David Fairs is the executive director for regulatory policy at The Pensions Regulator
We are calling on scheme trustees to act now to protect savers from climate risk. The Pensions Regulator’s (TPR) recently published climate change strategy aims to drive trustees to act on the risks and opportunities of climate change.
We know that trustees are exploring how climate change affects asset prices and looking at the huge opportunities that will come from a global pivot towards low carbon economies. In a world where the climate emergency is real and urgent, this is the prudent approach.
It is certain that any scheme that does not consider climate change is ignoring a major risk to pension savings and missing out on investment opportunities.
The strategy outlines our expectations that all scheme trustees will comply with existing requirements to publish their statement of investment principles (SIP) – including their policies on stewardship and financially material environmental considerations – and implementation statement.
These disclosures represent compliance with the basics on climate change. Where schemes do not comply, and it is appropriate to do so, we will take enforcement action.
The strategy comes ahead of proposed regulations which will require trustees of larger schemes to maintain oversight of climate risks and make mandatory disclosures in relation to them.
The Pension Schemes Act
The proposals under the Pension Schemes Act will see larger schemes and all master trusts required to disclose their Taskforce on Climate-related Financial Disclosures (TCFD) report.
By the end of 2023, TPR anticipates a significant amount of pension savings will be in schemes reporting in line with the TCFD recommendations – 81% of memberships and 74% of occupational pension scheme assets.
The strategy outlines how we will help trustees comply with the new rules for larger schemes but also signals that work on climate change needs to happen right across the pensions landscape – climate change is a risk for schemes whatever the size or investment strategy.
TPR is planning to publish guidance later this year, following engagement with industry, to help schemes comply with the new legislation and make consideration of climate change risks and opportunities part of their systems of governance.
Relationship supervision will also encourage trustees to pay more attention to climate change in the building of portfolios and investment selection and to engage with their investment managers to ensure they steward investments in line with trustees’ policies and best practice.
It is clear that all schemes need to build their capability in this area and should include devoting more board time to climate change, considering specific train- ing, and, most importantly, integrating consideration of climate change right across decision-making.
Building capability means trustees will be better placed to understand what climate-related issues mean for their scheme and better able to make decisions which contribute to good saver outcomes.
We do not underestimate the scale of these challenges and we know that many schemes are still near the starting line. However, the new pensions legislation gives a vital framework for action while driving development right across the market.
Regulators across the entire UK investment chain are committed to disclosure of climate information and the government is making plans to achieve its target of net zero carbon emissions by 2050. This means a landscape of resilient pension schemes that protect savings from climate risk is entirely within reach.