UK Pension Funds Will Now Be Able to Take a Greener Approach to Investing


A new government directive will allow trustees of pension funds to push for green investment of trust money.
The managers of the money invested in Britain’s workplace pension schemes, the total of which sits at around £1.5 trillion, will be able to drop shares in oil, gas and coal companies as part of the new initiative. Instead of these investments in traditional energy sources, the managers will be given powers to invest long-term in green and social impact opportunities.
The proposals from the government are specifically designed in order to enable trustees to divest from any companies that are environmentally damaging and to redirect their cash into green alternatives. Up until this point, trustees have felt like their hands have been tied by their fiduciary duties. This duty requires trustees to seek the best returns possible for their beneficiaries, regardless of the ethics of the prospective investment opportunity.
Although these new rules are complex for the layman, they have been deciphered to mean that trustees of pension funds have the go ahead to sell off their shares in fossil fuel companies.
A paper has been published outlining exactly how these new powers will work. Within the paper, the Department for Work and Pensions explains: “Our proposed regulations are intended to reassure trustees that they can (and indeed should) take account of financially material risks, whether these stem from investee firms’ traditional financial reporting, or from broader risks covered in non-financial reporting or elsewhere.”
Campaigners in environmental pressure groups believe that the trillions of dollars of investment in fossil fuels will start to decline in value as the world continues its transition to a low-carbon economy. This is bad news for coal mines, oil wells and conventional vehicles, and good news for the environment.
There is also a conviction that the fossil fuels reserves are likely to become stranded assets – meaning they have absorbed capital but are unable to turn a profit. This bubble is estimated to be between $1-4 trillion – a hefty portion of the global economy’s balance sheet.
However, the Department for Work and Pensions have made clear that these new rules do not mean it will not give activist groups the power to force or bully pension funds into selling out of fossil fuels. While trustees can now take into account the views of pension fund members, they are never obliged to do so. Furthermore, the proposals are in no way intended to encourage or support any activist groups.
The proposals for the new rules were brought forward by Esther McVey, the secretary of state for work and pensions. She believes that the younger generation is showing a clear trend towards green investment. In other words, it cares where its money is going and it wants its pension fund to be invested in something that aligns with its values. Investments are now equally about building a sustainable future for the planet and making decent returns.
Meanwhile, climate change campaigners are thrilled with the news. These changes have been demanded for a long time now and it is good to see their wishes were heard and acted upon.

In addition to this, an increasing number of insurance companies across Europe and the UK have divested around £15 billion from coal companies. Legal & General, also said it would exclude companies that are not acting on climate change from its Future World Fund. 

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