The amended regulations require affected trustees to calculate and report on a portfolio alignment metric. This is a metric which gives the alignment of the scheme’s assets with the Paris Agreement goal of limiting global warming to 1.5°C above pre-industrial levels.
David Fairs, TPR’s Executive Director of Regulatory Policy, Analysis and Advice, said: “Climate change and the transition to net zero has the potential to cause material financial consequences for pensions schemes and, ultimately, savers’ retirements.
“Trustees are not being asked to take action to stop climate change, but they must be ready to protect savers’ pensions from the material financial risks it poses, and to take advantage of opportunities from a global pivot towards low carbon economies. This new metric should help them, and their members, understand and quantify potential risks to scheme investments arising from government actions taken to meet Paris Agreement goals.
“Trustees are being asked to calculate and use this new metric ‘as far as they are able’, which recognises that there may be limits to available data. However, trustees should explain the reasons for any data gaps in the report and set out a plan for improvement. As the investment industry adapts to the new data capture and reporting requirements, more information should become available over time.
“While trustees do not need to be climate change experts, they should have sufficient knowledge and understanding to be able to identify, assess and manage climate-related risks and opportunities for their scheme.
“We know this may be challenging for some, which is why we produced guidance, including an illustrative example charting how trustees of a fictitious pension scheme might approach meeting the requirements of the regulations, including the new portfolio alignment metric.”
The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 and the Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021 introduced new requirements for certain trustees.
The regulations had a phased introduction, initially applying to trustees of authorised master trusts and of larger schemes with net relevant assets of £5 billion or more from 1 October 2021.
However, from 1 October 2022, the rules will also apply to trustees of schemes with net relevant assets of £1 billion or more. The Department for Work and Pensions intends to consider whether to extend these rules to smaller schemes in 2023.
The regulations are now being amended so that all trustees they apply to will need to calculate and report on a portfolio alignment metric for any scheme year ending after 1 October 2022. This is now referenced in TPR’s updated guidance.
Governance and reporting of climate-related risks and opportunities
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