The majority of defined contribution (DC) pension schemes in the UK are not paying proper attention to the risks and opportunities of climate change, the Pensions Regulator (TPR) has warned today.
The regulator's annual survey of DC schemes found that, although the proportion of trustees considering climate change in their investment strategies has doubled since 2019, it still stands at just 43%.
Of the schemes whose trustees had not considered climate change in their investment strategies, only 19% were planning to review this, while a concerning 21% felt that the issue was not relevant to them.
This comes as the industry prepares for the Pension Schemes Bill to become an act later this year, which will see requirements for effective governance of climate risks written explicitly into law in the most comprehensive way to date.
“Trustees already need to consider climate change as part of their statement of investment principles, but the new act will significantly increase the expectations placed upon them,” said David Fairs, TPR’s executive director of regulatory policy, analysis and advice.
“Although a phased approach means the new act won’t affect all DC schemes to start with, it will increase the expectations savers have of those responsible for their pension pots when it comes to climate change.”
The survey was carried out between January and March last year – before the first national COVID-19 lockdown – and the findings relate to schemes covering 95% of DC members.
It comes after the government last August unveiled plans to force the UK's 100 largest occupational pension schemes to disclose how their investments are exposed to climate-related financial risks.
A consultation on the proposals has now closed, but the new rules could see pension schemes with £5bn or more in assets, including all authorised master trusts, publishing climate risk disclosures by the end of 2022.
TPR also announced today that it intends to publish a strategy setting out how it will help trustees meet challenges around climate change in the spring.
“Climate change risks will threaten pension savings right across the industry,” Fairs continued.
“This means trustees should build their capacity in this area now, so they can understand what climate change will mean for their scheme and so be better placed to make decisions contributing towards good outcomes for savers.”
Image credit: iStock
Author: Chris Seekings