is on achieving 1.5 degrees that we will be judged".

She stated: "This new metric will be a powerful method for communicating in a simple and straightforward way a scheme’s progress in managing the transition to net zero and how exposed members’ savings are to risks relating to climate change.

"Together with our proposed introduction of new standards that will require businesses to report on their environmental impact, we are putting sustainability at the heart of investment decisions that will boost the economy, protect the planet and support our transition to net zero."

Coffey acknowledged that this is "yet another ask of trustees" amid a "busy period of wider reform and change", emphasising however, that managing the transition is " not just about regulation and box-ticking".

"Done well, stewardship of pension schemes – that’s active and engaged management and oversight of the scheme’s assets – is crucial to securing good outcomes for hard-working pension savers – putting money away into their pension pots for their future and the future of the planet too," she said.

Coffey concluded: "Our latest reforms will empower savers to clearly see how their money is being managed by trustees – giving them the tools to protect savings from the effects of climate change and make the most of the opportunities from the transition to a low-carbon economy.

"The measures may seem techy, but they are transformational – placing pension schemes further at the heart of our response to climate change and transition to net zero. I do urge other countries to follow the UK’s lead and I look forward to attending COP in just over a week’s time to further this important agenda.

"The more pension scheme trustees invest in, seize and promote green opportunities, they reduce climate risk in their portfolios, and further harness the productive power of pension funds, helping propel us towards net zero and our greener, more sustainable future. A future that will safeguard people, our planet and deliver prosperity.

"Our pensions can help us achieve that together."

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