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Response to our consultation on Climate-related governance and reporting

This is the response to our consultation on climate-related governance and reporting.


From 1 October 2021, trustees of certain schemes face new requirements intended to improve the quality of governance and reporting relating to climate-related risks and opportunities. Trustees subject to the requirements must take steps to identify, assess and manage climate-related risks and opportunities and report on what they have done. 

While the first tranche of schemes subject to the requirements is small, more schemes will be expected to meet the requirements from 1 October 2022.

The Pensions Regulator (TPR) has developed guidance on these new requirements. The guidance sits alongside the Department for Work and Pensions (DWP)'s statutory guidance. We have also developed a new appendix for our monetary penalties policy.

We consulted on the guidance and the appendix between 4 July and 31 August 2021.

The guidance covers requirements that align with the recommendations from the Taskforce on Climate-Related Financial Disclosures. The current requirements sit within a quickly evolving landscape that includes the following developments.

  • The government has committed to reviewing the effectiveness of the regulations and statutory guidance for schemes that are in scope. It will also review whether they should be extended to smaller schemes in 2023.
  • The government has also recently published ‘Greening Finance: A Roadmap to Sustainable Investing’ which includes the ambition to extend sustainability disclosures across the economy.
  • The DWP has launched a consultation on additions to the governance and reporting requirements that will require trustees to measure the alignment of their investments with the Paris Agreement goal.

There are likely to be further changes over the coming years as the requirements from the Greening Finance roadmap start to take effect.

Consultation responses

We received 37 responses to our consultation. They came from various stakeholders, including trustees, advisers, industry associations and individuals.

We also held eight engagement events to discuss our response to the new requirements. We had 554 attendees. The events generated further responses as well as commentary through discussions and questions.

We want to thank everyone who participated in the events or submitted responses. Your input has helped us shape our response to the new requirements.


Most of you thought that our guidance was clear. We received similar positive responses to the questions that asked whether the advice or the examples were helpful.

There was a clear consensus that the guidance provided trustees with practical tools, examples and advice regarding the new governance and reporting requirements and the treatment of the risks and opportunities of climate change. One respondent noted that the guidance struck the right balance between encouraging ambition and acknowledging the challenges that trustees face. Many agreed the guidance was pitched at the right level and effectively explained how trustees might gain knowledge and understanding.

Most of the respondents provided positive feedback on the examples used by TPR, noting that the examples were clear, understandable and practical. However, the most consistent theme to emerge from the responses was the need for a wider range of examples on a broader range of topics.

Many of you requested more clarity on metrics and scenario analysis.

Some of you expressed concerns about the approach we have taken to designing the guidance as well as in relation to the lack of sufficient reference to other issues, including covenant and fiduciary duty.

We received other general feedback on the guidance, including aspects such as clarity of communication, the efficiency of purpose, the helpfulness and accuracy of the guidance and the consistency of detail.

While some disagreed with the use of monetary penalties, most agreed this was the right approach to encourage compliance.

We have adjusted the final version of the guidance and appendix to the monetary penalties policy in response to some of the feedback we received. Below, we explain how we have responded to some of the feedback you submitted.

Examples and case studies

You were generally positive about the examples we included within the guidance. They were described as helpful, practical, and clear.

The most frequent comments were requests for more examples or greater detail within them. You suggested that a wider range of examples on more complex requirements would be helpful.

A frequent request was for case studies on scenario analysis. You asked for greater clarity on how schemes can conduct qualitative scenario analysis, how to select scenarios and how to use the analysis.

You requested examples on how to set metrics and targets and a case study on how to use these to conduct scenario analysis. You also asked for examples of how to manage climate-related risks in different asset classes.

Our response

We recognise that more examples would be useful. Where it has been practical to do so, we’ve amended existing examples to make them clearer or to cover issues that were not originally addressed. We have also created new examples to cover:

  • scenario analysis
  • selecting a target

In response to the varied requests, we are creating a step-by-step example covering the whole process from the beginning to publishing the report.  We will provide this to be used alongside the TPR guidance and publish it in the New Year. While we can’t address all the requests made, we have illustrated a wide range of issues in that example, which we think will most likely be helpful.


Some of you asked for more links to the DWP’s statutory guidance and summaries of its relevant points, whereas others preferred that we remove any duplication of the statutory guidance. Several of you felt that our guidance should clarify that the examples are illustrative and do not have to be precisely followed.

