The Pensions Regulator (TPR) is increasing the pressure on scheme trustees to protect savers from climate risk with the publication of its expectations on compliance with new statement of investment principles (SIP) regulations.
TPR’s new climate change strategy comes ahead of proposed regulations which will require trustees of larger schemes to maintain oversight of, and make mandatory disclosures in relation to, climate risks.
Beyond these proposed requirements, the strategy outlines TPR’s expectations that all scheme trustees will comply with existing requirements to publish their SIP – including their policies on stewardship and financially material environmental considerations – and implementation statement.
The regulator says these disclosures represent compliance with the basics on climate change. Where schemes do not comply, and it is appropriate to do so, TPR will take enforcement action.
All schemes have been required to include their policies of financially material environment, social and governance considerations in their statement of investment principles (SIP), since October 2019.
The proposals under the Pension Schemes Act will see larger schemes and all master trusts required to disclose their Taskforce on Climate-related Financial Disclosures (TCFD) report. By the end of 2023, TPR anticipates a significant amount of pension savings will be in schemes reporting in line with the TCFD recommendations – 81 per cent of memberships and 74 per cent of occupational pension scheme assets.
TPR is planning to publish guidance later this year, following engagement with industry, to help schemes comply with the new legislation and make consideration of climate change risks and opportunities part of their systems of governance.
TPR will also use its relationship supervision approach to encourage trustees to pay more attention to climate change in the building of portfolios and investment selection and to engage with their investment managers to ensure they steward investments in line with trustees’ policies and best practice laid out in the UK Stewardship Code 2020 .
David Fairs, TPR’s executive director of regulatory policy, analysis and advice, says: “Driving trustee action on the risks and opportunities from climate change will create better outcomes in later life for workplace savers.
“Our strategy outlines how we will help trustees comply with the new rules for larger schemes, but it signals work on climate change needs to happen right across the pensions landscape – climate change is a risk for schemes whatever the size or investment strategy. It is clear that all schemes need to build their capacity in this area if they haven’t already.
“This should include devoting more board time to climate change, considering specific training, and, most importantly, integrating consideration of climate change right across decision-making.
“Building capacity means trustees will be better placed to understand what climate-related issues mean for their scheme – and better able to make decisions which contribute to good saver outcomes.
“Where we do not see schemes complying with the rules, we will consider enforcement action.
“Our strategy also shows how we, as an organisation, will play our part in the UK’s transition to net zero.”
Minister for Pensions Guy Opperman says: “I welcome TPR stepping up on this issue – by increasing oversight of climate change and giving it the weight it deserves they can provide better protection for pension savers from significant financial risk.
“In particular, I applaud the commitment to update the trustee toolkit, and to properly enforce compliance with the basics.”