UK pensions regulator urges action ahead of new mandatory climate rules

The UK regulator of workplace pension schemes will enforce regulations requiring trustees to disclose climate-related risks and aims to publish guidance to help schemes meet upcoming new requirements, it said last week.

In its climate change strategy, The Pensions Regulator (TPR) said pension schemes with 100 or more members should already comply with existing requirements to publish their statement of investment principles and implementation statement. Pension schemes that fail to meet disclosure requirements will face enforcement action.

TPR also outlined its plan to help trustees meet a new requirement expected to come into force on 1 October 2021. Under the Pension Schemes Act 2021, all master trusts and large schemes with assets of at least £5 billion ($6.88 billion) will be required to produce mandatory climate risk disclosures, according to Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.

“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,” David Fairs, executive director of Regulatory Policy, Analysis and Advice at TPR, said in a news release.

Fairs added that all pension schemes will need to build their capacity to meet these requirements, including devoting more time in board meetings to climate change considerations, considering specific training needed, and integrating climate change issues into decision-making.

Pension schemes under TPR’s regulation include the UK’s largest pension scheme by membership, Nest, which has 9.4 million members and £15.5 billion ($21.33 billion) in assets. Among OECD countries, the UK has the second-largest amount of assets in the pension market, with $3.6 trillion as of the end of 2019.

TPR plans to publish guidance later this year to help schemes comply with the new requirements under the Pension Schemes Act 2021 and include climate change risks and opportunities as part of their governance. By the end of 2023, it expects to see TCFD disclosures cover 74% of pension schemes’ assets.

These requirements are in line with the UK government’s Green Finance Strategy to direct investments toward green and low-carbon technologies, services, and infrastructure needed to meet the country’s goal to be net zero by 2050.

Last year, UK Chancellor of the Exchequer Rishi Sunak said the government will require listed companies, banks, large private businesses, insurers, asset managers, and pension schemes to disclose financial impacts of climate change on their organisations by 2025.

Resource:

• TPR’s toolkit for pension trustees.

— Alexis See Tho (Alexis.SeeTho@aicpa-cima.com) is an FM magazine associate editor.