Not all advisers will have “the right capabilities” to help trustees with new Task Force on Climate-related Financial Disclosures rules, the Pensions Regulator has said as it publishes final guidance on climate risks and opportunities.

The regulator has published the final version of its guidance to help trustees of large and authorised schemes meet new climate risk rules, stressing that trustees must make sure they receive the advice they need. “As this is a new and developing area, not all advisers will have the right capabilities to support trustees implementing these requirements for the first time,” TPR said. 

 

David Fairs, executive director of regulatory policy, analysis and advice, said TPR recognises that the governance and reporting of climate-related risk is relatively new and trustees are therefore more reliant on external experts while they build their scheme’s capability in this area. 

 
“Trustees must take responsibility for ensuring their advisers have the appropriate skills and expertise and the advice they offer is relevant, helpful and represents value for money. After all, ultimately it’s trustees who are responsible for any decisions,” he said. 

 

 

The guidance accompanies new legal reporting requirements for large schemes, but TPR is urging smaller schemes to start preparing now for a possible expansion of the rules. 

The rules, which are due to be extended to schemes of £1bn or more next year, could apply to small schemes in coming years; the Department for Work and Pensions has said it will consider rolling them out to smaller schemes in 2023. 

 
Fairs said TPR’s guidance is aimed at trustees in the initial group of schemes within scope of the rules, but noted that “it offers an opportunity for all trustees to improve their scheme’s structures and governance in relation to climate-related risk and opportunities in preparation for any expansion”. 

 

The final version follows an eight-week consultation over the summer and eight engagement events attended by more than 550 industry representatives. 

 

 
The response to the consultation notes that most respondents found the guidance was clear and the examples included helpful, but that there was a need for a wider range of examples on a broader range of topics. More clarity on metrics and scenario analysis was also requested. 

 

The regulator has amended examples and added new ones to cover scenario analysis and selecting a target; it is also creating a step-by-step example covering the whole process from the beginning to publishing the report, due to be published next year.  

 

 

Some respondents wanted more guidance on areas such as covenant and fiduciary duty, and how these interact with climate risk duties. The regulator has said climate risk should be part of covenant assessments, and that it is reviewing existing covenant guidance, with the intention to consult on it in 2022. “This will incorporate more detail on what schemes should do to reflect climate-related risks and opportunities when assessing the strength of sponsor covenant,” the response notes. 

 

Trustees sometimes still feel that considering climate risk could interfere with their fiduciary duties, but the regulator is viewing climate risk assessment as part of the duty to consider risks, saying: “Trustees’ fiduciary duties have not been changed by the new climate change-related regulations.  Rather, that legislation is building on those fiduciary responsibilities.  It is incumbent on trustees to act prudently, in line with the trust’s purpose. That means considering relevant risks with a view to acting prudently when making investments.” 

 

Another area where further clarity was requested by industry was metrics and the availability of data. TPR has now said that the metrics selected must include an absolute emissions metric, an emissions intensity metric and an additional climate change metric, in line with the statutory guidance.