Changes to climate reporting for pension trustees
11th November 2022
The Pensions Regulator has updated its guidance on governance and reporting of climate-related risks for trustees of certain pension schemes, increasing the number of schemes the guidance now applies to. Matt Hutchinson, head of Rowleys’ pensions team explains more about the pension climate change reporting requirements, the schemes it applies to and what might lie ahead for smaller schemes.
Guidance on climate-related risks
In 2021, new guidance was introduced that required trustees of authorised master trusts, and of larger schemes with a net relevant assets of £5 billion or more, to identify, assess and manage climate-related risks and opportunities. From October 2022, this has been reduced to schemes with assets of £1 billion.
Trustees of these schemes are required to measure and report on their portfolios’ alignment with the Paris Agreement on climate change. The Paris Agreement aims to limit the global average temperature increase to 1.5 degrees Celsius above pre-industrial levels. The aim of new requirements is to ensure trustees have an understanding of a scheme’s exposure to climate risk.
What are the recent changes and who do they apply to?
The Pensions Regulator (TPR) has recently amended the guidance and from 1 October 2022 the rules also apply to trustees of schemes with net relevant assets of £1 billion or more.
TPR state that they will will be looking for clear evidence that trustees:
- are taking proper account of climate change when making decisions about their schemes, and that those advising trustees are helping them to do this
- have carried out analysis in a way that is consistent with the Taskforce on Climate-Related Financial Disclosures (TCFD) recommendations so that savers and others can be confident in it
- have seriously considered the risks and opportunities that climate change will bring to their scheme, in its particular circumstances
- have decided what to do as a result of this analysis and have set a target to help them achieve that goal
Will smaller schemes be subject to these requirements in the future?
It is highly likely that, in the future smaller schemes will be subject to some sort of requirements related to climate change and climate-related risks. The Department for Work and Pensions has already stated that it intends to consider whether to extend the current rules to smaller schemes in 2023, so it’s important trustees pay close attention to any updates from TPR about changes to the criteria.
With climate change being on the agenda of the world with COP27 currently taking place there is a clear direction of travel that is likely to affect all schemes in the future to some extent. Past experience has shown that the introduction of similar reporting requirements initially applying to larger schemes later apply to smaller schemes, even if this is to a reduced requirement level.
For further information, visit The Pensions Regulator website.
The Rowleys pensions team are pension audit experts. We work with a large number of pension schemes, taking a balanced, risk-based approach to audit. If you’d like to discuss your pension scheme accounts and audit requirements, then please get in touch.