Government's latest green push should come as no surprise

As the bill moves to the committee stage on Monday, when important progressive amendments get the stamp of approval, now is the moment for the government to create a regulatory landscape for a truly sustainable pensions system to flourish.

As it stands, trustees’ response to the regulatory climate landscape is already poor. New investment regulations, which came into force last October, require all schemes to publish policies on ESG and stewardship and, from the end of this year, report on how their activities match up with their stated approach.

This is not about divestment, but about boosting transparency and disclosure by schemes

However, the UK Sustainable Investment and Finance Association’s latest report findings were disappointing. Two-thirds of the schemes it surveyed had failed to comply with new legal requirements around publication of responsible investment policies.

TCFD will lead to better investment decisions

That is why it is vital that the government makes the recommendations of the Task Force on Climate-related Financial Disclosures mandatory. The TCFD, which last week announced the support of over 1,000 international organisations, is a framework for climate reporting throughout the investment chain.

Crucially, it is a tool to improve business and investment decisions that can help us meet our commitments under the Paris Agreement and transition to a net-zero carbon society. The announcement is good news for the government, which can legitimately claim to be taking a leading position globally in the fight against climate change, and even better news for savers, whose money will be more responsibly managed.

After the rigmarole of appointing the new COP president earlier this month, it is refreshing to see the government taking bold action ahead of the November climate conference. It has not come a moment too late, and it seems the financial services sector will finally begin to take account of its real world impact on people and planet.

However, the beauty of TCFD reporting is in the eye of the beholder and significant challenges remain including around scenario analysis and agreement on the breadth of organisations to which it should apply.

Nothing to fear from regs

Guidance has been in development at the DWP for several months and publication is imminent. Contrary to the industry’s initial reaction, the government has been at pains to make clear that it does not want to direct pension scheme investment, nor does the amendment allow it to do so. This is not about divestment, but about boosting transparency and disclosure by schemes.

This should also come as no surprise to trustees – TCFD was included in the government’s green finance strategy after all, and increasingly schemes have been told they need to do more around sustainable investment. A strong presence from the Pensions Regulator is essential: it needs to step up and ensure the schemes it regulates are acting as the law requires.

As the bill makes its way through parliament and the new regulations are consulted on, policymakers must keep with this ambitious direction of travel. Yet the speed and vigour with which the sector reacts to these changes is essential to well-functioning markets that properly take account of sustainability factors.

Success in meeting the Paris Agreement hinges on ensuring the rules of the game encourage proper accountability by investors and businesses on the decisions they make with our money. 

The Rubicon has been crossed and sustainable finance is rapidly becoming the new normal.

Fergus Moffatt is head of UK policy at ShareAction