First round of TCFD reports reveals room for improvement

There is room for improvement on climate reporting, XPS Pensions Group has said, after its analysis revealed limited disclosures against certain asset classes and on Scope 3 emissions in the first round of Taskforce for Climate-Related Financial Disclosures (TCFD).

The group reviewed TCFD disclosures from 12 large pension schemes with £320bn in assets under management, revealing that over 90 per cent (11 of the 12) of the TCFD reports indicate strategies and targets linked to net zero, with the majority targeting 2050.

In addition to this, 75 per cent (nine of the 12 TCFD reports reviewed), included bespoke responsible investment or climate change policies, going beyond the minimum requirement to address the issue in their Statement of Investment Principles.

However, XPS Pensions suggested that there is further room for trustees to strengthen climate reporting to support their commitments, as only three schemes made any disclosures relating to Scope 3 (value chain) emissions.

It also noted that even where there was coverage, this was "significantly lower" than was reported for Scope 1 and 2, suggesting that this may be a reflection of the limited availability of data in the market generally.

However, XPS Pensions argued that although the lower scope 3 reporting was in line with the current regulations, Scope 3 emissions are expected to become a more mainstream requirement in future.

The group also raised concerns over the variation in the degree to which assets of different classes were covered by the disclosures, explaining that while carbon data was readily available on listed equities and corporate bonds, data on other assets, particularly secure income, real assets, and private markets, was scarce.

XPS Pensions Group head of ESG research, Alex Quant, stated: “The pension schemes who undertook TCFD reporting have made good progress on sustainability, setting out how they plan to continue to create value for their members as they look to manage and contribute to the transition to a low-carbon economy.

"However, setting targets is the easy bit; schemes must make a concerted effort to fully evaluate their current position and the changes in approach needed to deliver the outcomes indicated”

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