Defined benefit pension schemes with less than £1bn in assets risk falling behind on climate change, according to Willis Towers Watson’s latest report, ‘Climate Change: Risks and Opportunities for Pension Schemes’.
According to the 2021 Emerging Trends in DB Pensions Survey by Willis Towers Watson, climate change is a top-five priority for schemes with £5 billion or more in assets under management over the next year and a top-three priority for the next three years. While schemes with assets ranging from £1 billion to £5 billion do not consider climate change a top priority for the next 12 months, they consider it a top-five issue for the next three years. However, it was not a priority for schemes with less than £1 billion in assets under management.
The climate change report emphasises that the transition to net-zero emissions poses both risks and opportunities. While schemes subject to the TCFD requirements will examine these in-depth, other schemes may continue to focus on other matters and thus ‘miss the boat’ on taking advantage of the available opportunities.
Willis Towers Watson senior director Edwin Sheaf says: “Climate change poses material risks to all pension schemes, regardless of their size, but it also provides opportunities for all schemes if they look for them.
“The law already compels £5bn-plus pension schemes to address these risks by preparing disclosures in line with the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). From October 2022, schemes with assets of £1bn or more will also have to comply with these new regulations. So perhaps it’s not surprising that it is an issue of more pressing urgency for larger schemes. But dealing with the impact of climate change shouldn’t just be a regulatory tick-box exercise. It’s something that all schemes – and society in general – can benefit from.”
Sheaf said: “No matter what size your scheme is, you can expect to hear more and more about climate change as an urgent issue for trustees and sponsors. Even if you are not yet required to comply with the TCFD regulations, the Pensions Regulator nonetheless expects you to build consideration of climate change into everything that you do.
“The arguments for taking action now go far beyond the need to comply with regulatory requirements. Thoroughly considering the risks and opportunities arising from climate change is the right thing to do for scheme members, for scheme sponsors and for society in general. It would be a real shame if it was only the largest schemes that benefitted.”
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