UK private occupational pension schemes manage around £1.4 trillion worth of retirement savings for millions of savers. And in a new report published today, TPR outlines the risks related to climate change most relevant to UK schemes, as well as the steps it has taken as a regulator to raise standards of investment governance and systemic risk management.
The report shows that there are too many small DC schemes where trustees' knowledge of the scale of financial risks posed by climate change is limited. As a result, TPR is calling on those trustees to upskill or consider consolidating in savers’ interests.
Mark Hill, TPR’s Climate and Sustainability Business Lead, said: “Good investment governance is critical to protecting and enhancing saver outcomes. Trustees, in line with their fiduciary duties, should consider material financial risks arising from climate change and nature loss when making long-term investment decisions and how these risks can be mitigated. Where trustees cannot meet our expectations on protecting savers, they should ask themselves if consolidating into a larger scheme would be in their savers’ best interests.”
According to TPR data, larger DC schemes perform better than smaller ones on governance of climate change risks.
A recent survey showed only 17% of DC schemes had dedicated time or resources to considering climate risk, but that rose to 100% for master trusts and 92% of large schemes compared with lower proportions for medium schemes (53%), small schemes (25%) and micro schemes (4%).
And 28% of respondents felt that they understood the scale of the financial risks posed by climate change to their DC scheme ‘very well’ or ‘fairly well’. This varied widely by scheme size and was more common for larger schemes (master trusts 100%, large schemes 90%, medium 63%) than smaller (micro 17%, small 29%).
TPR’s climate adaptation report
The newly published TPR report looks at the approaches trustees take to tackle these risks and the level of commitment.
It added TPR will continue to:
educate and support trustees, questioning their decisions where appropriate
enforce against trustees of schemes failing to meet statutory duties relating to climate change and wider duties
encourage trustees to go beyond minimum compliance and improve their ability to manage climate change and wider sustainability risks
work with government, regulators and industry on initiatives to improve industry’s management of climate and ESG risks
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