Pensions should be harnessed to fight the climate emergency

My article in The Times, published on Wednesday 22nd May

We have all watched Blue Planet, heard from campaigners of all ages, signed up to recycling and support efforts to limit CO2, and yet almost everyone agrees we are still facing a “climate emergency”.

And, here in Britain, we see thousands of key workers without housing, those earning an average wage struggling with debt as they try to meet their rent and millennials being referred to as “generation rent”.

I admit that the picture painted above is unlikely to spark joy given the extensive government efforts going into fixing these issues. However, I have a new proposal that will help to tackle both these problematic birds with one stone: pensions.

Our pensions industry has the ability to address climate change and to build more housing. And it is uniquely placed to do so given that it has billions of pounds under management.

At present, most people’s automatically enrolled or private pensions are invested into very steady equities and government gilts. Aside from a few examples, there are no substantial differences between the management of most people’s pensions. And by their very nature the investments are not focused on these problems.

I would like to change that. How? In two ways.

First, by asking our pension funds to play their part in funding and addressing the climate emergency. Our pension funds have the financial clout, long-term investment strategy and motivated members to back serious ways to use British capitalist innovation and enterprise to address our — and the rest of the world’s — growing green agenda.

Most parliamentarians accept that there is a “climate emergency”. Identifying the problem is easy. We can all see that we are losing the ice pack, species and tropical forests at an alarming rate. It’s addressing it that’s hard. And while we should trumpet the success of the coalition and Conservative governments in leading the way in CO2 reduction among the G20 and quadrupling our renewable capacity, we must do more.

Yes, we should celebrate the fact that over the May bank holiday weekend Britain burnt no coal for electricity for a week, the longest period without coal since the Industrial Revolution. However, it is not enough, even though we will also plant more forests, recycle more and encourage our citizens to change their behaviour.

We need capitalism to save the day. As any Conservative knows capitalism is a force for good. We need technological innovation to solve climate change issues and innovative startups need access to capital.

We need more investment to drive down the cost of providing energy, to commit to more nuclear and to create carbon free solutions to this 21st-century issue.

That takes a lot of capital, an ability to think very long term and no political agendas.

The good news is that the pensions industry has all three of these attributes. Suitably motivated, it can really make a difference, not only to the UK outlook. This can and should be in the pension funds interests, as they can then market that expertise as global pension fund investors and as backers of the new innovators.

This Conservative government has started this process by legislating for with the environmental, social and governance (ESG) regulations, which come into force in October 2019. These require a pension fund to update its statement of investment principles and broadly take into account ESG factors when considering its strategic approach to investment. Going forward I believe we can go farther.

Put simply, if we do not harness the financial muscle of these massive pensions portfolios we are clearly missing a trick. For my part, I know that I want to kickstart a wholesale change in the approach of our pension firms towards the climate emergency.

That’s because if we don’t address these long-term problems, there won’t be a long term, which would make saving for a pension a bit pointless — and that is not something I believe in.

Second, we can help to address the housing crisis by making it much easier and more worthwhile for our pension funds to invest in UK infrastructure, and the creation of key worker and social housing where it is needed, as part of a balanced portfolio.

This government has conducted an investment innovation consultation with the pensions industry as we seek to unlock infrastructure spending on housing. Our findings and proposals are to be published soon.

The other benefit of these proposals is that they tap into the views of the individual consumer, in this case the private sector pension policy holder. There are more than ten million employees in this country who have an occupational pension because of this government’s automatic enrolment programme. I am absolutely convinced that the individual policy holder wants two things: a balanced portfolio that produces a secure long-term return and that our financial investment should have a higher purpose.

I am convinced that holders of pensions who know their savings are being invested in combatting climate change, or key worker and social housing, bringing in a long-term sustainable return as part of a balanced portfolio, would also be far more engaged with the performance and actions of their pension fund.

What bigger challenge is there than addressing the climate emergency? What bigger domestic problem is out there but the massive shortage of affordable social and community housing? My parliamentary colleagues tell me that pensions are not sexy. This time it could be pension power that is the force for good to address our 21st-century problems.

Guy Opperman is the minister for pensions and financial inclusion