The Pensions Regulator’s failure to mention climate risk in the new funding code is a ‘glaring omission’ says former pension minister Steve Webb.
The Pensions Regulator released a number of documents in December 2022 that will serve as the foundation for the new funding model for defined benefit pension plans. These included a response to the first DB funding consultation, drafting the new funding code that was suggested, a consultation on “Fast Track” and TPR’s new regulatory strategy, and a second consultation on the DB funding code.
But the issue of climate risk received no attention. Webb says that climate change was not included in any of TPR’s publications, and the only time it was was in response to the first consultation, where it was included because respondents deemed it a crucial concern.
LCP believe that trustees and schemes may not give this issue the priority it requires if TPR is not explicit in this text on the value of integrating climate considerations.
LCP is asking that TPR emphasise its key expectations for incorporating climate risks into covenant, funding, and investment risks in the code in order to give more weight to its already-published guidance in this area and to ensure that climate considerations are an essential component of important strategic decisions rather than an afterthought.
Webb says that in the absence of this, it is unlikely that the systemic risk in the UK DB pension system brought on by vulnerability to the financial effects of climate change would be appropriately addressed.
LCP partner Claire Jones says: “Given the vital importance of climate change as an issue when assessing risks around investments and around the strength of the employer covenant, it is a glaring omission for TPR not to mention climate risk at all in its proposed funding code. If schemes are truly to adopt an ‘integrated’ risk management approach, all material risks need to be considered and this must include climate risk”.