Trustees of pension schemes with assets over £5bn will have to meet new governance requirements from 1 October 2021, with Task force on Climate-related Financial Disclosures (TCFD) reporting required within seven months thereafter.
DWP regulations published today bring schemes with assets greater than £1bn into scoke from 1 October 22.
In a consultation response published alongside statutory guidance published today, the DWP says the urgency of managing climate risk means that schemes with £5bn or more in assets cannot be given more time to publish their first TCFD report, despite some consultation responses calling for a delay.
The UK government has announced its intention to make TCFD-aligned disclosures mandatory across the economy by 2025, with a significant proportion of mandatory requirements in place by 2023.
The consultation says trustees will not have to collect and report on Scope 3 emissions – emissions incurred through an organisation’s value chain – in the first scheme year that they are subject to the requirements.
The requirements, which apply across both DC and DB schemes and also apply to all authorised master trusts, would require trustees to have effective governance, strategy, risk management and accompanying metrics and targets for the assessment and management of climate risks and opportunities, and to disclose these via an annual TCFD report.
Pensions minister Guy Opperman says: “These are measures which will see the UK become the first G7 country in which trustees of pension schemes are statutorily required to consider, assess and report on the financial risks of climate change within their portfolios. By October 2022 we will have captured more than 70 per cent of assets under management, and over 80 per cent of members.
“They also sit within the wider context of the UK government writing the world’s most ambitious climate change target into law to reduce emissions by 78 per cent on 1990 levels by 2035, and form a key part of the UK government’s private finance strategy in the run up to hosting COP26.
“The direction is set, and we will legislate this summer. Trustees should now focus on implementing these world-leading measures. This will ensure that the vast majority of pension schemes members’ savings will be invested in schemes whose trustees have a specific legal duty to actively consider the risks that a transition to a low carbon economy brings. This will ultimately improve their expected outcomes in retirement.
“Managed well, the transition to an environmentally sustainable economy will become a strong driver of new work creation, upgrading existing jobs to better work. Whilst I make no apologies for focusing on environmental concerns over the past year – climate change will be the most vital challenge of the current time – it has never been my intention that climate change should be trustees’ sole Environmental, Social, and Governance (ESG) consideration, not least because action on climate change is often linked to action on wider social factors.”