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TPR’s New Climate Change Strategy a “Step in the Right Direction”

Regulator outlines expectations for UK pension schemes on climate disclosures, but also offers support.

The Pensions Regulator’s (TPR) newly published climate change strategy will provide UK pension scheme trustees with the guidance and tools to manage and report climate-related financial risks, according to industry experts.

The regulator has committed to providing guidance for compliance with incoming climate-related regulation for larger schemes, updating its Trustee Toolkit and providing relevant training to staff from H2 2021.

Regulations include mandated reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD), which large pension schemes will be expected to comply with from later this year. The Pension Schemes Act 2021, passed in February, allows UK government to make regulations on climate change governance, including requiring pension schemes to report on climate risks by preparing an annual TCFD report.

TPR guidance will support pension scheme trustees as they build their capacity for climate-related reporting, enabling trustees to feel more confident making decisions that will contribute to sustainable saver outcomes.

Outlining its six key objectives, TPR said it wishes to ensure “the financial sector [works] towards consistent behaviours and high-quality information for trustees on climate risk”. This is in line with the UK’s Green Finance Strategy, which aims to ensure that regulators continue to take a coordinated approach on climate-related issues.

The regulator emphasised that all scheme trustees need to ensure compliance with existing requirements, including publishing their statement of investment principles (SIP) and implementation statement. Since October 2019, all schemes providing a SIP have needed to include their policies on financially material ESG considerations.

TPR warned that it will take enforcement action against trustees that don’t meet these legal reporting requirements.

“Our strategy outlines how we will help trustees comply with the new rules for larger schemes, but it signals 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. It is clear that all schemes need to build their capacity in this area if they haven’t already,” said David Fairs, TPR’s Executive Director of Regulatory Policy, Analysis and Advice.

TPR will publish its Climate Adaptation Report later this year, outlining the regulator’s plans for using TCFD recommendations to manage climate risk. It will further illustrate how trustees can take national and international climate change goals into account within their reporting.

“The new climate change strategy is a welcome step in the right direction,” said Kate Brett, European Head of Responsible Investment at investment consultants Mercer.

“It is essential that regulators set ambitious expectations directly and work collectively to ensure expectations and actions for pension scheme trustees are clearly articulated. We believe the commitment by TPR to embed climate-related expectations into the Trustee Toolkit will provide much-needed support to trustees as they tackle this ever more pressing issue,” she told ESG Investor.

“The Pensions and Lifetime Savings Association (PLSA) strongly supports TPR’s view that addressing climate risk is intertwined with pension schemes’ fiduciary duty to act in the best interests of their members and should be a mainstay of good investment governance,” said Joe Dabrowski, Deputy Director at PLSA.

“I welcome TPR stepping up on this issue. By increasing oversight of climate change and giving it the weight it deserves they can provide better protection for pension savers from significant financial risk,” said UK Minister for Pensions Guy Opperman.

The new climate strategy will incentivise trustees to obtain ESG data in order to adapt their investment processes so they can best manage climate-related risks, said Will Martindale, Group Head of Sustainability at Cardano UK.

“It is also encouraging to see TPR has recognised in its regulatory approach that the integration of covenant and actuarial risks, along with investment risks are key to successful outcomes,” he said.

TPR has pledged to publish plans by 2024 outlining how the regulator will achieve a net-zero carbon emissions target by 2030.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2021 ESG Investor Ltd. Company No. 12893343

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