TPR updates climate guidance ahead of new requirements

The Pensions Regulator (TPR) has published updated guidance ahead of the introduction of new Paris-aligned disclosure requirements, which come into force from 1 October.

The amended regulations will require trustees in scope to calculate and report on a portfolio alignment metric, which gives the alignment of the scheme’s assets with the Paris Agreement goal of limiting global warming to 1.5°C above pre-industrial levels.

This builds on previous climate reporting requirements, phased in since October 2021, initially which initially applied to trustees of schemes with net relevant assets of £5bn or more from 1 October 2021, extending schemes with net relevant assets of £1bn or more from October 2022.

TPR executive director of regulatory policy, analysis and advice, David Fairs, explained that while the requirements may be "challenging" for some, the guidance is expected to provide support, including an illustrative example.

However, Fairs also stressed that while trustees do not need to be climate change experts, he argued that they should have sufficient knowledge and understanding to be able to identify, assess and manage climate-related risks and opportunities for their scheme.

He continued: “Climate change and the transition to net zero has the potential to cause material financial consequences for pensions schemes and, ultimately, savers’ retirements.

“Trustees are not being asked to take action to stop climate change, but they must be ready to protect savers’ pensions from the material financial risks it poses, and to take advantage of opportunities from a global pivot towards low carbon economies.

"This new metric should help them, and their members, understand and quantify potential risks to scheme investments arising from government actions taken to meet Paris Agreement goals.

“Trustees are being asked to calculate and use this new metric ‘as far as they are able’, which recognises that there may be limits to available data.

"However, trustees should explain the reasons for any data gaps in the report and set out a plan for improvement. As the investment industry adapts to the new data capture and reporting requirements, more information should become available over time."

The Department for Work and Pensions is also expected to consider whether to extend the rules to smaller schemes in 2023, with a consultation on similar requirements for the Local Government Pension Scheme also underway.

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