Back in 2017, the Taskforce on Climaterelated Financial Disclosures (TCFD) published 11 recommendations for all organisations aimed at identifying, assessing, managing and disclosing climate-related financial risks and opportunities. The Government’s 2019 Green Finance Strategy set an expectation for listed companies and large asset owners to make disclosures in line with these recommendations by 2022. Such disclosures are intended to become mandatory across the economy by 2025.
The requirements are being phased in, with larger schemes (those with relevant assets equal to or exceeding £5 billion) having to comply first, from 1 October 2021. The Report must be published within seven months of the end of each relevant scheme year on a publicly available website, free of charge (with a link to it included in the scheme’s annual report, and members informed as to where it can be found). The Financial Conduct Authority (FCA) also published consultations in June on climate-related disclosures for those entities it regulates. Whilst this will be helpful (in the longer term) to trustees in satisfying their own reporting obligations, the FCA regime is only intended to take effect for accounting periods beginning on or after 1 January 2022. The mismatch in timing means that occupational schemes could find themselves struggling to get hold of complete information to fulfil their requirements.
Following consultation, the Department for Work and Pensions (DWP) published revised Climate Change Governance and Reporting regulations (the Regulations), which were made on 13 July 2021, together with draft statutory guidance. These ask pension trustees to meet governance and disclosure requirements in line with the TCFD recommendations. Trustees must satisfy certain requirements (e.g. analysing the climate-related risks relevant to the scheme, their potential impact, and the adequacy of relevant scheme processes), and then incorporate the outcome of their TCFD review into a report (the Report).
Failure to comply is taken seriously: the Regulations permit (and in certain circumstances, require) The Pensions Regulator (TPR) to issue penalty notices to trustees of up to £5,000 for an individual (and £50,000 for corporates) in the case of more serious failures of governance.
On 5 July, TPR published draft guidance (intended to complement the DWP’s) outlining its approach to the new requirements, together with a revised monetary penalty policy. Amongst other things, TPR sets out non-exhaustive ‘example steps’ the schemes should take and report on, its expectations of schemes, and trustee knowledge and understanding (TKU) requirements. Whilst the schemes in the first wave of compliance should already be well under way with their work, TPR’s publication serves as a useful nudge, and checklist, for trustees. It also reminds us that those schemes not obliged to adopt the requirements should still consider doing so voluntarily, bearing in mind trustees’ fiduciary duty to actively consider climate change as a financially material risk.
Last update: 15 September 2021