Largest UK pension schemes trustees now legally required to report on climate-related risks

Trustees of pension schemes legally required to manage and report on climate-related risks and opportunities are being urged to make sure they are prepared for changes to the regulations.

The Pensions Regulator (TPR) has updated its guidance to help trustees meet new duties in this area, which come into force from 1 October.

The amended regulations require affected trustees to calculate and report on a portfolio alignment metric. This is a metric which gives the alignment of the scheme’s assets with the Paris Agreement goal of limiting global warming to 1.5°C above pre-industrial levels.

David Fairs, TPR’s Executive Director of Regulatory Policy, Analysis and Advice, said: “Climate change and the transition to net zero has the potential to cause material financial consequences for pensions schemes and, ultimately, savers’ retirements.

The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 and the Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021 introduced new requirements for certain trustees.

The regulations had a phased introduction, initially applying to trustees of authorised master trusts and of larger schemes with net relevant assets of £5 billion or more from 1 October 2021.

However, from 1 October 2022, the rules will also apply to trustees of schemes with net relevant assets of £1 billion or more. The Department for Work and Pensions intends to consider whether to extend these rules to smaller schemes in 2023.

The regulations are now being amended so that all trustees they apply to will need to calculate and report on a portfolio alignment metric for any scheme year ending after 1 October 2022. This is now referenced in TPR’s updated guidance.

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