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The Actuary The magazine of the Institute & Faculty of Actuaries

UK government refuses to back mandatory climate risk disclosures

Pension fund trustees will not be forced to report the risks that climate change pose to their investments after the UK government refused to accept the recommendation from the Environmental Audit Committee (EAC).

"Disappointing" response to EAC proposal ©iStock
"Disappointing" response to EAC proposal ©iStock

However, ministers agreed to clarify that trustees have a fiduciary duty to consider long-term environmental risks, and is consulting on how to mend pension regulation accordingly.

It is also considering how best to ensure trustees take account of scheme members’ views when developing investment policies, agreeing that funds should consider these.

EAC chair, Mary Creagh, said it was “disappointing” that the government had chosen not to follow France’s lead by making it mandatory for large asset owners to report exposure to climate risks.

However, she added: “We are pleased that the government and regulators are acting on our recommendations to improve how pension schemes factor climate change risks into decision-making.”

The original EAC recommendations were published in a report earlier this year, and urged the government to force large firms and asset owners to report climate risks by 2022.

It warns that structural incentives across the investment chain encourage a focus on short-term returns, often to the neglect of longer-term considerations like environmental sustainability.

It also states that confusion about the extent to which pension trustees have a duty to consider environmental risks has prevented institutional investors addressing climate change risks.

The government is now considering proposals that would see defined contribution pension schemes publish a statement of investment principles and an annual implementation report.

These would have to be made available to members via their annual benefit statements, while the Financial Conduct Authority (FCA) is also consulting on rule changes.

“The FCA can play a key role in providing protection to consumers for green finance products and ensuring that the market develops in an orderly and fair way which meets users’ needs,” chief executive, Andrew Bailey, said. 

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