Schemes given seven-month mandatory reporting extension and further guidance for aligning climate disclosures.
Following a UK government consultation on addressing climate risk in pension schemes, UK Pensions Minister Guy Opperman today announced changes to its upcoming Task Force for Climate-related Financial Disclosures (TCFD) mandate.
Opperman said the government will “simplify requirements on [TCFD] publication timings”, giving all schemes seven calendar months from their individual year-end dates to publish their TCFD report.
“I have kept the scope of these requirements the same – authorised master trusts and schemes with £5 billion or more in assets will be in scope from October 2021,” Opperman added. He noted that “buy-in contracts” will not be counted towards that threshold.
For trustees of occupational pension schemes, the government has further provided non-statutory guidance on managing and reporting climate-related risks in line with TCFD guidelines, produced by a cross-government group, the Pensions Climate Risk Industry Group (PCRIG).
Previously, occupational schemes with assets under ownership of more than £5 billion were expected to provide mandatory disclosures from early 2021, whereas occupational schemes with assets under ownership of over £1 billion and Financial Conduct Authority-regulated (FCA) pension providers would be brought into the scope from 2022.
The government will also be bringing their commitment to conducting an interim review of the mandate forward to 2023, thus allowing the government to “extend the measures to smaller schemes as soon as 2024”. Opperman emphasised that the changes are being introduced because the UK “cannot afford delays to address the risk presented by climate”.
“This is a positive start,” said Rachel Haworth, UK Policy Manager at ShareAction. “But climate change is a systemic challenge which individual investors will struggle to manage on a portfolio-by-portfolio basis. Rather, economic transformation is required. The Department for Work and Pensions (DWP) states that it has explored the methodologies available for measuring the climate impacts of pension fund portfolios but concluded that more work is required before these can be implemented. We call on DWP and the pensions industry to accelerate this work in line with the urgency and scale of the climate crisis.”
Acknowledging the costs involved when conducting climate scenario analysis to inform TCFD-aligned reporting, Opperman said trustees should look to conduct scenario analysis every three years instead of annually, following on from the first year of analysis.
“As methodologies and data are evolving rapidly, we see a strong possibility that in practice, at least initially, trustees will need to do scenario analysis more frequently than every three years,” he said.
“The best endeavours approach to disclosure also recognises that climate risk management is a fast-developing science with the quality of metrics improving all the time; in such an environment it is sensible to encourage trustees to disclose and address the risks they can, rather than wait for data to be ‘perfect’,” said Joe Dabrowski, Deputy Director for Policy at Pensions and Lifetime Savings Association (PLSA). “The PLSA has called for a joint industry and government review to seek to resolve this issue by addressing the competing data standards and definitions that exist.”
In the coming months, Opperman will continue to work with the Taskforce on Pension Scheme Voting Implementation to strengthen the trustee voice in both engaging with and voting on climate risk.