Pension Schemes Bill

Lord Sharkey Excerpts

Report stage
Monday 23rd March 2026 Lords Chamber

Moved by

[Lord Sharkey]

170: After Clause 117, insert the following new Clause—
“Fossil fuels and climate risk(1) The Pensions Act 1995 is amended according to subsections (2) and (3).(2) After section 41B (climate change risk: publication of information), insert—“41BA Climate change risk and occupational pension schemes: Secretary of State duty(1) The Secretary of State must collect information on, or estimates of—(a) the amount, and(b) the change in the amount of, relevant assets held by the trustees of occupational pension schemes. (2) The Secretary of State must prepare and publish an annual report on the information collected under subsection (1).(3) Regulations may require the trustees or managers of an occupational pension scheme of a prescribed description to supply the information in subsection (1).41BB Climate change risk: relevant assets(1) The relevant assets in sections 41BA are issuance by issuers which—(a) derive 10% or more of their annual revenue from the production, transport or combustion of thermal coal,(b) produce more than 10 million tonnes of thermal coal each year,(c) are developing new mines, new power plants or new infrastructure for the extraction or use of thermal coal,(d) derive more than 5GW of power generation capacity from thermal coal, or(e) derive more than 10% of power generation capacity from thermal coal.(2) Within two years of the day on which the Pension Schemes Act 2026 is passed, and every three years thereafter, the Secretary of State must consider whether the definition of relevant assets should be extended to include certain forms of issuance by other issuers deriving a certain proportion or amount of revenue from certain other fossil fuel-related activities.(3) The Secretary of State may, by regulations, give effect to the outcome of the considerations in subsection (2).(4) In this section—“issuance” means all investable assets, including equity and debt;“thermal coal” means coal and lignite used in the generation of electricity and in providing heat for industrial or residential purposes.” (3) In section 41C (compliance) for “section 41A or 41B”, in each place it occurs, substitute “any of sections 41A to 41BB”.(4) The Financial Conduct Authority must make general rules with effects corresponding to the provisions inserted by subsection (2) for providers of pension schemes to which Part 7A of the Financial Services and Markets Act 2000 (inserted by section 48 of this Act) applies.(5) The Secretary of State must by regulations make provision with effects corresponding to the provisions inserted by subsection (2) for the Local Government Pension Scheme.(6) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This amendment would require pension investments in thermal coal by private sector occupational schemes, workplace personal pension schemes and the LGPS to be annually monitored and reported on. It also requires periodic consideration of whether the range of reported-on assets should be extended.

[Lord Sharkey (LD)]

My Lords, I will speak to Amendment 170 in my name and those of the noble Baronesses, Lady Bennett, Lady Griffin and Lady Hayman. I am grateful for their support and look forward to hearing their contributions. I have reflected carefully on the helpful feedback I received from the Minister in Committee and, as a result, Amendment 170 does not attempt to mandate pension schemes to exit from any investments. It aims to be helpful in addressing the Minister’s acknowledged concerns about thermal coal investment in particular, and in proposing solutions along the lines she identified.

I briefly remind noble Lords of the problems we face. Research by the Finance Innovation Lab, an independent charity jointly established by the Institute of Chartered Accountants and the World Wide Fund for Nature, shows that UK schemes still invest more than £10 billion in companies with significant operations in thermal coal. That is enough to cancel out all the reductions in greenhouse gas emissions achieved by decarbonisation of the grid in the UK since 2019. So, on the one hand, we have the Government phasing out thermal coal at home, cutting off funding by ending export guarantees and encouraging other countries to exit from coal-fired power. On the other hand, we have the Government defaulting savers into pension savings, compelling employers to contribute and providing taxpayer top-ups to pension schemes to invest in thermal coal extraction and coal-fired power in those same countries.

The Minister said that the Government

“recognise that some pension funds could, and should, be doing more”.

She recognised

“the high financial and climate risks associated with thermal coal investment”.

