Govt publishes TCFD roadmap and Sovereign Green Bond plans

The joint Government-Regulator Task Force on Climate-related Financial Disclosures (TCFD) Taskforce has published an interim roadmap for implementing mandatory disclosures, with many coming into force by 2021.

Announced as part of Chancellor, Rishi Sunak’s, broader financial services update, which aims to position the UK at the forefront of green finance, it would see the UK become the first country in the world to make TCFD-aligned disclosures fully mandatory by 2025.

Other announcements in the update included the plans for the first Sovereign Green Bond, expected to be issued in 2021, which aims to help the UK meet its 2050 net zero target and other environmental objectives.

“With the launch of it’s first green gilts, the government is sending clear signals to pension scheme trustees that it wants to see greater green pension investments, particularly those which will help the UK recover from the pandemic," said Aegon head of pensions, Kate Smith.

“Trustees will no doubt take a close interest in this development. This is another step towards having greener pensions.

"Pension schemes already have to report on their environmental, social and governance (ESG) policies, and in future they will also have to report on their carbon footprint. The introduction of green gilts offers pension schemes an additional way of fulfilling their ESG ambitions."

Sunak also confirmed his ambition to have the UK’s first long-term asset fund launched “within a year” to encourage investment in long-term illiquid assets, such as infrastructure and venture capital.

The taskforce report has outlined a coordinated strategy for seven categories of organisations: listed commercial companies; UK-registered companies; banks and building societies; insurance companies; asset managers; life insurers and FCA-regulated pension schemes; and occupational pension schemes.

It stated that a coordinated approach across these organisations would ensure that the right information on climate-related risks and opportunities is available across the investment chain, noting that an "important focus" of regulators’ work over the coming years will be to help facilitate this evolution in climate disclosure.

The taskforce also stressed that, following this clarity on the indicative path towards mandatory disclosures, organisations should be taking the necessary steps now to build capabilities and iteratively refine their climate-related data.

Whilst it recognised the challenges in the current environment, the report also emphasised that if steps are taken now, climate reporting will be more comprehensive by 2023, in turn removing current information flow obstacles.

Under the interim roadmap, regulatory or legislative measures on mandatory TCFD-aligned disclosures are expected in 2021 for occupational pension schemes with assets under ownership of less than £5bn, as well as all master trusts and all authorised collective money purchase schemes.

As of 2022, all occupational pension schemes with assets over £1bn and the largest Financial Conduct Authority (FCA) regulated pension providers, asset managers and life insurers would also be bought into scope.

All other UK-authorised asset managers, life insurers and FCA-regulated pension providers will be bought in in 2023, with regulation and legislation for all other occupational pension expected in 2024-25, although this is subject to consultation.

Although not reflected in the roadmap, the taskforce also confirmed that the Ministry of Housing, Communities and Local Government intends to consult on the implementation in the Local Government Pension Scheme by 2023, next year.

In addition to this, the roadmap outlined the proposed phased implementation for each organisation, with life insurers and FCA-regulated pension schemes expected to have 89 per cent of their combined £2.9 trillion asset value covered by disclosure requirements in 2022, and 98 per cent by 2023.

Occupational pension schemes meanwhile are expected to have a more gradual coverage build-up, with 42 per cent of the total £1.8 trillion asset value expected to be covered by regulations in 2021, increasing to 72 per cent for 2022-24, and 85 per cent in 2025.

Regulation and legislation for occupational pension schemes will be made via amendments to the Pension Schemes Bill, following a consultation in August, with a further consultation on draft regulations to follow in early 2021, and first governance requirements to apply from 2021.

Meanwhile, the FCA has confirmed that it intends to consult on potential TCFD-aligned disclosure rules directed at clients and end-investors for UK authorised asset managers, life insurers and FCA-regulated pension providers.

The FCA is already underway in developing detailed policy proposals, with a consultation paper expected in the first half of 2021, ready for the rules to be finalised by the end of 2021, and bought into force in 2022.

FCA chief executive officer, Nikhil Rathi, commented: “Supporting the flow of accurate climate-related information along the investment chain is vital if we are to encourage better business, risk and investment decisions, and help the markets allocate capital to the right projects at the right price.

“That is why the FCA will consult next year on measures that extend our current proposals for TCFD-aligned disclosures to a wider scope of listed issuers.

“We will also develop proposals for client-focussed disclosures by asset managers, life insurers and FCA-regulated pension schemes. We look forward to continued coordination with government and regulatory partners as we take this work forward.”

Commenting in the roadmap report, Pensions Minister, Guy Opperman, emphasised that more work between regulators and government bodies will be required going forward.

He stated: “In August, I consulted on proposals to introduce new governance and disclosure requirements on occupational pension schemes.

“These would require trustees to embed climate change as a financial risk into their governance, strategy and risk management processes, in line with the TCFD.

“With the Department for Work and Pensions being the first government department to consult on such measures, I am pleased to have played a key part delivering a joined-up approach to climate change across government and regulators.

“It is vital that the publication of this roadmap is not the end of close collaboration between regulators and government on climate change but the start.

“We must – and we will – continue to work together to ensure all market participants receive the data and information they need to price in climate change risk and make the necessary changes to their investment strategy.

“In doing so, we can also ensure that the UK economy is prepared to take advantage of the opportunities, and mitigate the risks, that the transition to Net Zero by 2050 will present.”

TPR chief executive officer, Charles Counsell, also highlighted the roadmap as a "vital tool" for trustees in implementing TCFD recommendations, and future regulations, and to give greater consideration to the risks and opportunities of climate change.

He continued: “Occupational pension schemes need information from other organisations involved in the roadmap to effectively manage and disclose climate risk, and practice good stewardship.

“The coordinated approach laid out in the roadmap is the step change needed in how organisations think about climate change and will help deliver better outcomes for workplace savers in later life."

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