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Let’s utilise the 'incomprehensibly colossal amount of money' of the pensions industry to fight climate change

Let’s utilise the 'incomprehensibly colossal amount of money' of the pensions industry to fight climate change
3 min read

The billions of pounds in pension funds that flow, unseen, through our financial system could be used to urgently combat the climate change crisis, writes Pensions Minister Guy Opperman MP.


$41.3 trillion. An almost incomprehensibly colossal amount of money. To put it in some context, that’s twice the annual GDP of the USA. And it’s also the total figure invested in pensions across the globe as of today.

A war chest like that clearly has enormous potential to be used as a force for good. And there is a worthy cause crying out for urgent, coordinated intervention on an international scale. The perils of climate change are grave in the extreme. A heating planet threatens the homes of millions of people, and the natural environments of hundreds of thousands of species. We need a global response.

I travelled to Paris to the Principles for Responsible Investment conference, supported by the United Nations, to make the case for pension funds in every corner of the earth using their vast financial power to combat this threat.

I am proud that the UK is a leading light, blazing a trail for others to follow, in this area. Not only has this Government committed to phase out coal-fired power stations by 2025, ban sales of new petrol and diesel cars by 2032 and be carbon neutral by 2050, but new regulations we’ve introduced will compel pension funds to show they are investing to address climate change.

In less than 30 days all UK pension schemes will have to clearly and openly explain how they take climate change, among other pressing societal issues, into account when they invest their vast financial assets.

We know that people across the UK are deeply concerned about climate change and they want to hold those who can make a difference to account. This is a crucial aspect of the regulations that I have put in place.

For the first time pension companies will have to show how they incorporate the views of their members when they make decisions investing their money. As a result, billions of pounds in pension funds that flow, unseen, through our financial system could be brought to bear on the issues that people care passionately about. Providing the capital for real change.

We are making progress – some of the biggest pension funds in Britain have changed their investment strategies towards those crucial low carbon industries.

NEST, Willis Towers Watson Lifesight and the People’s Pension are using their collective £15 billion in assets to boost low carbon industries, empowering them to pioneer products that will reduce our collective carbon output.

While this is good news and progress is being made, there are dark clouds on the horizon. Asset managers are the gatekeepers of this capital, and their attitudes must change.

A recent study by the UK Sustainable Finance and Investment Association (UKSIF) found that four in ten fund managers don’t have plans to engage with major carbon-producing industries despite the fact that nine in 10 are expecting climate change to impact on their assets in two - yes just two! - years.

The world is changing, we in the pensions industry have the power to make a real difference. It may not be the most glamorous or ostentatious industry but behind the scenes the industry can direct huge financial power on behalf of the people who are saving every day for their future. I want this money to be used to protect not just their futures but the future of our planet.

 

Guy Opperman is Pensions Minister and Conservative MP for Hexham.

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