What have pension funds done to go green? asks UK Parliament decarbonisation inquiry

New inquiry will consider cross departmental strategy to decarbonise economy

The UK Parliament’s Treasury Select Committee is to consider the role of green investments, regulators and the financial sector as a whole in the decarbonisation of the economy as part of an inquiry announced today.

“What steps have UK banks, asset managers, and pension funds taken to ‘green’ their business models, investments strategies and balance sheets, taking in to account climate and transition risks?” the committee asks.

A letter from Committee Chair Nicky Morgan to the Treasury asks if the department’s approach to decarbonisation is “fit for purpose” — and she is seeking a response by July 1. The committee will take oral evidence from Treasury ministers over the Summer recess.

The context for the inquiry is the recent Net Zero report from government advisory group the Climate Change Committee (CCC) and the Parliament declaring a climate change emergency last month — as well as Extinction Rebellion blocking the streets.

Through the inquiry, the influential committee – which scrutinises the operations of the Treasury (finance ministry) – aims to position the UK to take advantage of decarbonisation to support job creation and economic growth which is “just” and regionally balanced.

The wide-ranging inquiry will address a number of key issues in the scaling up of green finance, including regulatory and other barriers faced by the financial sector in delivering green finance, consumer demand for green financial products, preventing “greenwash” and the progress of the financial sector in “greening” their operations.

The Committee will also consider how disclosure requirements of carbon emissions by public companies affect the ability of investors to allocate capital sustainably and the role of regulators – the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) – in supporting decarbonisation of the financial system and among companies.

Despite the Committee’s Treasury-focused remit, the inclusion of green finance in the inquiry – an area not regulated by the department – will result in a comprehensive, cross-departmental assessment which will include Department for Business, Energy and Industrial Strategy (BEIS) and the Bank of England (BoE) who respectively oversee the FCA and PRA.The scope of the inquiry is especially pertinent considering work being carried out at the EU to create a sustainable finance taxonomy which addresses key concerns about “greenwashing” and improving investor access to relevant environmental data to encourage green investments.

“What steps have UK banks, asset managers, and pension funds taken to ‘green’ their business models, investments strategies and balance sheets?”

At the same time, the Conservative government, in partnership with the City of London, is working to position London as a hub for green finance with a strategy paper due to be published later this year by the Green Finance Institute.

Separately, the inquiry will also look at how the Treasury will fund government efforts to meet its carbon commitments under the Paris agreement and in the event it chooses to adopt a zero-emissions target by 2050 as recommended by the CCC.

The investigation was welcomed by UKSIF, the UK Sustainable Finance and Investment Association. Head of Public Policy Ben Nelmes said: “The Treasury has a key role in mobilising investment in new energy, transport and home heating, and financial regulators must ensure climate-related financial risks are adequately managed and people’s pensions and savings are protected.”

UKSIF has indicated that it will participate in the enquiry which will end on July 26, two days after parliament adjourns for the Summer recess.