PLSA ESG 22: All schemes could do more on climate change - TPR

The Pensions Regulator (TPR) has confirmed that it will take a flexible approach amid the first wave of TCFD reports and share examples of best practice later this year, although it stated that all schemes could be doing more on climate change issues.

Speaking at the Pensions and Lifetime Savings Association (PLSA) ESG Conference 2022, TPR investment consultant, Brendan Walshe, emphasised that climate change was a systemic risk and therefore "applies to all schemes".

"It's not just those schemes that are in scope [of new climate reporting regulations] currently or coming to scope later this year," he clarified, "all schemes really could be doing more on climate and considering whether they can improve their resilience."

Walshe also suggested that whilst there is a regulatory compliance element to this work, there is "a fundamental risk", emphasising that there may be cases where smaller schemes could look to understand the requirements now, "even if it's just for education".

"It is an opportunity to learn from things other schemes are doing and maybe apply some of those techniques to your own scheme to help you improve your resilience," he said.

He also noted that DWP will be reviewing these regulations next year in 2023, arguing that "it's pretty clear that these are likely to expand to more schemes, rather than less, because the risk is there".

However, Walshe acknowledged that this is a completely new body of work, explaining that TPR's recent step-by-step example on the reporting requirements aims to help address trustee uncertainty.

"A step by step example gives us that opportunity to deal with some of the requests we couldn't deal within the guidance, and help understanding of how climate change regulations might be approached," he said.

However, Walshe explained that whilst there were quite a few requests for an example of a completed TCFD report, TPR "didn't feel that was for us to do", as it will be very much driven by the scheme specific issues, and trustees and adviser preferences.

He also suggested that individual scheme membership could be a further consideration, emphasising that "at the end of the day, these reports are not being produced for [TPR] or DWP, they are being produced for the members to be able to engage in the scheme and understand how climate risk is being dealt with".

Despite this, Walshe confirmed that TPR will review the first wave of TCFD reports and share best practice examples, with a view of helping schemes who will be part of the second wave this year, as well as help those from the first wave improve.

Walshe noted that having some form of lessons learned session after trustees have gone through the first year will probably be very valuable.

Adding to this, TPR actuary, regulator policy, analysis and advice, Alex Darsley, confirmed that the regulator will also be factoring in the fact that this is a new process when reviewing the first wave of reports and considering any penalties.

He explained that whilst there are mandatory penalties for those schemes who fail to publish a report, TPR has "much more discretion" over whether to issue a penalty where scheme has published a report, but it has not met the requirements.

"In terms of our approach to this, we're really not going to be looking to pick up trustees on technicalities or things like a bit of information being in the wrong place," he explained.

"What what we're interested in is the bigger picture, whether trustees are taking their responsibilities seriously and taking appropriate steps to manage climate change risk."

"We recognise that this is new and we’ll factor that into our approach for the first wave."

However, Darsley also stated that TPR will "expect standards to improve gradually over time and develop [its] expectations accordingly."

In addition to the updates on the climate reporting example, the speakers confirmed that the regulator will publish updated general covenant guidance, which will include much more on climate change, in autumn, to tie in with the DB Funding Code

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