New sustainability disclosures to 'empower' pension schemes under govt roadmap

The government has outlined further details on the proposed Sustainability Disclosure Requirements (SDRs) in its Roadmap to Sustainable Investing, with hopes that this will "empower” pension schemes to consider climate-related factors in their decision making.

The SDRs, initially announced by the Chancellor in July 2021, will require asset managers or asset owners that manage or administer assets on behalf of clients and consumers, including occupational pension schemes, to disclose how they take sustainability into account.

Under the requirements, certain UK pension schemes will be required to disclose their sustainability-related risks, opportunities and impacts in a way that enables clear communication with savers.

“Subject to consultation, information will be combined with TCFD reporting on climate-related risks and opportunities, and will stand separate from, but linked to, the annual report and accounts," the roadmap stated.

“The scope and timing of requirements for pension schemes, and the reporting detail, will be determined following consultation.”

In addition to this, the government has said that it “expects the pensions and investment sector to use the information generated by SDR to deliver on their responsibilities as stewards of capital across all asset classes and markets”

It stated: “The UK’s pensions and investment sectors have made clear that, in order to effectively target and engage with firms on climate change and act as responsible stewards, investee companies must disclose decision relevant information.

“SDR will ensure that investee companies disclose that information, and government and industry’s stewardship initiatives will lower the barriers to investors acting as effective stewards.

“Therefore, it is the government’s expectation that, as this information becomes available and develops over time, the UK’s pensions and investment sectors – asset managers, asset owners and the service providers that support them – will have the data to act as effective and responsible stewards of capital.”

The government has also outlined five areas where the it expects the UK pensions and investment sector to make strides, confirming plans to assess progress against these expectations at the end of 2023.

In particular, the government stated that it expects the pension sector to progress work on stewardship within their organisation, and to take into account the information generated by SDR when allocating capital.

They are also expected to be transparent about their own and their service providers’ engagement and voting, including by publishing easily accessible, high-quality quantitative and narrative reporting.

In addition to this, the industry will be expected to actively monitor, encourage, and challenge companies by using their rights and influence to promote "long-term, sustainable value generation", and to provide leadership, such as through the Race to Zero accredited net-zero initiative.

Commenting on the roadmap, Secretary of State for Work and Pensions, Thérèse Coffey, stated: “I am delighted to welcome this roadmap, which sets out plans for sustainability-related disclosures that will take forward the government’s commitment to a sustainable financial system.

“This will go beyond existing disclosures to require publication of information relating to sustainability related risks, opportunities, and impacts.

“It will empower pension schemes and savers to weigh these factors in all their financial decisions. It will also help tackle ‘greenwashing’ – misleading investors on how sustainable a product is – something that has no place in our economy’s collective efforts to reach net zero.”

The roadmap's ambition to address information gaps was also been welcomed by The Pensions Regulator, in order to ensure “every scheme can properly consider climate and the broader environment in their financial decisions”.

TPR executive director of regulatory policy, analysis and advice, David Fairs, commented: “A warming world, loss of biodiversity and depletion of the natural environment all have the potential to worsen retirements through supply disruption, loss of assets or weakening an employer’s ability to support pension scheme funding.

“A shift to sustainable investment and a net-zero economy can also provide opportunities trustees must also be alert to.

“The pensions industry must understand this issue is real and urgent. We need to make a step change to achieve a landscape of sustainable and resilient pension schemes where climate risk is managed and the opportunities from moving to a net-zero economy are taken in the best interests of savers.”

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