TPR urges trustees to ‘build capacity’ in assessing climate change risks

The Pensions Regulator (TPR) has called on trustees to “build capacity” in assessing the long-term risks and opportunities presented by climate change.

The call comes as the publication of implementation statements alongside schemes’ annual reports and accounts becomes a requirement from today (1 October).

Implementation statements will need to describe whether certain policies in a scheme’s statement of investment principles (SIP) have been followed and disclose the trustees’ voting behaviour.

TPR executive director of regulatory policy, analysis and advice, David Fairs, stated that trustees would be better placed to understand what climate-related issues mean for their scheme and better able to make decisions that contribute towards good saver outcomes if they prepared.

Fairs added that trustees can influence decisions by applying pressure on investment managers to pay more attention to climate change when building portfolios and in investment selection.

“There’s no stepping away from the questions raised by climate change,” he added. “They are integral to good scheme governance and can’t be ducked.

“This is no passing fad. It is fundamental, given the long-term nature of pension schemes climate change will be a fundamental consideration.

“Trustees must take account of long-term risks and opportunities to deliver the pensions people will need in the future. And that may be in an environment very different from today’s.”

In his blog, Fairs noted that climate change would affect how the regulator approaches meeting its statutory objectives and is “directly relevant” to its objective of protecting members benefits.

He also warned that investment performance may “suffer” if trustees do not consider climate change risks and opportunities, or exercise effective stewardship.

“Pressure has been building for pension trustees to focus more on environmental, social and governance (ESG) factors – and not just from government or regulators,” Fairs continued.

“Savers increasingly want to know what’s being done with their money, including how their scheme trustees manage climate-related financial risks to their savings.

“Climate change has the potential to have a big effect on scheme investments and sponsor covenants.”

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