Nearly a third of UK pension funds do not plan to set climate targets, finds actuary body

It comes as UK regulators provide update on ESG regulatory initiatives and guidance for audits

A survey of employers running more than 400 UK pension schemes has found that 28% do not intend to adopt targets to reduce their exposure to climate-related risks. 

The survey, conducted by UK trade body the Association of Consulting Actuaries (ACA), shows that a slightly larger proportion of respondents – some 33% – have adopted or are in the process of setting a climate target. Within this group, half have included emissions-based performance in their targets while 70% have set an overall Net Zero target. 

Despite the contrasting attitudes, the majority of UK pension schemes surveyed – around 60% – said they have looked into the feasibility of doing setting climate targets, and 78% said they expected asset managers to engage with portfolio companies on climate issues on their behalf. 

Starting next year, UK pension schemes with assets over £5bn will be required to adopt “a non-binding target” in relation to either absolute emissions, emissions intensity or an additional climate change metric – such as a climate-value-at-risk measure – under disclosure rules introduced in October. The government will decide whether to expand the regulation’s scope to smaller schemes in 2023. 

Commenting on the findings, ACA Chair Patrick Bloomfield said that it was important to acknowledge the role of pension schemes to “pay income to their members in later life, not to facilitate other social policy aims”. 

“Actuaries’ and trustees’ priority is to make sure that the transition to a low-carbon economy doesn’t derail their scheme’s funding. However, I am concerned about a hard core of trustees putting their head in the sand on climate issues, which is putting their members’ retirements at risk,” he said. 

The ACA noted that the survey was conducted prior to this month’s climate summit – which was hosted by the UK –  and it expected that “the momentum and profile of COP26 will help lead to the majority of schemes putting climate targets in place in the next few years”.  

The survey comes two weeks after UK regulators published an update on their pipeline of ESG initiatives, including a stakeholder consultation in the first half of 2022 on the development of standards for ‘net zero transition plans’ and accompanying disclosure requirements.  

The so-called Regulatory Initiatives Grid, which is published twice yearly, also noted that detailed thresholds defining what economic activities are environmentally sustainable under the UK green taxonomy would be finalised by end-2022. 

The UK government has announced plans to introduce requirements for asset managers and asset owners to publish transition plans, including “near term science-based targets and set out their organisation’s pathway to net zero financed emissions”, by the end of 2022.

Separately, the UK’s Financial Reporting Council has today published guidance on what constitutes high-quality audit practices – just a day after regulators in Europe launched a consultation on planned rule changes for audits and accounting.  

The FRC report comes after the watchdog found that 30% of audits it reviewed in 2021 failed to meet acceptable standards. It sets out criteria for the culture, governance and leadership at audit firms, and a range of best practices identified by the FRC during recent quality inspections. 

FRC CEO Jon Thompson said it was the first time that the body has set out expectation “of what good looks like from the planning phase of an audit right through to how audit firms are being led and run”. 

“While some progress has been made in recent years, it is clear that significant improvement is still required, which will take time and an ongoing commitment from the firms to improve standards,” he added. 

The FRC is expected to relaunch in 2023 as the Audit, Reporting and Governance Authority (ARGA), in a move which will give the regulator broader oversight and competition powers to break up the dominance of the Big Four accountancy firms. The rebranding is part of the government’s overhaul of the country’s audit regime in the wake of a number of major accounting scandals.