She welcomed

“industry-led reductions in coal exposure”.—[Official Report, 23/2/26; col. GC 290.]

and reiterated that the Government “want to see more” of this. The Minister argued that the right levers were “better governance”, for which there are already quite a few duties in law, as well as “better data” and “better transparency”, of which there is currently very little. Indeed, there is so little that, in their October 2025 responses to Written Questions tabled by my honourable friend Manuela Perteghella in the Commons, the Government showed that they really do not have a good handle on the data.

The same is true of the Pensions Regulator; in its February 2026 responses to the Minister’s honourable friends Dr Simon Opher and Neil Duncan-Jordan, the responses indicated that neither the DWP nor TPR had carried out an assessment of the level of UK expansion investments in thermal coal or other fossil fuels, the expansion of fossil fuel use or the risks of any of those assets becoming stranded. Our amendment reflects on the Government’s ambition and the current level of insight, and seeks to plug the gap.

Subsections (1) to (3) of the proposed new clause focus on the private sector occupational schemes; they make it clear that the proposed duties should be seen in the context of climate risk to savers, not ethics or disapproval. Subsection (2) gives the Secretary of State a duty to collect data or estimates, and publish in an annual report, the amount and change in the amount of relevant assets held by occupational schemes. Proposed new Section 41BB outlines what constitutes a relevant asset.

Importantly, neither proposed new section requires government to draft, consult on or table regulations, but it could do this if it wanted to. An obvious disclosure vehicle would be the annual implementation statement published by most pension funds, but a simpler method, less burdensome for the whole industry, would be for Ministers to write annually to some or all the larger schemes and simply request the data. In fact, DWP Ministers have done this before several times, including under a Conservative Administration, in relation to climate risk.

As things stand, the Government do not know the level of exposure or the level of risk. Not only do they not know how fast it is declining; they do not really know whether it is declining at all. This amendment would allow government to satisfy itself and to satisfy savers, employers and taxpayers that the amount that pension schemes are putting into thermal coal is going down. It also allows government to provide a nudge, especially to the larger schemes which remain invested in thermal coal and will likely be monitored every year to consider their level of exposure and lower it significantly. Government will be able to set an expectation of thermal coal decline and exit if it is not satisfied that this has been substantially achieved, to consult on what further measures might need to be taken.

In the medium term, the issues are not limited to thermal coal, which is why subsection (2) of proposed new Section 41BB gives the Secretary of State a duty to consider whether to expand the range of assets they might request information about, such as hugely destructive and economically marginal activities like tar sands or Arctic drilling, or new issuance by firms expanding or exploring for new fossil fuels.

Subsection (3) of the proposed new Section 41BB gives the Secretary of State the power to make regulations to achieve reporting—again, if they wish, through an addition to the implementation statement, but it does not mandate it. Subsection (4) of proposed new Section 41BB makes it clear that we are talking about thermal coal, not coking or metallurgical coal used in steelmaking. Finally, subsection (3) sets out the appropriate oversight provisions.

Taken as a whole, this amendment relies on governance, better data and transparency, as the Minister said it should. It would not direct pension scheme investments; it would not impose burdens on smaller schemes. It would be necessary to survey only large and well-resourced schemes to get an estimate of relevant assets, because that is where the money is. It would, however, allow the Government to put a marker down to say, “We are concerned about these investments and we want you to tell us how much you’re investing so we can assess whether there is a problem and what might need to be done”.

I know from Committee that the Minister shares my concerns about high-risk investment in thermal coal, and she would like schemes to do more. The amendment identifies a way forward, which I hope meets her tests. It would not prohibit any investments; it would not undermine trustees’ ability to exercise informed judgment or require them to act against the interests of their members; but it would provide the information required to assess the progress, if any, towards the reduction in pension funds’ investments in thermal coal. I look forward to hearing the Minister’s response.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Sharkey, for moving his Amendment 170. It is good to have the opportunity to discuss again the climate-related risks with which pension schemes—indeed, all investors—are grappling. While I recognise the intent behind the amendment, the Government believe that the existing framework for responsible investment already enables trustees to identify, assess and manage climate-related financial risks. Introducing further reporting duties at this stage risks additional burdens without clear benefit.

