TPR highlights first wave TCFD reports as 'opportunity' despite data challenges

The Pensions Regulator (TPR) has said that it will use the initial wave of Taskforce on Climate-related Financial Disclosures (TCFD) reports to collaborate with the industry and address challenges for future reporting, amid concerns over data quality and availability.

In a blog post, TPR executive director of regulatory policy, analysis and advice, David Fairs, acknowledged that climate represents a “substantial body of work, with a steep learning curve in terms in of knowledge, regulatory requirements and emerging and evolving market practices”.

Fairs also noted that some trustees have already faced challenges around the availability, quality and consistency of data, the identification and selection of suitable scenarios, and the readability of disclosure reports for members.

However, he reassured trustees that the regulator will remain "mindful of the challenges and concerns" when reviewing TCFD reports for schemes in scope of the first wave of the regulations over the coming months.

"Given this is a new and rapidly evolving body of work for trustees and industry, we will use these initial disclosures as an opportunity to collaborate with trustees, industry and government, to help develop best practice and address industry challenges for future reporting," he stated.

Despite this, he also emphasised that trustees should nonetheless look to demonstrate that they have acted to fully understand the range of climate-related risks and opportunities their scheme is exposed to and have taken action to address those.

In line with this, Fairs confirmed that TPR does not anticipate needing to issue any penalty notices to trustees of schemes that publish their TCFD reports in the first wave, other than a mandatory penalty of at least £2,500 where a report has not bee published at all, and a discretionary penalty of up to £50,000 where trustees have not made a “genuine effort”.

Instead, the regulator's review of the published reports is expected to be used to provide high-level observations and feedback to in-scope schemes where it has an existing supervisory relationship.

In addition to this, the review will be used to inform the Department for Work and Pensions' review of the underlying regulations in late 2023, which will include a review of the effectiveness of the regulations and the range of schemes to which they should apply.

However, Fairs said that whilst the regulator will again take a "collaborative" approach to the second wave of reports, which will apply to schemes with over £1bn in assets, it will look to refine its approach and expectations of trustees based on the first wave experience.

"As industry knowledge, data and analysis techniques develop and global policy responses evolve, best practices will emerge, and regulations will evolve," he explained.

Fairs also addressed industry concerns over the cost of the reporting requirements, reassuring pension schemes that whilst first year costs may be high, these are expected to fall as data, analysis and knowledge improves.

"Ultimately, we believe the disclosure requirements should be seen not only as an exercise in compliance but as an exercise in risk (and opportunity) management, which should lead to improved outcomes for scheme members," he stated.

"Also, for some schemes, where limited work on climate-related issues has been carried out previously, the work sitting behind and supporting the disclosures should also offer an opportunity for significant value to be added by enabling trustees to make better informed decisions in relation to climate risks and opportunities."

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