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UK pensions regulator creates working group to develop TCFD climate risk guidance

Trustee guidance is expected to feed into regulator’s codes of conduct

The Pensions Regulator (TPR), which oversees the UK’s workplace pensions schemes, has launched a working group to develop guidance for pension trustees on addressing climate-related financial risks based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Representatives from the UK government will be joined by trustees, consultants, investment managers, civil society and representative bodies in the group.

“The role of the Pensions Climate Risk Industry Group is to provide practical and accessible guidance”

Stuart O’Brien, partner at London law firm Sackers, who is chair of the new group, told RI that there “isn’t a definitive list” of members yet, though the Pensions and Lifetime Savings Association (PLSA) trade body has already revealed its involvement; it will be represented by Caroline Escott, Policy Lead for Investment and Stewardship.

She is a former Head of Government Relations at the UK Sustainable Investment and Finance Association (UKSIF).

The eventual draft guidance, which will outline to trustees how they should “integrate, manage and report on climate risks”, will be put to public consultation in early 2020.

It will then feed into the update of the TPR’s codes of practice, as required by recent changes to the UK’s Pensions Act, specifically, the Occupational Pension Scheme (Governance) Regulations.

Last year, the Department of Work and Pensions (DWP) tabled amendments to pension legislation to fulfil the UK’s obligations under the revised EU pensions directive, IORP II, which member states should have transposed into law by January 2019.

Because of those changes, the TPR is required to update its codes of conduct to include new ESG provisions in IORP II, an approach O’Brien described last year as a slight “IORP II fudge”. IORP refers to the Institutions for Occupational Retirement Provision.

Whether the group’s new guidance will eventually become mandatory is something O’Brien said that he couldn’t speak to.But he did point to the recent statements by junior pensions minister Guy Opperman and the government’s recent support for the TCFD in the Green Finance Strategy, which, he said, “suggests that there is a direction of policy travel that will give the guidance more than just a voluntary best practice status over time”.

This summer the UK government stated in the green strategy that it expects all listed companies and large asset owners to disclose in line with the TCFD by 2022.

Speaking at an Association of Member Nominated Trustees (AMNT) event last week, Opperman reportedly questioned why schemes should not meet the TCFD requirement before the deadline.

“I don’t see why schemes shouldn’t consider going earlier. Many of the items which make up the TCFD framework are things which schemes need to do already under two sets of regulations I laid last year,” the minister is quoted as saying.

The other piece of legislation he refers to here is the change to the Occupational Pension Scheme (Investment and Disclosure) Regulations in 2018,

It means that from October 2019 UK pension funds will have to include how they take account of financially material considerations – including ESG and climate change related ones – in their Statements of Investment Principles (SIPs).

In his AMNT speech, Opperman also criticised the lack of action by some investment managers on issues like climate change and encouraged trustees to fire laggards.

“Pension trustees are already under a legal duty to consider factors which are financially material to their investment decision making. Managing the financial risk of climate change is no exception,” Sackers’ O’Brien said.

“However, to date, the way in which trustees might approach this has not been universally understood or acted upon. The role of the Pensions Climate Risk Industry Group is to provide practical and accessible guidance to help trustees of all schemes integrate, manage and report on climate risk as part of their investment governance – and to use the TCFD framework as a tool to do so.”