Fourth Report - Pension stewardship and COP26

The government states it is already working to build international consensus and highlights existing actions, including new regulations mandating climate-related disclosures for occupational pension schemes, a launched consultation on Paris Agreement alignment metrics, and the proposed Sustainability Disclosure Requirements regime.

The government rejects the recommendation for a single Minister to lead this work, stating that global best practice requires co-operation and leadership from a range of stakeholders. It highlights existing multi-departmental efforts, including a high-level Transition Plan Taskforce and the proposed SDR regime.

The government states that work on consistent international climate reporting standards is underway, highlighting its proactive efforts with other countries and its support for the establishment of the ISSB, which it committed to launching at COP26.

The government outlines its active international role in promoting climate-related disclosures like TCFD, including supporting the ISSB, securing agreement from 40 countries at COP26, and committing to implement ISSB standards, demonstrating its leadership in green finance.

The government accepts the recommendation, stating the Pensions Regulator will ensure its climate reporting guidance adapts as requirements evolve. Additionally, the government's statutory guidance on TCFD reporting will be reviewed and updated at least every three years.

The government accepts the recommendation and commits to developing a UK Green Taxonomy aligned with international standards, with consultation on draft Technical Screening Criteria expected in Q1 2022 and legislation by the end of 2022. It has also established the Green Technical Advisory Group.

The government defers the recommendation, stating it plans to publish its response to the call for evidence in 2022, after the requested three-month timeframe. It clarifies that the call for evidence was information gathering, and any policy changes would require further public consultation.

The government states that annual reporting on the progress of scheme consolidation is already available through existing public publications by The Pensions Regulator and the Pension Protection Fund.

The government rejects the recommendation for the Pensions Regulator to define a single net zero alignment, citing difficulties, and instead proposes requiring pension schemes to calculate and report one of three flexible portfolio alignment metrics.

The government agrees with the committee's encouragement for schemes to set net zero targets, welcoming the ambition of schemes already doing so and noting that a significant proportion of DC and DB assets are now covered by net zero commitments.

The government rejects the recommendation to establish a working group, stating that significant progress is already being made and that the Pensions Regulator's existing climate change strategy and engagement methods are sufficient for developing and adapting guidance for pension schemes on net zero targets.

The government expresses concern that mandating climate goal alignment might force divestment, hindering stewardship, and therefore rejects the recommendation, instead focusing on consulting on guidance to encourage effective stewardship.

The government's response details its broader Net Zero Strategy and its objectives, completely failing to address the Committee's specific conclusion regarding the Local Government Pension Scheme's governance or potential conflicts of interest.

The government rejects the recommendation, stating it does not agree and that publishing information on direct investments (which was not the core of the recommendation) would not be practically feasible.

The government agrees with the committee's observation and outlines steps taken, including the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021, which require climate change risk assessment and disclosure for pension savings. It also launched a consultation on further reporting requirements.

The government states that its recently published Net Zero Strategy provides a cross-economy climate roadmap, including indicative sector pathways, which gives the financial industry the certainty needed to invest and addresses the committee's recommendation.

The government rejects the recommendation, stating it is not practically feasible to publish information on direct investments due to the complexity of pension scheme portfolios. It highlights existing regulations to drive assessment and disclosure of climate risk instead.

The government notes the committee's concern regarding charge caps and confirms its support for reviewing alternative charging structures to facilitate long-term investments while protecting savers' interests.

The government acknowledges the importance of good stewardship and reports that the Taskforce on Pension Scheme Voting Implementation, set up by the Minister for Pensions, has published its report with 24 recommendations, six of which have been taken forward in DWP's draft stewardship guidance.

The government agrees and outlines specific steps taken to ensure policies do not incentivise divestment over good stewardship, including new climate change governance regulations for pension schemes, a consultation on Paris Agreement alignment metrics, and implementing recommendations from the Taskforce on Pension Scheme Voting Implementation.