The Pensions Regulator – Industry view
with the basics on climate change. Where schemes do not comply, and it is appro- priate to do so, we will take enforcement action.
David Fairs is the executive director for regulatory policy at The Pensions Regulator
ACT NOW ON CLIMATE RISK TO DRIVE BETTER OUTCOMES FOR SAVERS
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 car- bon economies. In a world where the cli- mate emergency is real and urgent, this is the prudent approach. It is certain that any scheme that does not consider cli- mate 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 exist- ing requirements to publish their state- ment of investment principles (SIP) – including their policies on stewardship and financially material environmental considerations – and implementation statement.
These disclosures represent compliance
The strategy comes ahead of proposed regulations which will require trustees of larger schemes to maintain oversight of climate risks and make mandatory disclo- sures 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 considera- tion of climate change risks and opportu- nities part of their systems of governance. Relationship supervision will also encour- age trustees to pay more attention to cli- mate 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.
Building capability It is clear that all schemes need to build their capability in this area and should include devoting more board time to cli- mate 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 con- tribute 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 invest- ment chain are committed to disclosure of climate information and the govern- ment is making plans to achieve its target of net zero carbon emissions by 2050. This means a landscape of resilient pen- sion schemes that protect savings from climate risk is entirely within reach.
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ISSN: 2045-3833 Issue 104 | June 2021 | portfolio institutional | 11
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