Some of you wanted more clarity on the meaning of the phrase: ‘as far as they are able’. You also shared concerns that enforcement action could discourage schemes from being truthful about the challenges and gaps in information that trustees and advisers face.

Some of you requested more detail on the implications of the governance and reporting requirements on important issues such as funding, covenant, and fiduciary duty. On the specific issue of covenant, many of you asked for more information about when and whether such guidance would be available. You also made suggestions about how trustee knowledge and understanding on the subject could be developed through the Trustee Toolkit, including suggesting a climate module.

Some of you also raised concerns about whether this guidance could usefully be used by smaller schemes. 

Our response

TPR's guidance is intended to set out our regulatory approach and help trustees comply with the requirements. Where it is useful, we’ve linked to the relevant section of the DWP’s statutory guidance. We have made it clearer that our guidance does not impose any new requirements on trustees. We have clarified that any examples in our guidance are intended to help trustees understand the type of actions they could take, rather than prescribing a particular approach. However, trustees must have regard to the DWP statutory guidance when putting their climate change governance processes in place and when they produce their TCFD reports.

The climate change governance and reporting regulations currently impose requirements on large schemes and authorised master trusts (some of which have assets significantly less than £1bn). The guidance is specifically aimed at trustees of schemes that are legally required to report. However, our guidance, and the DWP’s statutory guidance, can be applied in part or in full by trustees of other schemes, which do not currently fall within the scope of the regulations.

We strongly encourage trustees and advisers to consider the risks and opportunities that climate change presents to their pension schemes. The government has committed to reviewing the effectiveness of the regulations and statutory guidance for schemes in scope. It will also review whether they should be extended to smaller schemes in 2023.

On the issue of the phrase ‘as far as you are able', we believe that the TPR guidance and the DWP statutory guidance provide enough clarity and set out the implications for trustees.

We do not think that our approach to enforcement will discourage trustees and advisers from being truthful about the challenges and gaps in data that they encounter. We have been clear during our engagement on this topic, throughout the consultation process and in the draft guidance that we recognise these requirements are new for most trustees and their advisers and that there will be initial challenges and gaps in data. We expect that to change over time as the investment industry adapts to the new data capture and reporting requirements, more information becomes available, and trustees and their advisers learn from experience.

Our regulatory approach will aim to recognise where schemes have made a genuine effort to collect as much of the necessary information and data as they can and have recorded the steps they have taken to do so. As with all our regulatory activity, we will aim to take a reasonable and proportionate approach to enforcement.

Funding and employer covenant

Several of you requested more examples and guidance about how these climate change regulations relate to funding and employer covenant for defined benefit (DB) schemes.

Our response

The DWP’s statutory guidance emphasises that trustees of DB schemes need to take covenant into account when assessing the resilience of their funding strategy. This will involve trustees engaging with their sponsoring employers to discuss how they may be affected by climate-related risks and opportunities and factoring the resilience of the covenant, ‘as far as they are able’, into their scenario analysis.

We agree that funding and covenant are important factors to consider in trustees’ assessments of climate-related risks and opportunities for DB schemes and have increased the emphasis on these areas in both the guidance and examples.

We expect trustees to consider risks and opportunities arising from climate change during their assessment of covenant as they do other risks. For example, they may determine that their sponsoring employer is likely to be affected by physical or transition risks arising from climate change, and there is no clear transition plan in place for the business. In that case, this could affect trustees’ assessment of the longer-term prospects of the sponsor and the covenant strength, which in turn may affect the funding and investment strategy they need to adopt for the scheme.

We are also reviewing our existing covenant guidance, which we intend to consult on in 2022. This will incorporate more detail on what schemes should do to reflect climate-related risks and opportunities when assessing the strength of sponsor covenant.

Trustee fiduciary responsibility

Several of you raised concerns about how the new climate change regulations interacted with trustee fiduciary responsibility.

Our response

The governance processes that the new regulations require should ensure that the trustees have oversight of the climate-related risks and opportunities relevant to their scheme. Trustees also need to consider other risks affecting their scheme and are expected to take a proportionate approach to managing climate-related risks and opportunities. We believe that the new governance processes should enable trustees to be confident that they are meeting their statutory obligations and fiduciary duties.

