Davey: 'Addicted' schemes should lead way in decarbonising capitalism

But there is an elephant in the room. Businesses responsible for 15 per cent of global emissions are financed here in the City of London.

Twenty per cent of the value of our stock exchange is high carbon and fossil fuel assets, and our pension funds are addicted to the 18 per cent of total dividends paid out on the London Stock Exchange that are produced by this sector.

This needs to change, urgently. The sector is creating a bubble in the market that could dwarf that which burst and caused the last financial crisis.

No fossil fuel company is anywhere near aligning with the Paris goals, so pension funds would have to ditch them or explain why holding them did not harm the interests of pension holders

It is now clear that the billions of shareholder capital being poured into finding new fossil fuel reserves is wasted, and follows trillions of dollars of unburnable carbon lying in existing reserves on company balance sheets.

This excess coal, oil and gas would take us well beyond the global average temperature rise that we think we could survive.

Short-term dividend payments are not worth the risk. The way our pensions are being invested discriminates against younger savers and bets against our future.

Seize on green opportunities

But we can make a change. We can decarbonise capitalism and we can start with our pensions – long-term investments made to secure ourselves a comfortable retirement.

This will be hugely challenging – but there is a raft of good news that can give us hope.

Clean, high-returning investments exist. Tens of trillions of dollars of new green infrastructure is needed globally, over the next three decades alone. Investments that are future-safe – unlike the $12tn currently invested in fossil fuel assets, which are at risk of becoming worthless.

By decarbonising capitalism, we will not be just solving the climate emergency, we will be helping pensioners switch out of increasingly risky carbon assets into much safer climate-friendly investments.

There are also leaders in the City of London – from Mark Carney at the Bank of England, to the Green Finance Institute – and an encouragingly large number of financial institutions that get the need to change and will work with political leaders who are up for it.

There is an increasing numbers of pensions products that enable a fossil free and green investment approach. From ex-fossil tracker funds to specialist green funds, the options are slowly growing. I want to supercharge these changes and ensure two things: I want to make it easy to secure a green, fossil free pension today. That is why part of my plan to decarbonise capitalism would be to create a registry of green investments available at all levels of the investment chain.

But second, for everyone else who does not play an active role in deciding where their pension is invested, I think they should rightly expect that their investment is being managed in a prudent way that takes account of the risks of climate change and benefits from the opportunities of green investment.

Today, it is a lottery, and many schemes have their head in the sand.

That is where my five point plan to decarbonise capitalism comes in, launched on Wednesday at a debate in Westminster.

It is essential that we go well beyond the toothless financial regulation that has let us down before with disastrous consequences. More disclosure is welcome but far from sufficient.

Private capital plays valuable role

On the other side of the debate it is essential that we do not throw the baby out with the bathwater. Wholesale nationalisation of the energy industry or an overly interventionist approach to directing investments in the market will rob us of the opportunity to direct trillions of dollars of private capital into the green infrastructure, energy, homes that we now need to get us out of the climate crisis.

Capitalism can help us do this as fast as possible if we harness that power – it is our servant, not our master.

So let us change the rules to green the system as if we really mean business on tackling the climate emergency.

That means long-term, ambitious, stable policies to support the green industries of the future, and in the financial sector full, mandatory disclosure of carbon emissions and the emissions embedded in assets on the books of fossil fuel companies.

It means a legal obligation to publish a Paris-aligned set of accounts, which write down assets and activities which take us beyond Paris goals.

We need to ensure pension funds report on their alignment with Paris and that we give regulators the teeth to act if they are not aligning and creating risk for individuals and the financial system.

To be clear on how challenging this is: no fossil fuel company is anywhere near aligning with the Paris goals, so pension funds would have to ditch them or explain why holding them does not harm the interests of pension holders.

If we do this then we have held our pension funds to the same gold standard that we have held our own country and citizens to – this does not seem too much to ask.

The prize, if we get it right, is a new role for London as the green finance capital of the world.

Sir Ed Davey is Member of Parliament for Kingston and Surbiton