Proposed regulations, under the Pension Schemes Act 2021, will require trustees to look at management and governance of climate-related risks and opportunities in more detail. This is in line with Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.
The regulations, due to come into force in October, initially target trustees of schemes with £5 billion or more in assets, master trusts and collective defined contribution schemes.
From October 2022, trustees of schemes with £1 billion or more in assets will be required to comply with the regulations and the Department for Work and Pensions has said in 2023 it will consider whether the measures should be rolled out to smaller schemes.
The Pensions Regulator’s (TPR) annual survey of DB schemes, carried out between October and November 2020, shows too few trustee boards are:
• allocating enough time or resources to assessing financial risks or opportunities associated with climate change
• assessing the risks/opportunities from particular climate-related scenarios
• giving significant consideration to climate change in their investment and funding strategies
• devoting significant consideration to climate-related opportunities
• aware of the work of the TCFD
David Fairs, TPR’s Executive Director of Regulatory Policy and Advice, said: “Climate change is a problem now. So, it’s welcome news some DB trustees are beginning to think about climate-related risks and opportunities. However, our survey shows an alarming proportion of trustees are not grasping the urgency to act.
“For DB trustees, it’s time to get to grips with the way climate-related risks and opportunities affect the employer’s covenant and include climate change in your integrated risk management framework.
“Climate-related risks threaten pension savings and affect funding strategies across the DB landscape.
“This means trustees should build their capacity in this area now, so they can understand what climate change will mean for their scheme and their employer’s covenant, and so be better placed to make decisions contributing towards good outcomes for savers.”
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