MPs urge pension schemes to cushion economic effects of UK’s net zero plan
Cross-party group says regions could be devastated by a rapid switch to low-carbon technologies
Last modified on Wed 20 Oct 2021 07.30 EDT
UK public sector pension schemes could deepen divisions in society unless they use their billions of pounds of investment to cushion communities pivoting away from carbon-intensive industries such as steel and carmaking, MPs have said.
The cross-party group argues towns and regions across Britain could be devastated by a rapid switch to low-carbon technologies, leaving them to face the same future as mining towns hit by pit closures in the 1980s, unless pension funds take account of the impact of investments on vulnerable households and businesses.
In a report that focuses on the investment decisions made by the local authority schemes, the MPs said submissions made by pension experts, thinktanks and members of parliament indicated “that the failure to understand both the social and economic dimensions to net zero risked a political backlash”.
It comes a day after the government published its long-awaited strategy for reaching net zero by 2050. While the measures put forward by ministers were criticised by the Climate Change Committee (CCC), the independent statutory body that advises ministers on how to reach net zero, as failing to meet the challenge, the MPs said they may still leave some communities without the resources to make the transition.
Q&AWhat is net zero?Show
Net zero is the commitment to reducing emissions by 100% so that the UK is producing no more carbon than it removes from the atmosphere. This will have to be achieved by reducing the amount of greenhouse gases created by activities such as industrial processes, power generation, transport and intensive agriculture, while removing emissions at the same time by capturing carbon or planting more trees.
It is considered the minimum necessary to stop dangerous climate breakdown increasing the world’s temperature by more than 1.5 degrees celsius. However, there is a debate about how to get there, and how quickly, and how the costs will be spread. The current UK government wants to meet net zero by 2050, which will necessarily involve replacing gas boilers, moving to electric cars, improving insulation and lowering high-carbon consumption such as flights and meat-eating.
The report said: “Reference was made to the Gilets Jaunes protests in France and to other public protests, such as opposition to the closure of coalmines in Poland and the fuel protests in the UK.
“The inquiry heard several times that in the absence of a just transition there could be resistance to climate action. As Lord Deben, the chair of the CCC, told the inquiry: ‘We are not going to do the transition if it isn’t just, because society won’t accept it.'”
The five-strong group of MPs said the government should “explicitly recognise and articulate a high-level commitment to a just transition”.
Funds in the Local Government Pension Scheme (LGPS), which rank among the biggest in the UK, were told that they should make the same commitment and consider how their investments impact on inequality and the government’s plans to level up the regions alongside supporting businesses that cut carbon emissions.
The LGPS is made up of 88 funds with 6.2m members and assets of GBP276bn at the end March 2020.
Pension funds could protect communities dependent on high-carbon industries by introducing plans to manage any divestment programmes over a number of years, rather than simply switch funding overnight. A risk register of regions, industries and households most affected by the financial costs of climate change could also inform investment decisions, the report said.
Unions and business leaders have privately shared their concerns that a rapid move towards carbon taxes and green investment that excludes industries that use high levels of fossil fuels will wipe out parts of Britain’s manufacturing industry, unless they are offered financial support to update equipment and develop new technologies.
Clive Betts, the chair of the all-party parliamentary group for local authority pension funds, said: “Major industrial changes are rapidly coming down the track. To avoid repeating the mistakes of the 1980s which left workers and communities behind, government urgently needs to be planning for an orderly and just transition to net zero.”
Councillor Doug McMurdo, the chair of the Local Authority Pension Fund Forum, said: “As responsible long-term investors we have to ensure our work to achieve net zero actively support a just transition. However, we cannot do it alone. The scale of challenge and potential opportunities requires sustained commitment across society and from government.”