DWP launches consultation on pension scheme climate risk governance and reporting

The Department for Work and Pensions (DWP) has launched a consultation seeking views on proposed requirements for larger occupational pension schemes and authorised master trusts to publish climate risk disclosures.

The consultation proposes that occupational schemes with more than £5bn in assets and authorised master trusts have effective governance, strategy, risk management, and accompanying metrics and targets for the assessment and management of climate risks and opportunities in place from October 2021.

Additionally, it is seeking views on proposals to report on these in line with the Task Force on Climate-related Financial Disclosures' (TCFD) recommendations by the end of 2022.

Among the measurements and disclosures for affected schemes would be calculating their portfolios' ‘carbon footprint’ and assessing how the value of its assets or liabilities would be impacted by different climate change scenarios, including those outlined in the Paris Agreement.

Relevant scheme’s climate risk disclosures would be required to be publicly available, referenced in annual reports and on members’ annual benefit statements.

The DWP also proposed for schemes with £1bn or more in assets to be included in the requirements from 2023, before consulting on extending them to all occupational schemes in 2024.

Commenting on the launch, Pensions Minister, Guy Opperman, stated: “We need to respond urgently to the risks of climate change, especially those affecting the financial sector and wider economy, on which so much rests. We need a financial sector that recognises these risks, and opportunities, and is stronger as a result.

“To enable this change, I propose embedding in pensions law the recommendations of the TCFD. I make no excuse for the work this entails – we lead the way and I expect others to follow.”

Opperman acknowledged that the disclosures would be a “new process and a learning curve” for many trustees and promised that they will be supported in this by statutory guidance and the Pensions Climate Risk Industry Group (PCRIG).

The consultation also proposed that schemes report on their portfolio’s greenhouse gas emissions, with the failure to publish any required disclosures potentially subject to a penalty from The Pensions Regulator (TPR).

“I recognise too that these proposals come as trustees are dealing with the impact of the Covid-19 pandemic,” added Opperman.

“However, this is also a time of opportunity - as we ‘build back better’, trustees must turn their minds to the transition to the low carbon economy.

“And we must ensure that pension scheme governance is as robust as possible to withstand the potential shocks that climate change and our response to it will bring.

"Acting now to manage climate risks, and to take advantage of the opportunity of the low-carbon transition, will put schemes in a stronger position for the future.”

The consultation closes on 7 October 2020 and the government currently plans to consult on regulations in late 2020 or early 2021.

Commenting on the consultation, Aviva workplace savings manager, Laura Stewart-Smith, said pension have a "key role to play" in the fight against climate change.

"The proposals outlined today will not only help ensure schemes better manage their exposure to climate change, it will also provide customers with the information they need to make informed choices about their pension savings," she continued.

“We will be supporting trustees, including the trustees of Aviva’s master trust to meet the requirements. TCFD won’t address climate change on its own, however schemes will now need to take a broader view on how they can proactively help tackle climate change and deliver the government’s net-zero target.”

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