Climate reporting requirements must be 'flexible and evolutionary' - ACA

Requirements for schemes to implement Task Force on Climate-related Financial Disclosures (TFCD) reporting requirements must be “flexible and evolutionary”, the Association of Consulting Actuaries (ACA) has said.

In its response to the Department for Work and Pensions’ (DWP) consultation on taking action against climate risk, the association called for more detailed proposals to be put forward quickly, and suggested that the costs and benefits of the implementation should be considered more fully.

The consultation was launched in August and sought views on proposed requirements for occupational schemes with more than £5bn in assets and authorised master trusts to publish climate risk disclosures.

ACA Climate Risk Group member, Robert Evans, said: “To be of maximum benefit to trustees, scheme members and sponsors, the ACA believes the requirements will need to be flexible and to develop as knowledge and experience of climate risk management develops.

“To guard against schemes using metrics or models that may become redundant quickly, the ACA is calling for The Pensions Regulator to produce an Annual Climate Risk Management Statement to guide trustees in this area.”

The ACA also agreed that the largest pension schemes should be the first required to implement the new requirements, while it also requested that the DWP focus more on ‘what’ should be disclosed, as well as ‘how’.

ACA chair, Patrick Bloomfield, said: “Major UK pension schemes are being asked to take a leadership role in action on climate change. To fulfil this important role schemes need government and regulators to drive rapid change across the world of finance, to make the necessary available from asset managers and the businesses they invest in.”

Aegon head of pensions, Kate Smith, agreed that the largest schemes had “a responsibility to lead the way in environmental, social and governance matters” and also called on the DWP to publish guidance “as soon as possible”.

Smith continued: “Regulatory change influences the market and propositions, often for the good. As the regulatory burden grows, scale will become increasingly important, not only to keep up with regulatory change but also to continuously invest in propositions to improve member outcomes.

“The increased regulatory burden, coupled with the uncertain economic outlook, could lead to smaller master trusts becoming financially unsustainable, accelerating master trust consolidation. As a result, the defined contribution market could look very different in five years’ time.”

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