With DB schemes reaching their endgame well ahead of the UK’s net zero target of 2050, and climate continuing to be viewed as a longer-term issue, it may seem natural to ignore the need to act. However, the firm says that focusing on downside risks, particularly from factors such as climate change, should increase as the DB scheme nears the end of the journey.
The leading pensions and financial services consultancy believe that considering climate risk when moving towards risk transfer, as part of endgame, is vital to maintain flexibility and choice. Building net zero into endgame can help differentiate DB schemes in a crowded insurance marketplace, as strategies are more aligned with insurer goals and costs can be reduced. For DB schemes considering run-on, embedding net zero ambitions into the investment strategy discussion will help trustees future proof their schemes.
Commenting on the need for net zero to remain a central element of the endgame journey, Tom Prince, Investment Associate Consultant, says: “The current pensions landscape - with many more DB schemes thinking about their endgame journey - provides an opportunity to ensure that climate risks are fully considered. A 2050 net zero goal may feel arbitrary for a DB scheme hoping to transfer its assets long before this. However, putting an ambition in place obliges trustees to consider how they can apply it to their own unique circumstances.
“Climate change increases uncertainty for investors, particularly at a time when policy responses are becoming fragmented. Considering what could happen over the course of the endgame journey and understanding how climate risks could manifest means that plans can be put in place. As trustees work to reduce risk within their investment arrangements, adopting a mindset where climate is an integral consideration in decision making, rather than a secondary issue, will help ensure that the sensible actions are taken.”
The Hymans Robertson Excellence in Endgames insights hub and decision-making tree can be found here.
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