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The Government says that “occupational pension schemes in the UK hold almost £2tn in assets, with the figures set to grow with the success of automatic enrolment. This makes them the largest single group of institutional investors in the UK, with significant influence over the flow of investments in the economy. Coupled with their long-term investment horizons, this means they are particularly susceptible to the impacts of climate change in the next 5, 10 and 30 years. Conversely, it also means OPS are uniquely placed to invest in the financial opportunities that are emerging, and will continue to emerge, to drive us towards a lower carbon economy.”

In recent years, the Government has introduced significant new requirements on pension scheme trustees to improve their governance with respect to the effects of climate change and show how they have taken into account climate change risks and opportunities in their investments.

These changes followed a report of the Law Commission in 2014 which clarified that trustees should take into account factors which are financially material to the performance of an investment. It recommended changes to the ‘investment regulations to reflect this.

The Government went on to amend the ‘investment regulations’ to require trustees of pension schemes  with more than 100 members, from 1 October 2019, to specify in their Statement of Investment Principles (SIP) their policies in relation to financial material considerations, including those relating to climate change. From 1 October 2020, they were required to produce an implementation statement explaining how they have followed and acted upon the policies set out in their SIP.

From October 2021, the Climate Change Governance and Reporting Regulations 2021 (made under section 124 of the Pension Schemes Act 2021) require larger occupational pension schemes and authorised master trusts to set climate-related targets from October 2021. Trustees will be required to undertake governance activities relating to each of the recommendations of the Task Force on Climate-Related Financial Disclosures and report annually on it. The Government says this will make the UK the first economy to mandate TCFD reporting for its pensions sector.

Evidence to the Work and Pensions Committee’s inquiry on Pension Stewardship and COP26 indicates some of the challenges for trustees in delivering on these requirements, in particular regarding the information available to them to make decisions. TCFD reporting will apply to the larger pension schemes before it applies to the investment managers. Furthermore, pension schemes invest internationally, but consistent disclosure requirements do not apply across the global economy. A further area of debate is whether the Government should set specific targets – for example, be net zero aligned by a specific date. The Government has decided against this on grounds that it could conflict with trustees’ duty to act in the best interest of scheme members and trigger divestment from higher carbon firms which are in the process of transitioning to net zero.


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