The Pensions Regulator (TPR) has published its new Climate change strategy, calling on pensions scheme trustees to invest in companies that protect savers from climate risk or face its own enforcement action.
The report follows the recent recommendation by the Department for Business, Energy and Industrial Strategy (BEIS) for mandatory climate-related financial disclosures for all large organisations – in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
According to the TPR’s CEO Charles Counsell, society is now “at a crossroads,” and “in a world where the climate emergency is real and urgent, it is absolutely the case that any scheme that does not consider climate change is ignoring a major risk to pension savings and missing out on investment opportunities”.
In setting out its climate change strategy and how it can help trustees meet the challenges, TPR has called on all trustees to publish a statement on investment principles (SIP) report and to disclose their TCFD report.
Where it finds companies do not do this, TPR has proposed taking enforcement action, and has said it will name and shame.
The Regulator has also promised to review how obligations have been met when the Pensions Act is reviewed in 2023, by working with the Department for Work and Pensions (DWP) to share best practice TCFD reports. It will also review guidance and fill gaps where the regulation has “moved on”.
In addition, TPR will review a selection of stewardship activities undertaken by trustees and publish its findings.
David Fairs, TPR’s executive director of regulatory policy, analysis and advice, said: “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.”
He explained that this should include more board time being devoted to climate change, specific training, and, most importantly, integrating consideration of climate change right across decision-making.
Fairs added: “Building capacity means trustees will be better placed to understand what climate-related issues mean for their scheme – and better able to make decisions which contribute to good saver outcomes.”
Commenting on these commitments, minister for pensions Guy Opperman said: “I welcome TPR stepping up on this issue by increasing oversight of climate change and giving it the weight it deserves so they can provide better protection for pension savers from significant financial risk.”
He added: “In particular, I applaud the commitment to update the trustee toolkit, and to properly enforce compliance with the basics.”
Proposals under the Pension Schemes Act will see larger schemes and all master trusts be required to disclose their 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 – some 81% of memberships and 74% of occupational pension scheme assets.