UK pension scheme warns TCFD rules could trigger trustee resignations

A FTSE 100 pension scheme has described the UK’s plans to introduce mandatory TCFD reporting as “autocratic”, warning that the threat of fines could result in trustees resigning, according to newly-released consultation documents. 

In one response to a Department for Work and Pensions’ (DWP) consultation, the trustee for chemical company Johnson Matthey’s £2bn pension scheme said the proposals were “excessively bureaucratic and costly" and were “yet a further regulatory burden falling on trustees”. They accused the regulator of taking an “autocratic approach” when “a more persuasive tone would be better,” adding that the proposals to fine individual trustees up to £5,000 for failing to comply with the rules could result in departures at pension funds.

Three consultations have been undertaken by the DWP over the past year in relation to the rules, which apply to UK pension schemes over £1bn and are currently awaiting approval from Parliament. The full responses, released by the Department last week, reveal in detail the concerns of some schemes over the cost and burden of the proposals. 

‘If anyone is in a position to assess the climate-related risks of default on gilts meaningfully, it is the UK Government, which should undertake such analysis rather than impose a requirement on pension schemes’

While responses were largely supportive of the measures, NatWest bank’s pension scheme – the UK’s third largest – said that it did not “view climate risk governance and disclosure by pension schemes as an effective policy tool for dealing with climate change”.

Instead, the fund called on governments and regulators to “put in place an effective mechanism to price the true social cost of greenhouse gas emissions […] a carbon pricing framework would make separate disclosure unnecessary as risk would be priced in”. 

The £10bn Imperial Chemical Industries pension fund (ICI) pension fund argued in its response that it should not have to produce a report because its pension fund is closed, and therefore heavily invested in government bonds and derivatives, as well as bulk annuity insurance policies, which it said “would be considered low-risk in climate risk terms”. 

ICI, which has been defunct since 2008, argued that such assets should not be included when calculating which schemes are above the £1bn threshold for eligibility under the new rules. 

Bulk annuities were removed from the threshold in the second draft of the regulations released in January, but ICI reiterated in its second response that gilts should also be removed.

“If anyone is in a position to assess the climate-related risks of default on gilts meaningfully, it is the UK Government, which should undertake such analysis rather than impose a requirement on pension schemes”, it said. “For pension schemes, it would be a governance and cost burden on virtually every scheme with no offsetting benefit and would lead to inconsistencies between schemes”.

The introduction of mandatory TCFD reporting for schemes is part of a larger rollout across the UK economy. The Financial Conduct Authority recently opened consultations on its proposed reporting rules for large asset managers and a wider scope of listed companies.