The Pensions Regulator has published its climate change strategy containing three overarching goals - to drive trustee action, influence the debate and publish a plan for a net zero target of 2030 for itself. TPR says “particular urgency is required from DC trustees” when it comes to climate risks and opportunities. 

 

TPR has shared its approach to climate risk regulation, which it says is currently limited to climate but could in future be expanded to include such issues as biodiversity loss. 

 

The regulator’s current climate change strategy lists three main aims: 

 

The new strategy comes ahead of regulations which will require trustees of large schemes, master trusts and collective DC schemes to make climate risk disclosures. 

 

Executive director of regulatory policy, analysis and advice David Fairs said that climate change is a risk for schemes of any size or investment strategy, and so all schemes need to build their capacity in this area. 

 

“This should include devoting more board time to climate change, considering specific training, and, most importantly, integrating consideration of climate change right across decision-making,” said Fairs. “Where we do not see schemes complying with the rules, we will consider enforcement action,” he added. 

 

Pensions minister Guy Opperman welcomed “TPR stepping up on this issue”. He said that “by increasing oversight of climate change and giving it the weight it deserves, they can provide better protection for pension savers from significant financial risk".  

 

He also applauded the commitment to update the trustee toolkit, and to enforce compliance with the basic regulatory climate requirements. 

 

The industry is similarly positive about the new strategy; Joe Dabrowski, deputy director – policy at the Pensions and Lifetime Savings Association, said the PLSA strongly supports the regulator’s view that addressing climate risk is intertwined with pension schemes’ fiduciary duty and should be “a mainstay of good investment governance”. 

 

“As TPR has emphasised in its strategy document today, the pension industry is well placed to continue to influence the debate and extend the governance of climate risks to the corporate sector,” he said. 

 

“TPR’s commitments to providing guidance on the TCFD regulations, updating the trustee toolkit and providing relevant training to staff are also very welcome. We look forward to working with the regulator to ensure the guidance is suitable for schemes and supports them to achieve best practice,” he added. 

Mike Clark, founder director of Ario Advisory, said it was important that beneficiaries can hold not just trustees, but also the regulator accountable on the financial risks of climate change.

“House of Commons Select Committees may have a role to play, with the government’s green finance strategy published nearly two years ago. The public exchange of letters between DWP and TPR on this issue a while back tells us something," he added.

Clark said TPR could strike a stronger tone on enforcement action, noting that "we know with some precision what the climate will be in 2031. For the next 10 years we do not have a climate problem, we have a behaviour problem. We all need to accelerate our efforts.”

 

 

The strategy largely outlines that TPR will enforce compliance with the basics and communicate with the industry but takes on a slightly more passionate tone towards the end, where it stresses that there is “particular urgency” for DC trustees to tackle climate risk, as DC members bear the investment risk of their pension themselves.  

 

With public bodies having an equality duty, TPR also notes that it will undertake further equality impact assessments in developing climate policy and guidance. “These may consider, for example, the differing needs and interests of DB and DC savers given the differing characteristics of those cohorts,” it says, pointing to differences in age, income, gender and ethnicity, and citing the UN’s assertion that “the impacts of climate change will not be borne equally or fairly, between rich and poor, women and men, and older and younger generations”. 

 

The regulator has previously called on DC trustees to do more, saying that "too few trustees and managers of defined contribution schemes are paying proper attention to risks and opportunities from climate change" after its 2020 survey showed just 43% of DC schemes took climate change into account in their investment strategies. 

 

 

For schemes to comply with the basic requirements, TPR will want to see them publish their SIP, implementation statement and, for those in scope, disclose their TCFD report. Among others, the regulator says it will review a selection of implementation statements and publish its findings. 

 

Enforcement action will be taken where TPR considers it appropriate; it is also threatening to name and shame those that are not complying with the basics. To help trustees do so, it will publish guidance outlining its approach to the new TCFD regulations. 

 

The regulator has an ambition to play a more active role in the climate debate, saying it plans to use its communications tools to promote its climate change strategy, and wants to “enhance our credibility” in this space. It said it will work with stakeholders and other regulators as it seeks to “work across the financial sector towards consistent behaviours and high-quality information for trustees on climate risk”. 

The various new requirements mean TPR's staff will need training to ensure they are “confident in talking about climate change” when the measures from the Pension Schemes Act 2021 come into force, TPR notes. 

 

 

In terms of its own carbon footprint, TPR said it will commit to reaching net zero by 2030 and publish a plan of how to do this by 2024. 

In addition, it plans to publish a Climate Adaptation Report in the autumn, ahead of the UN’s climate change conference in November, which will include “an outline of our plans towards using the recommendations of the TCFD, where applicable, as a framework for our own management of climate risk". The same report will include findings on how those running pension schemes are responding to and managing climate risks and opportunities, which will feed into policy proposals.