DB schemes under-prepared for incoming climate regulations

The Pensions Regulator (TPR) has warned that defined benefit (DB) pension schemes are “not as prepared as they should be” for the forthcoming regulations on climate-related risks and opportunities.

The regulator has urged schemes to act now to ensure they will be able to meet new requirements.

Its annual survey of DB schemes, conducted between October and November 2020, found that ‘too few’ trustee boards were allocating enough time or resources to assessing financial risks or opportunities associated with climate change, assessing the risks/opportunities from particular climate-related scenarios, or giving significant consideration to climate change in their investment and funding strategies.

The survey also found that too few trustee boards were devoting significant consideration to climate-related opportunities and that too many were unaware of the work of the Task Force on Climate-related Financial Disclosures (TCFD).

From October, trustees of schemes with £5bn or more in assets and authorised master trusts will need to look at the management and governance of climate-related risks and opportunities in more detail, in line with TCFD recommendations.

“Climate change is a problem now,” commented TPR executive director of regulatory policy and advice, David Fairs. “So, it’s welcome news some DB trustees are beginning to think about climate-related risks and opportunities.

“However, our survey shows an alarming proportion of trustees are not grasping the urgency to act. 

“For DB trustees, it’s time to get to grips with the way climate-related risks and opportunities affect the employer’s covenant and include climate change in your integrated risk management framework.

“Climate-related risks threaten pension savings and affect funding strategies across the DB landscape.

“This means trustees should build their capacity in this area now, so they can understand what climate change will mean for their scheme and their employer’s covenant, and so be better placed to make decisions contributing towards good outcomes for savers.”

TPR’s survey found that 49 pre cent had allocated time or resources to assessing climate risks and opportunities, 21 per cent had included climate-related risks to their risk register, 19 per cent regularly covered climate-related issues at trustee meetings, and 16 per cent included, monitored and reviewed targets in their climate policy.

Almost three-quarters (71 per cent) were unaware of the TCFD and only 8 per cent made the recommended disclosures.

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