Pension schemes could be forced to disclose climate risks

27th August 2020

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Toby Griffiths

The UK's 100 largest occupational pension schemes could soon face fines for failing to disclose how their investments are exposed to climate-related financial risks.

Under proposals but forward by the government yesterday, pension schemes with £5bn or more in assets would be required to publish climate risk disclosures by the end of 2022.

By using these largest schemes to set an industry standard, the Department for Work and Pensions (DWP) said that around 250 more schemes with £1bn in assets would then meet the same requirements in 2023.

Schemes that fail to comply would be hit by a mandatory penalty imposed by The Pensions Regulator. The new rules are subject to a consultation, which started yesterday and will run until 7 October.

Secretary of state for work and pensions, Th√©r√®se Coffey, said: “I am delighted to announce our proposals to make reporting on sustainable investments mandatory, one of the most significant steps to date in the UK's progress on tackling climate change.

“We were the first major economy to commit to reaching net zero by 2050 – to deliver this we must start now, working with investors and others to achieve this ambitious target.“

Climate change is expected to have a significant impact on pension schemes' assets and returns for savers, both through the risks of a warmer planet, and the transition to a lower-carbon economy.

The proposals outlined in the DWP's consultation include:

  • Schemes embedding the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) – including on governance, strategy, risk management, metrics and targets
  • Scheme scenario modelling to analyse the implications of a range of temperature scenarios for a scheme's assets, to prompt strategic thinking about climate risks and opportunities
  • The requirement to report the greenhouse gas emissions of portfolios
  • Compelling schemes to publish their report on a website and to notify pension scheme members via their annual benefit statement that the information has been published and where they can locate it
  • Schemes providing The Pensions Regulator with the web address of where they have published their report via the annual scheme return form.

The consultation will also signal an intent that schemes report on the extent to which their portfolios are aligned with the goals of the Paris Agreement.

The prime minister's finance adviser for COP26, Mark Carney, said: “By requiring pension schemes to report against the TCFD's recommendations, the occupational pensions of over 24 million UK citizens, representing over £1.3trn of investments, can be managed to mitigate the risks from climate change and seize the opportunities from an economy-wide transition to net zero.“

Image credit: iStock


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