Nearly a third (30 per cent) of defined benefit (DB) schemes are unconvinced about the importance of net zero and believe it is not relevant to them despite increasing regulatory pressure, according to LCP.

Despite this, LCP’s research found there was a “dramatic” year-on-year increase in the number of schemes taking action on net zero.

Eight in 10 (80 per cent) DB schemes with more than £5bn in assets said they either have or are working on a net-zero target, compared to just over 30 per cent a year ago.

Furthermore, 70 per cent of responding DB schemes stated they had considered the impact and opportunities of climate change on covenant, up from 50 per cent last year.

The largest rise was found to be in the £500m-£1bn bracket, with more than having saying they had considered impact and opportunities on covenant compared to just under 30 per cent in 2021.

However, fewer smaller schemes considered this in 2022 in comparison to last year, which LCP said could be due to cost pressures, a lack of regulatory guidance or because there was a lot else going on.

LCP encouraged schemes to work closely with their sponsors to understand the impact climate issues could have on sponsor success, think about how they can position investments to mitigate against the potential market adjustments, and to “get ahead of the back” if bulk purchase annuity deals were their chosen endgame target.

“With discussions on climate change dominating the headlines, government commitments and new requirements for larger pension schemes, it’s little wonder that many people are experiencing ‘climate fatigue’,” commented LCP partner, Mary Spencer.

“Against this backdrop it’s a little surprising that more pension schemes didn’t cite climate risk as a top priority over the next year.

“Saying that, we have seen a distinct shift towards action being taken, with a dramatic increase in the number of larger schemes working towards a net-zero target.

“Whether or not an explicit net-zero target is right for each scheme, there is no doubt that climate issues will impact their future journey, so they need to stay on top of what actions they can take that will make a real difference, as well as complying with regulation.”

Share Story: