This short briefing paper aims to provide context for provisions in clause 124 of the Pension Schemes Bill 2019/21 that would “require occupational pension schemes to manage the effects of climate change effectively as a financial risk to their investments and to report publicly on how they have done so.”

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In June 2018, the Government said it would “update the law to require pension scheme trustees to consider the impacts of their investments from a changing environment, corporate governance and social trends.” It made new regulations clarifying what should be included in the Statement of Investment principles (SIP) that must be produced by trustees of occupational pension schemes with more than 100 members (SI 2018/998).

The new requirements are being introduced in stages. From October 2019, the scheme’s SIP must specify their policies in relation to financially material considerations (including ESG considerations) and in relation to voting rights and engagement activities. By October 2020, it would need to explain how it incentivises any asset manager to align its investment policy with the trustees’ priorities. (See The Pensions Regulator, Investment guidance for trustees).

In March 2020, Pensions Minister Guy Opperman launched a consultation on non-statutory guidance on aligning your pension scheme with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations and explained that the Government was proposing to take powers in the Pension Schemes Bill to require climate-change risk governance and TCFD reporting.

Clause 124 of the Pension Schemes Bill 2019-21, currently before Parliament, would require trustees and managers of occupational pension schemes to explicitly consider climate change goals, including the Paris Agreement temperature goal, for the purpose of ensuring the effective governance of their schemes with respect to the effects of climate change. It sets out the kinds of activities trustees and managers of pension schemes may be required to undertake as part of their governance on the effects of climate change.

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