Redefining the government’s key debt measure in its Budget rules would “unlock” pension investment in the green transition, according to COP26 president and former UK Secretary of State for Business, Energy and Industrial Strategy, Alok Sharma.

Sharma called for the rules to be amended so the measure recognised the financial value of assets created by government spending on clean energy projects to help pension investors contribute to the green transition.

Speaking at the PLSA Annual Conference 2024, Sharma said: “This government has talked about ‘unleashing’ the potential of UK pension funds.

“Yes, the review has been launched, and let’s see what emerges in terms of those recommendations, but I support the call to redefine the government’s key debt measure in its Budget rules so that the rules recognise the financial value of assets created by government spending on, for example, clean energy projects.

“I think, if this happened, your sector would be unlocked, I think you would look to invest alongside the government.

“Frankly, it needs to change, because something is going to have to change if the government wants to unlock the billions in extra spending from pension groups, particularly UK pension groups, for green projects.”

Sharma added that the UK needs to invest in green initiatives, infrastructure, and energy, and that the pensions sector clearly has a role to play in funding the green transition.

He pointed to the fact that UK pension schemes only have around 6 per cent allocated to private equity and infrastructure combined, compared to, for example, 34 per cent among Canadian pension funds.

“If we get it right, we can transition to a cleaner, greener and more prosperous world, and the UK pensions sector can, and must, be a part of financing that transition,” Sharma stated.

Touching on the government’s ongoing Pension Review, Sharma argued that the industry needs to think about how it represents itself to the government, and urged the sector to put forward a “smallish number” of recommendations that it wants the government to adopt.

“What tends to happen in these reviews is there is a report produced and there’s 101 recommendations that are made, and I sometimes wonder whether what we ought to be doing is saying: ‘These are the top three or four things that we collectively agree need to happen’, and that is then going to provide that stimulus and it means people will actually focus within government on those policy areas,” he concluded.

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