'Much work' still needed on climate change issues - TPR

There is still “much work” to be done for the pensions industry to assess and adapt to climate-related risks and opportunities, The Pensions Regulator (TPR) has warned.

In its Climate Adaption report, which was published as part of the National Adaption Programme, the regulator argued that too few schemes are giving enough consideration to climate-related risks and opportunities, despite growing engagement.

In particular, TPR highlighted findings from it's 2020 survey of defined contribution (DC) pension schemes, which found that just under half (43 per cent) considered climate change in their investment strategies.

It also flagged the results of a 2020 survey of defined benefit (DB) pension schemes, which found that more than half (51 per cent) of DB schemes had not allocated time or resources to assessing climate-related risks or opportunities.

In light of the findings, TPR has emphasised that trustees should be considering climate change in their investment strategies, and should allocate sufficient time and resources to assessing potential climate-related risks and opportunities.

The report acknowledged that there are barriers facing schemes in this work, highlighting the lack of climate-related data as a particular potential concern, with industry feedback suggesting that this could be a “significant issue” for trustees.

However, the regulator clarified that it expects to see improvement in the data quality and modelling capabilities as the financial system as a whole moved towards mandatory reporting of climate-related risks and opportunities.

Furthermore, whilst it said that the availability of stewardship-related data can be a barrier, it clarified that the government proposal to extend TCFD reporting to other parts of the financial sector will help address this.

TPR chief executive, Charles Counsell, commented: “The pension industry still has much work to do to build resilience and assess climate-related risks and opportunities.

“A rapidly warming world brings the risk of more frequent fires, floods or extreme weather – potentially causing the loss of physical assets and supply chain disruption.

“Unless properly managed, these risks have the potential to impact scheme funding, employer covenant and leave some savers facing a poorer retirement. Our adaptation report shows much more needs to be done.

“Our report recognises that practices are evolving, and trustees – and savers – are more engaged with the need to consider climate risks. We remain convinced that a landscape of resilient pensions schemes that protect savings from climate risk is entirely within reach.”

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