The Pensions Regulator's review of 30 climate reports found that trustees are taking action to address climate risks and opportunities. TPR said even schemes “not yet in scope" for disclosures should act now.
 

The review covers defined benefit, hybrid and single-employer defined contribution schemes, as well as a DC master trust, which make up about a tenth of the reports published for scheme year-end dates between October 2022 and September 2023.  

The review gives a glimpse of how climate reporting is developing. TPR’s climate and sustainability lead Mark Hill said TPR wants schemes to know what ‘good’ looks like and improve their management of climate-related risks and opportunities. 

“Climate change disclosures should be the product of good risk management,” he said. “Even if not yet in scope for disclosures, schemes should act now and read this report to help them in their strategic decision-making.” 

TPR said the reports suggest trustee boards took action on climate change in various ways, such as updating DC defaults to include sustainable funds, increasing the allocation to low-carbon tracker funds or companies with 'high levels of green revenue', exploring opportunities such as forestry, green bonds or committing funds to private market renewables, or encouraging fund managers to engage with the top emitters in the portfolio. Nineteen of the 30 reports included some form of net zero goal. 

TPR found good reports gave information on the scheme structure at the start of the report and specify the size of specific mandates so readers could understand their materiality in relation to the scheme. Some reports had “excellent plain English summaries”, it added. 

However, reports could be improved by including specifics on policies, steps to manage risks and information from advisers, it said. Specifically, there are “areas of concern” when it comes to scenario analysis, with TPR suggesting this could be improved through qualitative analysis, explaining the challenges and limitations of scenario analysis and taking these into account when drawing conclusions about a scheme’s exposure to risks. 

Where trustees reused parts of previous reports, this should be supplemented with a summary of developments and activities during the reporting year, it noted, and if trustees used the reporting process to identify additional work, they should then set a plan, monitor this and update on progress in their next report. 

Schemes with more than £1bn in assets under management and authorised schemes must produce a report in line with the Taskforce on Climate-related Financial Disclosures.  

In addition, Hill said earlier this year that trustees “would do well” to familiarise themselves with the recommendations from the UK Transition Plan Taskforce, Taskforce for Nature-related Financial Disclosures and Taskforce for Social Factors. On Tuesday, TPT published guidance for asset owners and asset managers, with Hill noting that transition planning was likely to be integral to achieving the UK’s net zero ambitions.