PLSA IC: Cost of complying with TCFD ‘significant’ – USS

The cost of complying with Task Force on Climate-related Financial Disclosures (TCFD) is “significant”, according to Universities Superannuation Scheme (USS) Investment Management head of responsible investment, David Russell.

Speaking on a panel on the management of investment reporting for TCFD at the PLSA Investment Conference 2022 in Edinburgh today, 25 May, Russell expressed his concern with the cost of compliance.

“Where I have a concern is that the cost of compliance with the regulation is significant because you want to comply with the regulation," he said.

"We don’t really know what The Pensions Regulator (TPR) is going to do with the reports when they start falling on its desk over the next few months and how it is going to assess whether we are complying with the regulations or not.”

Russell hopes that TPR and the Department for Work and Pensions will learn from the experience of the larger schemes going through the regulations first, then for the next tier down the regulators come up with something that is “a bit less burdensome for smaller schemes” and make an amendment to the regulations.

“Expecting smaller schemes to have to comply with what we have had to go through is, I think, beyond most, or is not worth the value they’d have to sink in to do it for the benefit they will get out. Hopefully, there will be a lot of learning from the regulators from this first tranche, so that it can be made easier.”

Schemes with more than £1bn of assets will become subject to the new reporting requirements from 1 October 2022, following on from the introduction of the same requirements for schemes with £5bn or more in assets in October 2021.

Under the new requirements, trustees must have a system of climate governance in place by 1 October, whilst managers will be required to start identifying and collecting the right metrics ahead of the scheme end on 31 March 2023 and before the full report is submitted on 31 October 2023.

Concerns have also been raised, however, on the quality of the data available. Redington head of stewardship and sustainable investment strategy, Paul Lee, who also spoke during the session, said the data in relation to TCFD is “terrible”.

He noted that the regulations in relation to TCFD have landed on the shoulders first of the investment industry before they have landed on the shoulders of the corporate world.

“Therefore, the quality of information, the data that you can get out of your investments is really poor and patchy," he continued.

"That just means that there are holes in what comes through the system, you have to interpolate to fill those holes and that drives all sorts of challenges in and of itself. Using averages for an industry or averages for a private equity portfolio, which is what you have to do if you’re filling those holes; you are not rewarding the best out there and you’re not penalising the worst, you are just assuming everybody is average and that is going to be wrong.”

He reaffirmed that there are “huge holes in the data” but the industry hopes that that will change over time.

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