Under the proposals, unveiled yesterday (August 26), the 100 largest workplace pension schemes - those with £5bn or more in assets, and all authorised master trusts – will be required to publish climate risk disclosures by the end of 2022.
Using these schemes to set an industry standard, about 250 more schemes with £1bn in assets would have to meet the requirements in 2023.
Thérèse Coffey, work and pensions secretary of state, said: "I am delighted to announce our proposals to make reporting on sustainable investments mandatory, one of the most significant steps to date in the UK's progress on tackling climate change.
"We were the first major economy to commit to reaching net zero by 2050 - to deliver this we must start now, working with investors and others to achieve this ambitious target.
"These measures will ensure pension schemes are in an ideal position to drive change to a sustainable, low carbon economy which will benefit everyone.”
The proposals outlined in the Department for Work and Pensions' climate risk consultation include a requirement for schemes to adopt the recommendations of the international industry-led Taskforce on Climate-related Financial Disclosures (TCFD) - including on governance, strategy, risk management, metrics and targets.
They must also report greenhouse gas emissions of their investment portfolio and publish a report on how they have adopted the TFCD’s recommendations on their website and signpost members to this information.
In addition, schemes must provide The Pensions Regulator with the web address of where they have published their report via the annual scheme return form.
Failure to publish a report could see schemes hit with a mandatory penalty imposed by TPR.
The consultation also includes a requirement for schemes to report on the extent to which their portfolios are aligned with the Paris Agreement, which called for the limiting of global temperature rises to below 2°c.
United Nations special envoy for climate action and finance, Mark Carney, said: “To achieve an orderly transition to net zero, managing climate risk and improving resilience needs to be at the heart of all financial decision-making.
“Corporates, asset owners, including pension schemes, and asset managers should use the TCFD framework to disclose climate-related risks and opportunities.
“By requiring pension schemes to report against the taskforce’s recommendations, the occupational pensions of over 24m UK citizens, representing over £1.3tn of investments, can be managed to mitigate the risks from climate change and seize the opportunities from an economy-wide transition to net zero.”
The Pension Schemes Bill, currently before the House of Commons, includes powers to enact the measures outlined in the consultation.
Claire Jones, partner and head of responsible investment at LCP, said: “Trustees shouldn’t be fooled by the words ‘governance’ and ‘reporting’ in this consultation. This consultation is about action.
“It sets out the areas that government expects trustees to cover when assessing and managing the risks and opportunities from climate change. While it is geared towards larger schemes, it will also inform good practice for smaller schemes.
“Fundamentally, it means that climate change can no longer be seen as a bolt-on to ESG considerations; it has to be a consideration that is integrated across all aspects of pension scheme management.”
amy.austin@ft.com
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