Trustees’ fiduciary duties have not been changed by the new climate change-related regulations.  Rather, that legislation is building on those fiduciary responsibilities.  It is incumbent on trustees to act prudently, in line with the trust’s purpose. That means considering relevant risks with a view to acting prudently when making investments.

Furthermore, trustees already have an obligation to set out their policy on financially material considerations (including but not limited to climate change) in their SIP. They should also be managing the risks that their schemes are exposed to.

Some of you highlighted the need for climate-related risks and opportunities to be considered proportionately and not to be carried out at the expense of failing to consider other material scheme risks. We have adjusted our guidance to make this clear.

The Trustee toolkit

We are taking steps to update existing modules of the Trustee toolkit to incorporate and reflect these new requirements. We recognise that many people would like a standalone climate change module for the toolkit.

However, this is a rapidly evolving area and the Climate Change Governance and Reporting regulations currently only apply to certain schemes. The quality and availability of climate-related data will continue to evolve, as will analytical techniques and market practices. Also, the DWP has committed to consider whether to extend the scope of the climate-related regulations to smaller schemes in 2023. In view of these developments, we will consider whether it is feasible to develop an additional module for the toolkit and, if so, when to release it.


Many of you called for more detail in this section, especially on the type of information trustees would need to evaluate their climate competency and more discussion of the role of specialist advisers.

Some of you noted that the guidance suggests trustees should lead on climate-related risk reporting but that in practice, it is often led by advisers. You suggested that TPR should place more onus on trustees to take ownership of this issue, particularly highlighting their legal responsibilities.

Our response

We have clarified that trustees are responsible for ensuring that those providing advice and support in relation to scheme governance activities have the necessary knowledge and expertise to carry out that role. Climate change is no different to other areas where trustees use external expertise to help them carry out their duties.

We do recognise that, as this is a relatively new area, trustees need to ensure that their advisers have the appropriate skills and expertise and that the advice they are getting is relevant, helpful and provides value for money. Where trustees think specialist advisers may be helpful, they should consider their advice needs and how those needs might best be met. Ultimately, the responsibility for decisions rests with the trustees. They need to be comfortable that they, not their advisers, are making the final decision.

Strategy and scenario analysis

Many of you thought that the section required more examples, especially to explain the purpose of scenario analysis. There were several requests for more explanation of how the employer's covenant could be affected under the different scenarios and the need to consider the impact on funding, contingency planning, and covenant monitoring. You told us it was important to clarify that the role of scenario analysis is to help inform decision making and not to predict the future.

Some of you asked for more guidance on how trustees should think about the objectives of scenario analysis, how trustees should decide on different scenarios, and how different scenarios affect different asset classes. Others commented on the absence of examples on using a qualitative approach to scenario analysis.

Our response

We have added an example which illustrates how qualitative scenario analysis might be used to understand how climate-related risks and opportunities might arise, might impact investment and funding strategy and be used to inform trustees’ decisions. In the time periods example, we have also made it clear that schemes should take advice on their scheme features and the likely future development of the scheme’s funding and investment arrangements.

Risk management

Some of you asked for more practical examples of how you could manage climate risks across different asset classes and how you could better integrate this assessment with schemes’ other risks. More specifically, several of you asked for examples of how climate-related issues might affect the liabilities, for example, through impacts on mortality. Some asked for more detail on risk assessment with reference to specific issues such as assets, funding, and covenant.

Some of you requested more clarity on the climate risk and opportunities dashboard, including explaining how it differed from a typical risk template and recognising its dependence on specific choices on scenarios and timeframes. Some respondents took the example dashboard as a new obligation that trustees have to complete. There were some suggestions for improving the dashboard, including additional data points, such as mortality or demographic risks. You called for more guidance on what outputs would be sufficient for the process of identifying risks and examples of what corrective actions schemes should take to mitigate risks flagged within the dashboard.

Our response

As for the other examples in the guidance, the example risk management dashboard illustrates one approach which trustees could consider, but it is not a specific requirement. The form of the dashboard is not prescriptive. We have added explanatory wording to the dashboard to set it in context for users.

We have amended the example on processes to identify, assess and manage climate-related risks to incorporate a number of your suggestions and address concerns that you raised.

