A group of UK lawmakers has launched an inquiry into the government’s approach to ensuring pension schemes consider the risks to funds posed by climate change and the role schemes can play in meeting emission reduction targets.

The move comes as the government is due to bring in climate risk regulations for pension schemes ahead of the UK hosting the COP26 climate change conference in Glasgow in November.

“Our inquiry will be examining how the government can inform and be informed by international practice emerging from COP26 and how they ensure schemes consider the risks to pension funds posed by climate change and provide help for them to support emerging technology through greener investments,” said Stephen Timms, chair of the Work and Pensions Committee.

The committee is seeking feedback on up to six questions, formulated as follows:

  • How should pension schemes contribute to setting COP26 targets and helping to achieve the targets once agreed?
  • What role should international standards have in supporting pension schemes to assess climate change risks when considering scheme investments?
  • Are there suitable financial products to enable pension funds to make climate-conscious investments? How should such investment be facilitated and supported?
  • How should the UK seek to share and learn from international best practice?
  • What regulatory changes or other government action has been most effective in delivering change in the UK; and what changes on the part of Governments elsewhere should the UK learn from?
  • Do pension schemes have suitable information to assess climate risk, or do there need to be international reforms to financial reporting?

The forthcoming government regulations on climate risk and pension schemes are being made under the Pension Schemes Act 2021, and are based on adapting recommendations of the Task Force on Climate-related Financial Disclosures to make them relevant to trustee decision-making structures.

The pension scheme industry was cheered to see the draft regulations specifying that many provisions would apply to trustees “as far as they are able”, but expressed some residual concerns in feedback to a government consultation.

The pensions regulator is due to publish guidance outlining its approach to the regulations, and earlier this month said that where it did not see schemes complying with the rules, it would consider enforcement action.

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