The Pension Schemes Bill 25-26 is the first legislation of this government’s landmark programme of pension reform. Its core aim is to boost investment in the UK. However, the Bill (and broader reforms) currently overlook the biggest threat to pension savers and the UK economy: the financial impacts of climate change and nature loss.
UK pension funds are significant investors in fossil fuel assets, including thermal coal. These exposures undermine Government policy on climate and increase the risk of stranded assets, climate-driven economic shocks, and inflation in essential goods – all of which directly undermine the value of pension pots and the stability of the wider financial system.
Alongside unions and civil society organisations in the Better Pensions Coalition, and cross-party MPs and peers, we have been advocating for changes to require pension schemes to phase out fossil fuel investments. The Lords Report stage amendment outlined in this briefing (number 170) responds to the Minister’s recent recognition of “… the high financial and climate risks associated with thermal coal investment” and appetite to challenge the sector to do more.
It requires the Government to annually monitor and report on pension scheme investments in companies with significant exposure to thermal coal, and allows for the reporting duty to be extended to other areas of fossil fuel finance, such as exploration or expansion, in the financial interest of pension savers in future. The process of information gathering and reporting may nudge funds to lower their exposure themselves. We also hope that the Government will set a (non-legislative) expectation of phase down and, in the event that monitoring did not show that this was happening, would consider bringing forward new primary legislation to require exit.
