Climate risk reporting to become mandatory for pension trustees

Climate risk reporting to become mandatory for pension trustees

Workplace pension schemes will be required report on the climate risk of their funds, after the government yesterday published its response to its August 2020 consultation: ‘Taking action on climate risk: improving governance and reporting by Occupational Pension Schemes’.

The document will instruct trustees of pension plans with more than £5 billion in assets to report on the financial risks of climate change within their portfolios from October.

According to Guy Opperman, minister for Pensions and Financial Inclusion, this means pension scheme trustees, asset managers, and insurers will have to disclose climate-related financial risks and opportunities in line with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD).

He said: “I acknowledge that for many trustees, the proposals will be a new process and a learning curve, but mandatory TCFD-aligned disclosures will allow trustees to demonstrate better how consideration of climate-related risks and opportunities is integrated into their scheme’s entire governance and decision-making processes.”

He added: “Some trustees may think that these proposals are an overreaction – because they believe the market has delivered for them over the past decade, because they have seen it ride out “storms” before, or because they wrongly think they have not yet seen any impact of climate change on their investments. To these trustees I say that the world is changing, the challenges are changing. You need to change.”

Opperman said the changes should enable trustees to take advantage of investing in low-carbon technologies, or companies transitioning to lower carbon footprints.

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He added: “Climate change is a major systemic financial risk and threat to the long-term sustainability of UK private pensions. With almost £2 trillion in assets under management, all pension schemes are exposed to climate-related risks and I am committed to ensuring trustees do everything they can to limit this risk to their members’ future retirement income.”

Technically, the government’s position is now open to responses from the sector until 10 March, but it is unlikely its position will change.