Pensions - Articles - Why managing systemic risk is core to trusteeship


In today’s pensions landscape, awareness of and managing systemic risks is not a “nice to have”, it’s a core part of effective trusteeship. Climate change, nature loss, and other systemic risks are not abstract concerns. Where they are financially material, trustees have a duty to understand and manage them as part of their fiduciary responsibilities. Strong investment governance is essential, especially in complex areas such as environmental, social and governance (ESG) and private markets.

 By Mark Hill, Climate and Sustainability Lead, TPR

 Governance that protects savers
 At The Pensions Regulator (TPR), we are raising expectations around investment governance. Trustees should ensure that decisions are long-term, well-evidenced, and subject to appropriate challenge. This is not just about compliance, it is about leadership. We have adopted a more prudential style of regulation, with a sharper focus on systemic risks and how trustees are embedding addressing those risks into their investment governance. Through our Market Oversight team, we are having more expert-to-expert conversations with schemes to support this shift.
  
 Trustees should ask:
 Are we confident our investment strategy is resilient to climate and nature-related risks?
 Do we have the right information to challenge our advisers and asset managers?
 Are we considering long-term risks in every investment decision, not just short-term returns?

 Tools to support better decisions
 We encourage trustees to explore the Taskforce on Nature-related Financial Disclosures (TNFD) framework and use it to inform their thinking and ask better questions about risks such as deforestation, water scarcity, and ecosystem degradation.

 The TNFD has published several useful resources:
 Asking better questions on nature
 Identifying risks and opportunities from nature-related dependencies and impacts
 Evidence review on the financial effects of nature-related risks
 These tools can help trustees move from awareness to action and embed sustainability into investment strategies.

 Building capability and confidence
 We know trustees are at different stages in their ESG journey. That’s why we are investing in our own capacity too. TPR has joined the UN Global Compact, giving us access to global best practice and tools.

 We have also:
 embedded ESG content into our Trustee Toolkit
 consolidated our ESG and climate guidance into one place on our website
 continued to share emerging good practice across the sector
  
 Trustees should ask:
 Do we have the knowledge and skills, and advice to oversee ESG risks effectively?
 Have we used the Trustee Toolkit to build our board’s confidence?
 Are we keeping up with evolving expectations and relevant guidance?
  
 Transition plans: shaping the future
 In June, the government launched a consultation on mandating UK-regulated financial institutions, including pension schemes, to develop credible transition plans. These plans aim to help schemes integrate climate and nature-related risks into investment decisions and improve market-wide understanding of systemic risk.

 We urge trustees to engage with this consultation (closing 17 September). This is your opportunity to shape what good looks like.

 We are also convening an industry working group, chaired by our Executive Director of Market Oversight, Julian Lyne, to develop thinking around a practical approach to transition planning for occupational schemes.

 If you would like to submit written evidence toward this then please email esg@tpr.gov.uk by 1 September. Questions we are particularly interested in answering include:

 What existing initiatives and proposals can inform the group’s work?
 What are schemes already doing around transition plans and what obstacles and challenges are they facing?
 What are the key questions for UK-based occupational pension schemes as they develop transition plans? Are there particular considerations across different scheme types and asset classes.

 Leading the way
 In a changing pensions and regulatory landscape, trustees should not just comply but should also lead. That means engaging with emerging frameworks like the TNFD, supporting credible transition plans, and embedding sustainability into investment strategies.

 Systemic risks are complex, and the future uncertain but the actions trustees can take now are clear.

 Ask yourself:
 Are we treating climate and nature-related risks as core financial risks?
 Are we confident in the resilience of our investment strategy?
 Are we engaging with the right tools, guidance, and consultations to stay ahead?

 What trustees can do now
 Engage with the government’s consultation on transition plans and respond to our call for evidence.
 Explore the TNFD framework and consider how nature-related risks may affect your scheme.
 Use the Trustee Toolkit to build your board’s ESG knowledge and confidence.

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