UK pensions regulator will take action on climate laggards

The UK pensions regulator, TPR, has threatened to take enforcement action against schemes that do not step up on climate change, as part of its new climate strategy released today. 

The regulator said that reporting in line with the recommendations of the Task force on Climate-related Financial Disclosures (TCFD) represented “compliance with the basics on climate change”. Under recent legislation, large pension funds will be required to produce annual TCFD reports, including detailed scenario analysis. TPR said it would take action against non-compliant schemes, saying that trustees should demonstrate that “words and intentions translate into action” on climate change.

Since 2019, schemes in the UK with 100 or more members have been required to set out stewardship and ESG policies in their Statement of Investment Principles (SIP), and must publish these online before October 2021. 

TPR said in its new strategy that it would take a proactive approach to ensuring scheme compliance by setting up an index of published SIPs.

The commitment was welcomed by James Alexander, CEO of the UK Sustainable Investment and Finance Association, who said that the association had “pushed strongly for a central directory to improve scrutiny of schemes’ ESG policies”. 

“The commitment to enforcement action by TPR is a welcome step, and UKSIF looks forward to working closely with TPR on their proposal for an index of SIP web addresses as a starting point for the development of a decision-useful register of SIPs”, he said.

Research by UKSIF in January 2020 found that only one third of eligible schemes had published their SIPs online.

In response to the second round of consultation on proposed TCFD reporting regulations, which closed last month, a number of industry bodies raised concerns over the complexity of reporting requirements and lack of trustee expertise on climate change matters. 

The regulator aims to mitigate this by updating climate change content in its ‘trustee toolkit’ and working with the Department for Work and Pensions to share best-practice TCFD reports. 

Finally, the regulator set out its own objective to become carbon neutral by 2030, and announced plans to produce its own TCFD report. It will also publish a Climate Adaptation Report before the UK hosts COP26 in November.

Victoria Barron, Head of Sustainable Investment at the BT Pension Scheme – whose pledge to become Net Zero by 2035 was highlighted by the strategy as “impressive” – said: “There’s a huge amount of climate change information available, but a closing window of opportunity to take action. Helping trustees understand what is expected of them, regardless of their scheme’s size, will move the conversation on from deliberation and discussion to strategy and action.”

“So far, calls for voluntary efforts to drive action from the industry have not worked, therefore the use of enforcement action is necessary. However, further information on what enforcement actions look like would be useful”.