Pension scheme trustees urged to prepare for TCFD regulations

Hymans Robertson has called on trustees to identify and effectively manage climate risk across their pension schemes to ensure compliance ahead of the introduction of Task Force on Climate-related Financial Disclosures (TCFD) requirements.

The firm has published interactive guidance designed to help pension scheme trustees understand the upcoming TCFD requirements, following the government's confirmation that it will be pushing ahead with regulations for schemes with assets over £5bn from 1 October.

The guide covers five key areas of governance, strategy and scenario analysis, risk management, metrics and targets, and reporting outcomes, all of which must be complied with to meet the full TCFD requirements.

In particular, it recommended that trustees ensure they have appropriate knowledge of climate change, are setting appropriate investment beliefs, and that processes for setting the scheme’s investment and funding strategy properly address climate issues.

In relation to risk management, meanwhile, trustees have been urged to identify and record any climate-related risks and their source, prioritise the consideration of risks, and determine and implement a management strategy for these.

Concerns were previously raised regarding trustees' abilities to meet the requirements, particularly over private market data, with industry research recently revealing that 20 per cent of trustees are still unsure on the TCFD rules.

However, whilst Hymans Robertson head of responsible investment, Simon Jones, acknowledged that many trustees will be feeling "overwhelmed" by the requirements and the "fast approaching October deadline", he emphasised that it is nonetheless "vital" to integrate climate risk considerations into scheme management.

He stated: “We fully support the considerable efforts made to create legislation and guidance that recognises the important role UK pension schemes must play in combatting climate risk.

“It is good to see the UK government being ambitious in setting legally binding climate targets and emphasising the role that the financial services industry can pay in creating change.

“TCFD is one of various requirements that will impact the pensions industry in the next few months, so the challenge for schemes is to continue to remain on the front foot as these changes come into effect. It will be important for trustees to make sure the journey to becoming TCFD compliant remains straightforward.

“There is a learning curve but we believe it vital to try and make the consideration of climate risk a part of everyday scheme management.

“Our guide sets out the steps trustees can follow to make sure they have a robust approach to managing climate risk within their scheme and put themselves in a position to report clearly against the TCFD requirements."

The Financial Conduct Authority (FCA) is also currently consulting on proposals to extend the requirements to asset managers, life insurers and FCA-regulated pension providers.

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