The Department for Work and Pensions publishes consultation on pension climate risk

The Department for Work and Pensions publishes consultation on pension climate risk

The Department for Work and Pensions (DWP) has published a consultation, setting out proposals for larger occupational pension schemes and authorised master trusts to publish their climate risk financial disclosures.

The consultation, published 26 August 2020, recommends that trustees of large occupational pension schemes must have effective governance, strategy, risk management and accompanying metric targets, to manage climate risk and opportunities in the market from October 2021.

The DWP has recommended that trustees calculate the carbon footprint of pension schemes, and how the value of these assets and liabilities would impact temperature rises. These proposals would be required to be made public, referenced from the schemes’ annual reports and accounts section.

Additionally, DWP is proposing that trustees with £1 billion or more in assets in the following year to be included in these proposals from 2023, while this consultation will be extended to all occupational trustees from 2024.

Ralph McClelland, partner at law firm Sackers, said: “Following the industry working group report earlier in the year, the DWP has shown its continued commitment to the implementation of stricter climate related reporting for larger UK pension schemes by publishing today’s consultation. The DWP’s key proposals would mandate Task Force on Climate-related Financial Disclosures (TCFD) reporting for pension scheme trustees.

“The DWP is targeting schemes with assets of £1 billion or more, which casts the net widely. While many pension schemes are already some way down this road, implementing the proposals could pose challenges for trustee boards, particularly those with smaller schemes. Responses are due in by 7 October 2020.”

Simon Jones, head of responsible investment at Hymans Robertson, added: “Pension funds will only contribute to the mitigation of climate risk through the reallocation of capital or by driving changes in behaviour. 

“This continued focus on climate risk is welcome and we are particularly encouraged that this consultation looks beyond just disclosure to the underlying actions that trustees are expected to take in developing their approach. Looking beyond the risks associated with climate change to the potential opportunities to influence or create change must become a part of asset owners mindset.”