Monitoring and modelling of pension climate risks need to be 'highly granular'

Climate risk reporting requirements for trustees needs to reflect risks at individual company and sector level rather than through big picture asset class allocations, according to XPS Pensions.

In response to the Department for Work and Pensions’ consultation on climate risk, the pensions consultancy also warned that the requirements would require a step up in terms of information that investment managers are able to provide on their portfolios.

As such, it pointed out that investment managers should be able to provide and report carbon footprints of funds as a norm.

XPS head of environmental, social and governance research, Sarita Gosrani, commented: “We are therefore calling for accompanying measures to be applied to the fund management industry which is not yet fully prepared to support trustees with meeting the requirements in their entirety.

“Only 1 per cent of investment managers that are UN PRI signatories made the Principles for Responsible Investment Leaders’ Group 2020 which had the theme of climate reporting. This is telling of the ramp up action required.”

The company added that it was “strongly supportive” of the climate risk proposals and recognised that climate change posed a systemic and financially material risk that had the ability to impact member outcomes.

The consultation, which was launched in August, concerned proposals for larger occupational pension schemes and authorised master trusts to be required to publish climate risk disclosures by 2022, with these to be reported in line with the Task Force on Climate-related Financial Disclosures' recommendations.

Earlier this week, The Association of Consulting Actuaries called for the requirements to be “flexible and evolutionary” and argued that more detailed proposals should be put forward quickly.

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