Proposed changes to current pensions law were published today, with the Financial Conduct Authority (FCA) confirming climate risk should be considered alongside “equally important” risks like liquidity risk and inflation in devising investment strategies for pension schemes. The FCA has promised to publish guidance for pension providers.
Lawyers have described it as a breakthrough moment for the UK pensions industry.
ClientEarth pensions lawyer Danielle Lawson said: “Climate risk has hit the mainstream. The UK’s top financial regulator has acknowledged that climate change presents material risks for investors, equating it with core economic risks like liquidity, interest and inflation. This busts a persistent myth in the industry.
“At the same time, the proposed changes to UK pensions law will end any debate among trustees: climate change risks and opportunities must be considered in schemes’ investment strategies.
“This is a lightbulb moment for UK pensions – the FCA’s acknowledgment that financially material climate risks should be incorporated into investment decision-making, as part of pension providers’ legal duties, opens the door to a much more in-depth consideration of exposure to climate risk for UK markets and financial institutions generally.
“We hope that the FCA will now participate in the next round of Adaptation Reporting under the Climate Change Act and establish itself as a recognised authority on how the financial sector should act on climate.”
The FCA and the Pensions Regulator (TPR) have been consulting on the content of a proposed joint strategy for regulating UK pensions. TPR has already issued guidance which identifies climate risk as a potentially material factor which trustees should consider in their investment strategies.
Lawson added: “Today’s response is a promising indication that the regulators will recognise the need to align their investment guidance on climate risk and other financially material long-term factors.”
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