On the go: The Pensions Regulator announced on Monday the launch of a consultation to help shape guidance for trustees to meet tougher climate change governance standards.
The guidance describes what requirements trustees will need to meet in order to comply with new legislation surrounding the governance and reporting of climate-related risk and opportunities, which comes into force for authorised schemes or those with £5bn or more in assets from October 1 2021.
Trustees of pension schemes not subject to the new requirements may also wish to follow the guidance in order to improve the governance and resilience of their schemes, TPR stated.
The eight-week consultation, which ends on August 31, also includes the publication of TPR’s monetary penalties policy, which outlines the regulator’s approach to imposing penalties for those who do not comply with the new legislation.
Where trustees in the scope of the legislation fail to publish a climate change report on a publicly available website — accessible free of charge — within the required timeframe, TPR must issue a mandatory penalty of at least £2,500.
For other breaches of the new regulations, there will be a range of enforcement options including the discretion to issue a penalty notice.
The consultation also touches on TPR’s approach to the Department for Work and Pensions’ provision that some of the new requirements only apply as far as trustees are able to adhere to them, which recognises there may be some hurdles that, at least initially, prevent trustees from full compliance.
The policy acknowledges that not all the information trustees need may be available immediately.
Where this is the case, TPR expects trustees to provide a full explanation by setting out what efforts they have made to obtain the necessary climate-related data and fully explaining any gaps.
The regulator said it would also like trustees to outline their plans for overcoming obstacles, as the quantity and quality of the data available should improve for future reporting periods.
Commenting on the announcement, David Fairs, TPR’s executive director of regulatory policy, analysis and advice, said: “If trustees do not adequately consider climate-related risks and opportunities, or exercise effective stewardship, pension scheme investment performance and funding may suffer, which could mean savers missing out.”
He added: “This draft guidance sets out our expectations of trustees in response to the new climate change regulations. If trustees follow the guidance and report on the steps they have taken, they should be able to demonstrate good governance of climate-related risks and opportunities.
“We want to work with trustees, and their advisers, to ensure climate-related risks and opportunities are considered as key elements of scheme governance and would welcome feedback on the best way to deliver this.”
Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, welcomed the launch of the consultation.
“With the UK’s largest pension funds leading the rollout of [Task Force on Climate-related Financial Disclosures] across financial services, this is an important consultation and we’re pleased that the regulator has committed to proactively seeking scheme views to inform its view and make sure its guidance is fit for purpose,” he said.
“It is really important schemes have clear guidance as they will be working on a ‘best endeavours basis’, with much of the information necessary for full disclosure not yet available from their asset managers or companies, and risk mandatory fines.
“We would therefore urge as many schemes [as possible] to make their thoughts known in the consultation process before it closes at the end of August 2021,” he added.
