Government proposal encouraging divestment by pension funds weak compared to EU alternative, warns MEP

Molly, who is Green Party speaker on finance, has said government proposals to give pension funds ‘more confidence’ to divest from environmentally damaging fossil fuels lacks the legal force of EU regulation. The government wants to encourage pension funds to sell shares in fossil fuel companies if they believe that they could turn into “stranded assets” as the world tackles climate change and moves towards a low-carbon economy. However, the Department for Work and Pensions paper still urges trustees not to support “divestment from certain assets”. This contrasts with the EU, where the Commission is seeking to regulate to ensure that pension funds comply with environmental, social and governance (ESG) risks and opportunities as part of its strategy on sustainable finance. Molly, who was rapporteur for a European Parliament report on sustainable finance, said:

“If warm words were enough to ensure the shift away from climate wrecking investments, then there would be no divestment movement. It is just too late in the day to rely on consumer pressure, which is why the mandatory approach taken by the Commission is welcome, although still long overdue. The government’s proposals look feeble when compared to the much tougher approach of the EU, with its mandatory reporting on how pension funds integrate environmental, social and governance risks into investment decisions.

“Offering reassurance to those who campaign for pension funds to divest from risky fossil fuel assets is not the same as a legal requirement forcing them to declare why they are making such investments and the risks of doing so.”