The majority of pension schemes are not yet using Task Force on Climate-related Financial Disclosures (TCFD) reporting to inform and drive their climate investment strategy, research from Pensions for Purpose has suggested.

The research, which was sponsored by Redington, found that pension schemes are reluctant to use TCFD reports to influence their investment strategy in light of concerns over unreliable data, and the fact that TCFD reporting still being in its infancy.

Indeed, data quality remains a key challenge for pension schemes, according to the research, which revealed mixed views as to whether it is better to estimate or omit data, as well as disagreement over whether to use scope 1, 2 and 3.

Schemes are seemingly turning to their investment consultants for support, as the survey found that 75 per cent of schemes are using investment consultants to interpret data for TCFD reporting.

More broadly, the survey found that only a minority of pension schemes mentioned offsets in their reports, with only one accounting for it, while others raised questions as to the credibility of carbon offsets.

Furthermore, while scenario analysis was seen as a useful tool, there was some scepticism that it could have limited application, with most funds not yet including carbon offsets in their TCFD reports.

The report also warned that TCFD reporting could fail if it becomes overly complicated, after the survey revealed that time spent analysing climate risk was disproportionate to mitigation efforts, with several schemes raising concerns about the materiality of risk.

Indeed, Pensions for Purpose founder and chair, Karen Shackleton, warned that "pension schemes are finding the effort to calculate climate risk disproportionate to the effort to address it.”

Commenting on the findings more broadly, Shackleton continued: “Many pension funds stress the importance of training the board on climate risk management, with investment consultants often being seen as the best trainers.”

“More government guidance for TCFD reporting on climate risk, as part of their investment risk assessment, would help trustees balance the pursuit of risk-adjusted returns with climate responsibility.

"The UK’s Department for Work and Pensions made TCFD reporting mandatory to drive change in climate action but there was no strong evidence of this, from the pension funds that we interviewed."

Adding to this, Pensions for Purpose report research analyst, Cameron Turner, emphasised that the "primary issue in using TCFD reports for pension funds is data".

"The challenges include inconsistent data between asset classes and difficulties in comparing data from different asset managers, conflicting views on whether to calculate scope 3 emissions, worries over improvements in data quality increasing the reported carbon intensity of the portfolio, skewed emissions data due to market-value-based emissions intensity metrics, and the use of rolling back data which can alter it," he added.

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