Trustees need to understand the impact of net zero commitments
The consultant has urged that trustees carefully analyse company business plans and forecasts, and link what has been promised around net zero and climate risk mitigation goals and the cost of implementation.
Trustees must know if their sponsor’s cash flow forecasts are realistic about the cost of transition and whether they risk missing targets made to stakeholders. This could have both financial and reputational impacts on sponsors and impact on health of the employer covenant.
John Parnis England, senior consultant at LCP, welcomed the serious conversations being had around net zero, but that trustees need to be aware of how it will be funded and the potential consequences for the employer covenant.
“Decisions will need to be taken on how such funding needs will be prioritised alongside other competing demands for cash such as debt servicing, ‘regular’ capital expenditure and dividend,” said Parnis England. “Where there is a DB pensions arrangement in place, the sponsor may also be required to pay contributions to the scheme.”
LCP recommends schemes develop a robust understanding of their sponsor’s net zero strategy, analyse how the strategy interacts with financial information such as cash flow forecasts and integrates ESG factors into broader covenant assessment and journey planning strategies.
