All pension schemes have a fiduciary duty to address risks posed by climate change and action will be taken if they do not comply with the basics, the UK Pensions Regulator (TPR) has warned.

In its new climate change strategy, published today, TPR set out its strategic response to climate change following the Pension Schemes Act 2021. Proposed new regulations will require trustees of larger schemes to report and take action in line with the recommendations of the Taskforce on Climate Related Disclosures (TCFD).

All UK schemes already have duties in relation to climate change, for example stemming from requirements for their statement of investment principles to set out policies on environmental, social and governance considerations (including climate change) that they consider financially material.

The watchdog warned it would take enforcement action against schemes that fail to report and may choose to publicise this, adding that the quality of reporting can indicate the quality of scheme governance.

It believes that driving trustees to act on the risks and opportunities from climate change will create better outcomes in later life for workplace savers.

Guidance, toolkit boost

The regulator will publish guidance outlining its approach to the proposed TCFD regulations, due to come into force from October, to help schemes understand what the regulator will be looking for. The guidance will specifically consider how to take account of the impact of climate change in ‘integrated risk management’, which TPR said would help drive smaller schemes to engage with climate-related risks.

The watchdog also revealed it would update climate change content in its “Trustee Toolkit” to further support the development of trustees’ knowledge and understanding.

TPR chief executive Charles Counsell warned that any pension scheme that did not consider climate change was “ignoring a major risk to pension savings and missing out on investment opportunities”.

David Fairs, TPR’s executive director of regulatory policy, analysis and advice, said that schemes needed to build capacity with regard to climate change if they hadn’t already done so.

“This should include devoting more board time to climate change, considering specific training, and, most importantly, integrating consideration of climate change right across decision-making,” he said.

The watchdog noted commitments by large UK schemes such as NEST and the BT Pension Scheme to achieve net-zero carbon emissions from their portfolios by 2050. TPR said it would like to see all schemes “learn what they can from these examples and take steps, as appropriate, to manage their climate risk”.

The regulator is also making its own commitment to be net-zero by 2030 and will set out its plans to achieve this by 2024.

The UK’s Pensions and Lifetime Savings Association’s deputy director for policy, Joe Dabrowski, welcomed the watchdog’s strategy, saying that the pensions industry was ”well placed to continue to influence the debate and extend the governance of climate risks to the corporate sector”.

He added: “TPR’s commitments to providing guidance on the TCFD regulations, updating the trustee toolkit and providing relevant training to staff are also very welcome. We look forward to working with the regulator to ensure the guidance is suitable for schemes and supports them to achieve best practice.”

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