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Act now to protect savers from climate risk
7 June 2021

Act now to protect savers from climate risk

Climate change has the potential to de-stabilise the social and economic conditions on which we depend for our pensions system. David Fairs outlines how The Pensions Regulator’s (TPR’s) Climate Change Strategy aims to drive trustees to integrate consideration of climate change right across their decision-making and act on the risks and opportunities so that savers are better protected.

As a society, we are at a crossroads. Across everything we do, we need to assess our actions against the unprecedented risk we face through climate change.

In recent times we’ve faced a crisis caused by a pandemic. We’ve all taken urgent action to protect ourselves and each other. We need to treat climate change in the same way, and it is the planet, this time, that we also need to look after.

Climate change will be more catastrophic to our way of life than the pandemic if left unchecked. Global heating has the potential to de-stabilise the social and economic conditions on which we depend for our pensions system.

At TPR we know that trustees are talking about this already; exploring how climate change affects asset prices and looking at the huge opportunities that will come from a global pivot towards low carbon economies. In a world where the climate emergency is real and urgent, this is the prudent approach.

We believe that, wherever the focus lies for trustees, it is absolutely certain that any scheme that does not consider climate change is ignoring a major risk to pension savings and missing out on investment opportunities.

Climate change strategy

Our recently published Climate Change Strategy aims to drive trustees to act on the risks and opportunities of climate change so that savers are protected from climate risk.

The strategy outlines TPR’s expectations that all scheme trustees will comply with existing requirements to publish their statement of investment principles (SIP) - including their policies on stewardship and financially material environmental considerations - and Implementation Statement.

These disclosures represent compliance with the basics on climate change. Where schemes do not comply, and it is appropriate to do so, TPR will take enforcement action.

The strategy comes ahead of proposed regulations which will require trustees of larger schemes to maintain oversight of climate risks and make mandatory disclosures in relation them.

The Pension Schemes Act

The proposals under the Pension Schemes Act will see larger schemes and all Master Trusts required to disclose their Taskforce on Climate-related Financial Disclosures (TCFD) report. By the end of 2023, TPR anticipates a significant amount of pension savings will be in schemes reporting in line with the TCFD recommendations - 81% of memberships and 74% of occupational pension scheme assets.

The strategy outlines how we will help trustees comply with the new rules for larger schemes but also signals that 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.

TPR is planning to publish guidance later this year, following engagement with industry, to help schemes comply with the new legislation and make the consideration of climate change risks and opportunities part of their systems of governance.

Relationship supervision will also encourage trustees to pay more attention to climate change in the building of portfolios and investment selection, and to engage with their investment managers to ensure they steward investments in line with trustees’ policies and best practice.

Building capability

It is clear that all schemes need to build their capability in this area and should include devoting more board time to climate change, considering specific training and, most importantly, integrating consideration of climate change right across decision-making.

Building capability means trustees will be better placed to understand what climate-related issues mean for their scheme and be more able to make decisions which contribute to good saver outcomes.

We do not underestimate the scale of these challenges and we know that many schemes are still near the starting line. However, the new pensions legislation gives a vital framework for action while driving development right across the market.

Regulators across the entire UK investment chain are committed to disclosure of climate information and the government is making plans to achieve its target of net zero carbon emissions by 2050. This means that a landscape of resilient pension schemes that protect savings from climate risk is entirely within reach.

Notes/Sources

This article was featured in Pensions Aspects magazine June 2021 edition.

back to Pensions Aspects Magazine

Last update: 3 June 2021

David Fairs
David Fairs
The Pensions Regulator
Executive Director for Regulatory Policy Analysis and Advice

Pensions Client Relationship Manager – Home/ Office based

Salary: £50000 - £55000 pa

Location: London, Liverpool, Glasgow, Edinburgh, West Sussex, Exeter, Manchester

Client Success Director

Salary: £65000 - £80000 pa

Location: London

Pensions Technician

Salary: £26000 - £30000 pa

Location: County Durham

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