Trustees of occupational trust-based schemes are already required to take account of financial and material considerations, including environmental, social and governance factors. Their statement of investment principles must set out their policy on these matters. Larger schemes are also required to publish annual climate-related financial disclosures, including on total greenhouse gas emissions from their portfolios and carbon footprint metrics. These provide trustees with important information to support investment decision-making. Equivalent disclosure requirements apply to FCA-regulated providers, and the LGPS has its own requirements on explaining how ESG factors influence investment decisions. There is evidence that this framework is delivering real progress.

The noble Lord, Lord Sharkey, cited data from the Finance Innovation Lab showing that more than £10.5 billion of UK pension savings remains invested in companies involved in the extraction or burning of thermal coal overseas. I am sure he is aware that that figure is based on just three pension providers and is not necessarily reflective of what members are invested in. Recent corporate adviser data indicates that around 65% of UK occupational schemes now have a net-zero target, including 18 of the 19 major DC master trusts. DC schemes have reduced the carbon footprint of their investment by nearly 20% in the last year. Many schemes are also taking decisive action on thermal coal. For example, USS, Railpen, and Border to Coast exclude companies with significant revenue from thermal coal, while Nest supplies a 10% revenue cap. While this progress is welcome, the Government agree that further data on exposure to thermal coal and other fossil fuels will be helpful. We expect trustees to continue to strengthen their disclosures, particularly around the actions they are taking to reduce such exposures within the existing responsible investment framework.

Complementing these expectations for stronger disclosures, the Pensions Regulator is deepening its supervisory approach by requesting increasingly granular investment data from schemes. The Government are taking significant steps to enhance sustainability reporting more broadly. DBT has published final UK sustainability reporting standards closely aligned to the International Sustainability Standards Board framework. These are available for voluntary adoption and the Government will consult later this year on potential mandatory use. DWP is also reviewing the Task Force on Climate-related Financial Disclosures reporting obligations through a comprehensive evidence-gathering exercise, with conclusions to be published this year.

Pension schemes are already helped by the UK’s Transition Plan Taskforce, established by the previous Government, having published a gold standard framework to help companies produce credible, consistent and decision-useful climate transition plans aligned with net-zero goals. The task force has also released sector-specific guidance, including for metals and mining, to support pension schemes and the companies in which they invest. Future reforms are designed to modernise the sustainability disclosure regime and equip trustees with clearer, more decision-useful information. This will support better-informed decisions on investment, divestment and exclusions, including, where necessary, in relation to thermal coal.

Finally, at this point, I was going to say that the Government are legislating to bring forward statutory guidance on trustee investment duties as a further opportunity to include clear examples of good practice to help schemes strengthen their management of climate-related risks, including those highlighted by this amendment. But—oh, no—we will not be doing it, because the noble Lord and his party voted against it, so it will not be happening.

The existing disclosure framework is already driving greater transparency around schemes’ climate-related risks, and further reforms are strengthening this approach, so the Government do not believe that this amendment is necessary. However, we recognise that improved data on thermal coal and other fossil fuel investments would be helpful. This is an area we will continue to monitor and keep under active review within the existing reporting regime. I therefore hope that the noble Lord will withdraw his amendment.

[Lord Sharkey (LD)]

I thank the Minister for that response, but that probably means in practice that I thank her for the last sentence. Some of the other stuff I found difficult to agree with. I point out that our proposal was to collect data or produce estimates only for the larger schemes and funds in order to get a reliable picture. I do not think that the issue of the burden on the companies is quite as complicated or as difficult as might have been said. Having said that, I beg leave to withdraw the amendment.

Amendment 170 withdrawn.