Government issues call for evidence on climate investment

The consultation paper asks how the government can best support the global transition to a net zero, nature-positive financial system that is both inclusive and resilient in the run-up to 2030, and increase the mobilisation of public and private investment to achieve 2030 climate and nature targets. 

The government issued its call for evidence to obtain evidence and views from stakeholders on four key objectives: capturing the opportunity of green finance, mobilising finance for the UK’s energy security, climate and environmental objectives, greening the financial system and leading internationally.

It is also considering barriers to the mobilisation of private investment into transition activities and how those might be overcome.

Pension trustees need to give their members a bigger voice when it comes to environmental, social and governance issues as the government consults on mobilising capital to support its green finance agenda, according to Tom McPhail, head of public affairs at the Lang Cat.

While the consultation paper does not explicitly mention pension funds, McPhail argued that it is highly relevant to the industry.

He added: “Most of the focus of attention has been on the part that lies in between the trustees of the pension scheme and the asset managers, and then between the asset managers and the companies that they buy with the funds. 

“There is currently very little focus of attention on the other end of the chain — the bit that lies between the trustees of the pension scheme and the members.”

The call for evidence comes months after Local Government Pension Schemes were asked to set an ambition of investing 5 per cent of their assets in domestic initiatives, under government plans to level up the country.

The government’s levelling up white paper, published in February, said if all LGPS funds were to allocate 5 per cent to local investing, this would unlock £16bn in new investment. 

Schemes, meanwhile, will soon have to report under the Task Force for Climate-related Financial Disclosures, with the very largest having to comply from last October. 

McPhail says there is an opportunity for the pensions industry, which has been looking at illiquid assets and patient capital especially in the context of defined contribution pension schemes, to feed into the green finance consultation. 

“There is an ongoing question around patient capital and how it might be possible to facilitate using some of those trillions of pounds in the pensions system to invest for the long term, whether it’s in wind farms or nuclear power stations,” he said.

There is also interest in helping to channel investment towards helping to decarbonise the economy, while also delivering investment returns for schemes, he noted.

Everybody recognises the potential for patient capital but there has still not been a lot of progress, McPhail continued. 

“The Treasury put out a paper on patient capital around the turn of the year, so a lot of good work is happening on that front, but I would absolutely see an opportunity for the industry to be feeding into this green finance strategy consultation with the government to talk about what the barriers are to delivering on that,” he said.

The lack of mention of pensions in the call for evidence is partly symptomatic of the fragmented regulatory framework that exists in the UK, with different regulators covering different parts of the system. 

As McPhail added: “It all gets a bit messy, a bit muddled and I think that’s part of the reason why we don’t have a clear, simple regulatory framework around this stuff.”