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The Actuary The magazine of the Institute & Faculty of Actuaries

Climate risk consultation launched

The Pensions Climate Risk Industry Group (PCRIG) has launched a consultation on guidance to help trustees assess, manage and report on climate-related risks.

Pensions urged to show leadership on climate change ©Shutterstock
Pensions urged to show leadership on climate change ©Shutterstock

A draft guide has been drawn up by the PCRIG, which was set up last summer by the Department for Work and Pensions, The Pensions Regulator (TPR) and other pension representatives.

It is designed to help trustees meet their legal obligations to consider financial-material factors in investments and embed climate change in risk management and governance.

The PCRIG intends to ensure that the non-statutory guidance is in line with recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD).

TPR executive director of regulatory policy, analysis and advice, David Fairs, said: “Climate change is a core financial risk which trustees must consider when setting out their investment strategy.

“That’s why PCRIG’s guide is so important as it will help trustees demonstrate how they are taking this and other financially material considerations into account over the lifespan of their investments.

“I urge the industry to take part in this consultation and help shape guidance which will ultimately mean savers are best protected from the far-reaching financial risks that could arise from climate change and a transition to a carbon-neutral economy.”

The first part of the draft guidance introduces climate change as a financial risk to pensions schemes, trustees’ legal requirements and the TCFD recommendations.

The second part sets out a suggested approach for the integration and disclosure of climate risk within the typical governance and decision-making processes of trustee boards.

While part three contains technical details on recommended scenario analysis and metrics that trustees may wish to consider using to record and report their findings.

This comes after BlackRock warned that climate change will trigger a “fundamental reshaping of finance”, with a substantial capital reallocation imminent.

“We welcome the PCRIG consultation as a great opportunity for the pensions sector to show leadership in the area of climate change financial reporting," said Mercer's head of responsible investment Kate Brett.

"This is an important step towards better reporting, but one that needs to be accompanied by greater transparency in ESG and climate change reporting on part of the investment community as a whole."

The consultation closes at 11.45pm on 7 May 2020 and the final guidance is expected in the autumn.

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