The lack of a consistent template for Taskforce for Climate-related Financial Disclosures (TCFD) reports highlights the complexity and confusion the financial services sector is grappling with about how it should act on climate risk, the DC Investment Forum (DCIF) found.

DCIF analysed 14 defined contribution (DC) master trusts TCFD reports after they were required for the first time in 2022 to report on their progress in managing climate risk on behalf of their members.

However, according to the research, Nico Aspinall, author of a two-part DCIF report, said that making a comparison between the reports in terms of which master trusts are doing better or worse at managing climate risk is “almost impossible”.

Aspinall also questioned whether the master trust industry is “clear on the intended reader of the reports”.

He added that TCFD reports have been written with different purposes in mind, from those who see it as ticking a regulatory box to those who see it as a showpiece document.

Photo of Nico Aspinall, People's Pension CIO

Nico Aspinall

Emissions reporting also varies due to methodology, data provider, inclusion of scope 3 which covers supply chain emissions, and different approaches to calculating intensity measures.

The report added that for climate scenario analysis, differences in time horizon, use of example members, emissions scenarios and methodology of calculating impacts make comparability between schemes “almost impossible”.

It pointed out that impacts ranged from the pessimistic (TPP – 50% damage to equities in a 3°C scenario) to the optimistic (NOW – 2% uplift to pots in a 3°C scenario).

The report recommended that greater standardisation of reports should become common practice so that it’s possible to compare the reports. In particular, it recommended that regulators should set out a common methodology for climate scenario analysis.

Regulators were also asked to clarify the intended audience of TCFD reports, so that schemes better understand the audience to whom they are reporting to.

Aspinall said: “Putting the responsibility to address climate change on trustee boards has been positive and has achieved much in terms of starting schemes upon the route of addressing climate change.

“However, creating the requirement to disclose the outputs of TCFD processes without a consistent template for reporting to be used across the industry highlights the complexity and confusion the financial services sector feels in terms of how it should be acting on climate risk.”

Lorna Kennedy, chair of the DCIF, added: “TCFD reporting has been a new challenge that the pensions industry has grasped admirably. But to make all the time spent on these reports worthwhile, more industry reflection is needed. We need to work together to make sure that these reports are more readily comparable, in order to get a clearer picture of how schemes are managing climate risk.”

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