We have highlighted the need to consider funding and covenant related issues throughout the guidance and examples. We have also emphasised the need for climate-related risks to be integrated with the scheme’s wider approach to risk management. We recognised the request to include examples of the impact on liabilities, for instance, due to climate-related changes in mortality. At the moment, we have decided not to include examples on this as we understand that the industry is still developing its approach to a range of climate-related issues.

We have included specific reference to stewardship activities in the existing example on processes to identify, assess and manage climate-related risks. We have also included some other suggested changes concerning investment managers, the materiality of climate-related risks and their relationship to other scheme risks.


Many of you asked for more clarification on applying metrics and their interaction with other processes such as scenario analysis. You also raised specific issues regarding the availability and reliability of data, including the knock-on effect that data gaps might have on scenario analysis and target setting. Some of you asked for more emphasis on engagement or a case study on how climate-related risk could be managed through stewardship. Others asked for the inclusion of alternative metrics.

Our response

We have clarified that the metrics selected must include an absolute emissions metric, an emissions intensity metric and an additional climate change metric, in line with the statutory guidance. We have updated the examples in this section to address several issues and provide further context.


Some of you asked for TPR to make clear that trustees should undertake target-setting and portfolio optimisation to reach targets within the parameters of the trustees' fiduciary duties and that real economy concerns should be included when setting and monitoring targets. Others wanted greater clarity on the type of asset classes on which the targets were set, also on the benchmark they were set against. You requested more detail on how trustees could understand the benefits of the target alongside the costs and the expectations for annual reviews of targets.

Our response

We have included a new example in this section on how to select a target. We have also clarified that targets should reinforce risk management, be scheme-specific and not be chosen arbitrarily. We believe that the examples make clear that target setting should not be undertaken in a way that would breach trustees’ fiduciary duties.  We have also expanded an example to cover the use of engagement in more detail.

Publishing your report

In this section, you asked us to include example reports that would help illustrate how best to balance the level of detail in the report and its transparency for members. You also asked for a greater explanation of the best ways to publish reports and where to make them publicly available.

Our response

We think that the DWP statutory guidance is clear on the requirements around report publication. While we can understand a desire to have example reports from which to work, we do not propose to produce any at this time. We expect trustees to develop reports that are suitable for their scheme, meet the needs of users and comply with the requirements.

What trustees must report is clear, and different schemes will have different requirements. As the availability and quality of climate-related data improve and analytical approaches gain wider acceptance across industry, we expect reporting to evolve within the broader structure of the TCFD framework. We plan to signpost examples of best practice in the future.

Monetary penalties policy

You asked for penalties to be enforced through the discretion of TPR rather than a mandatory approach. Some of you raised concerns about how the limitations of accurate and available data and their effect on reporting might create unfairness. You also asked for more examples of what constitutes poor governance and the kinds of breaches for which TPR is likely to issue penalties. One respondent was concerned that professional trustees are liable for higher fines but may not be solely responsible for decisions taken as part of a wider trustee board.

Our response

If we form the opinion that a person has failed to comply with the requirement to publish a report on a publicly accessible website, accessible free of charge, we must issue a penalty notice, and that penalty must be at least £2,500. This demonstrates the importance that the legislation attaches to the requirement to publish.

We may apply a discretionary penalty for all other breaches as set out in the appendix to the Monetary penalties policy.

We have designed our approach to be broadly consistent with our approach to existing monetary penalties, with the amount of a penalty taking into account the materiality of the breach and its wider implications. Breaches of the underlying governance requirements that will affect member outcomes are likely to be treated more seriously than simple errors in reporting.

On the point regarding professional trustees, we take the view that schemes employ professional trustees to benefit from their knowledge and expertise. We expect higher standards from professional trustees (PDF, 94kb, 8 pages) because of this. As such, there are higher fines for breaches when professional trustees are involved. In instances where the professional trustee was overruled and we impose a fine, the fine would be imposed on the trustee board as a whole on a joint and several liability basis.

However, we want to re-emphasise that we are aware this is a new and challenging area for trustees and that this will be a learning process. We also recognise that there may be difficulties obtaining relevant data, at least initially. As always, TPR will be taking a risk-based and proportionate approach to enforcement where we have the discretion to do so.

We have included additional examples of what constitutes poor governance and the kinds of breaches that may result in a fine. If there are breaches, the context and facts of the whole case will need to be considered, and it may be necessary to apply different penalties if we deem it appropriate. The examples given should not be seen as exhaustive.