The UK pensions regulator (TPR) is urging trustees to take long-term decisions, saying pension funds needed to think about leadership, not just compliance.
In a blog, Mark Hill, climate and sustainability lead at TPR, said the regulator was raising expectations around investment governance as part of a more prudential style of regulation with a sharper focus on systemic risks.
According to TPR, trustees should be embedding addressing those risks, which include climate change and nature loss, into their investment governance.
He said trustees should be asking themselves if they are confident their investment strategy is resilient to climate and nature-related risks, and if they have the right information to challenge their advisers and asset managers.
They should also ask themselves if they are considering long-term risks in every investment decision, not just short-term returns.
“In a changing pensions and regulatory landscape, trustees should not just comply but should also lead,” Hill said.
He said this meant engaging with emerging frameworks like that of the Taskforce on Nature-related Financial Disclosures (TNFD), supporting credible transition plans, and embedding sustainability into investment strategies.
The TNFD could be used, for example, to “ask better questions about risks such as deforestation, water scarcity and ecosystem degradation”.
He also encouraged trustees to engage with the government’s consultation on mandating UK-regulated financial institutions, including pension schemes, to develop credible transition plans.
TPR is convening an industry working group on the topic of transition plans, and Hill said trustees should also respond to the regulator’s call for evidence.
Last year, Hill said that good transition plans can help trustees, for example, with the integration of risks and opportunities into investment valuations or “reaching informed decisions on investments so that there is increased capital allocation to climate solutions”.
The latest digital edition of IPE’s magazine is now available
