The UK's 100 largest occupational pension schemes will be forced to disclose how their investments are exposed to climate-related financial risks, under plans unveiled by the government yesterday.
The proposals would require pension schemes with £5bn or more in assets, including all authorised master trusts, 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.
Failure to comply would result in 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.
The prime minister’s finance adviser for next year's COP26 climate summit, Mark Carney, said that the new rules could help ensure £1.3trn of investments support an economy-wide transition to net-zero carbon emissions.
“To achieve an orderly transition to net zero, managing climate risk and improving resilience needs to be at the heart of all financial decision-making,” he added.
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.
Secretary of state for work and pensions, Thérèse 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.”
Author: Chris Seekings
Image credit: Shutterstock
This article was published as part of Predictions, the future-gazing thought leadership sub-brand of The Actuary covering emerging trends within the insurance, finance and actuarial sectors - you can find out more on the Predictions homepage.
