TPR publishes final version of trustee climate reporting guidance

The Pensions Regulator (TPR) has published the final version of its guidance to help relevant trustees meet climate-related governance and reporting requirements introduced by the Pension Schemes Act.

TPR noted that, as this is a new and developing area, not all advisers will have the right capabilities to support trustees implementing the requirements for the first time.

Trustees must therefore ensure that they receive advice from appropriately skilled and competent advisers, the regulator warned.

The requirements apply to authorised master trusts and schemes with £5bn or more in assets, with the rules extending to schemes with £1bn or more in assets from October 2022.

TPR’s guidance describes to trustees what they need to do and report on in their annual climate change report to comply with the new legislation.

Although it does not impose any additional requirements on trustees, it does provide examples how to apply the regulations and the Department for Work and Pensions’ statutory guidance.

It also outlined TPR’s regulatory approach in the event of non-compliance.

Examples of ways trustees can comply with the regulations were provided in the guidance, alongside an appendix to TPR’s monetary penalty policy.

“Trustees make use of external expertise in a variety of areas,” commented TPR executive director of regulatory policy, analysis and advice, David Fairs.

“However, we recognise that the governance and reporting of climate-related risk is relatively new, so trustees may be more reliant on external experts while they build their scheme’s capability in this area.

“Trustees must take responsibility for ensuring their advisers have the appropriate skills and expertise and the advice they offer is relevant, helpful and represents value for money. After all, ultimately it’s trustees who are responsible for any decisions.”

Alongside the guidance, TPR also published its response to its climate-related governance and reporting consultation.

The response noted that “several” respondents raised concerns about how the new climate change regulations interacted with trustee fiduciary responsibility.

It stated that new governance processes should enable trustees to be confident that they are meeting their statutory obligations and fiduciary duties.

Furthermore, it said that trustees’ fiduciary duties have not been changed by the new regulations, but that legislation is building on those responsibilities.

However, it has updated its guidance to clarify its position about the need for climate-related risks and opportunities to be considered proportionately in relation to other material scheme risks.

TPR is updating existing modules of the Trustee Toolkit to incorporate and reflect the new requirements.

The regulator also provided more detail and clarity on the governance section of its guidance, provided more examples of scenario analysis, and amended its example of risk management processes to identify, assess and manage climate-related risks to incorporate respondents’ suggestions and address their concerns.

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