The UK’s pensions regulator has published guidance designed to help trustees meet incoming requirements for the governance and reporting of climate-related risks and opportunities, also setting out its approach to imposing penalties.

The Pensions Regulator (TPR) is consulting on the guidance over an eight-week period, and is keen to receive industry feedback.

“We want to work with trustees, and their advisers, to ensure climate-related risks and opportunities are considered as key elements of scheme governance and we would welcome feedback on the best way to deliver this,” said David Fairs, TPR’s executive director of regulatory policy, analysis and advice.

From 1 October 2021, trustees of certain schemes face new requirements to take steps to identify, assess and manage climate-related risks and opportunities and report on what they have done. The reporting requirements align with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).

The regulator’s consultation includes the publication of an annex to TPR’s monetary penalties policy, which outlines the regulator’s approach to imposing penalties for non-compliance with the new regulations.

The regulations themselves require TPR to issue a mandatory penalty of at least £2,500 where trustees in scope of the legislation fail to publish a climate change report on a publicly available website, accessible free of charge, within the required timeframe.

For other breaches of the new rules, TPR has a range of enforcement options, including the discretion to issue a penalty notice. It said it was proposing that failures to carry out underlying governance activities be treated more seriously than a failure to make a disclosure.

“This underscores TPR’s determination to ensure its regulation drives a positive change in behaviour and to see more from trustees than a superficial, box-ticking,” it said.

Data (gap) efforts, explanations

One of the pensions industry’s concerns with the new requirements has been data availability or data flow, with the government recognising these challenges by providing for some of the requirements, such as carrying out scenario analysis, to apply “as far as [trustees] are able”.

TPR said that where all the information trustees need may not be available immediately, it expects trustees to provide a full explanation by setting out what efforts they have made to obtain the necessary climate-related data and fully explaining any gaps.

It also said it wanted trustees to outline their plans for overcoming obstacles, “as the quantity and quality of the data available should improve for future reporting periods”.

The UK’s largest pension funds are leading the roll-out of TCFD-based requirements across financial services, and Joe Dabrowski, deputy director, policy, at the Pensions & Lifetime Savings Association (PLSA), said the association was pleased TPR “has committed to pro-actively seeking scheme views to inform its view and make sure its guidance is fit for purpose”.

“It is really important schemes have clear guidance as they will be working on a ‘best endeavours’ basis’, with much of the information necessary for full disclosure not yet available from their asset managers or companies, and risk mandatory fines,” Dabrowski added.

“We would therefore urge as many schemes to make their thoughts known in the consultation process before it closes on at the end of August 2021.”

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