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Issued: June 2021
Last updated: September 2022


Read paragraphs 11 to 37 of part 3 of the DWP’s guidance for more on the governance processes you must put in place in relation to climate-related risks and opportunities.

Example steps to take

Taking the following actions may help you meet your obligations on governance.

Include climate-related risks and opportunities in your decision-making

Add climate-related risks and opportunities to the remit and terms of reference of one or more appropriate subcommittees (for example, the investment and governance subcommittees if you have them). The remit may include oversight of those advising on or involved in scheme governance.

Document the structure for making climate-related decisions in your scheme, showing the roles and responsibilities of all relevant parties and how information flows between them. This might include the role of those undertaking or advising on governance activities, such as executive officers, in-house teams or external advisers, and how such roles are overseen. It may also be helpful to set out how this work is integrated into your monitoring framework and meeting cycle. This exercise should make it easier to complete the governance section of your climate change report.

Example: establishing oversight

The trustees of the AB pension scheme receive occasional training and updates on climate-related risks and opportunities. They want to establish a more robust governance process for this work.

They use their annual strategy day to consider climate-related risks and opportunities. The day includes trustee training on developments in climate-related issues relevant to the scheme, an overview of what similar pensions schemes are doing well, and where schemes should improve.

Following the strategy day, the trustees understand why climate change is relevant to their scheme. Based on their discussion that day, the trustees have agreed to delegate oversight of climate issues to the funding and investment subcommittee (FISC). They update their terms of reference to make this explicit and include a requirement for the FISC to report back regularly and to provide support to the board on wider climate-related issues.

To establish a governance structure, the trustees ask the subcommittee to carry out the following tasks over the next six months.

  • Review and propose updates to the investment beliefs and Responsible Investment policy to include climate change.
  • Improve the knowledge and understanding of the subcommittee with more training on specific subjects. They start with specific climate risks for different asset classes and climate change scenario analysis.
  • Carry out an audit of all the relevant parties involved in running the scheme to assess their competency on climate change and identify any skills gaps.

The trustees ask the subcommittee to report back on these tasks in six months and propose the next steps. They add climate change as a standing agenda item at the main trustee board meeting.

The trustees agree that, as their knowledge of their scheme’s exposure to climate-related risks and opportunities develops and is informed by outputs from their TCFD related activities, they will review:

  • their governance structures and processes
  • the extent to which time and resources are allocated to climate-related issues

Review your providers' and advisers' level of expertise

Review whether your relevant service providers and advisers have the skills and resources to address climate-related risks and opportunities and provide appropriate levels of data and advice for your scheme.

Be prepared to question and challenge service providers and advisers if the information provided is unsatisfactory.

Where specific skills are limited, you may consider re-tendering mandates with climate-related criteria or appointing specialists. Set climate-related objectives and integrate them into your performance monitoring.

You might find it helpful to use the Investment Consultants Sustainability Working Group’s guide that sets out the following five themes against which trustees should expect their investment consultants to demonstrate their competency at identifying and dealing with climate-related risks and opportunities.

  • Firm-wide climate expertise and commitment.
  • Individual consultant climate expertise.
  • Tools and software to support climate-related risk assessment and monitoring.
  • Thought leadership and policy advocacy.
  • Assessment of and engagement with investment managers.

A similar proportionate framework could be adopted for other advisers.

Example: the climate competency of service providers and advisers

The CD pension scheme appointed their investment adviser four years ago. At that time, climate-related issues were not an important feature of the tender process. The trustees want to ensure that their investment adviser can adequately assess and include climate-related risks and opportunities in their advice. They ask the investment adviser to describe:

  • their firm’s ability to identify and manage climate-related risks and opportunities, and how this is expected to develop in the future
  • how they include climate issues in the advice they give to their clients
  • how much emphasis is placed on climate-related risks and opportunities in their investment research and monitoring functions
  • the climate-related training they provide to their staff

The trustees also ask their investment adviser to provide examples of:

  • times they have identified climate-related risks and opportunities for schemes and included this in their advice to schemes
  • what actions trustees have taken to manage climate-related risks following this advice
  • how they monitor climate-related risks and opportunities on an ongoing basis

In addition, they ask their investment adviser to demonstrate how they meet the climate competency expectations set out under the Investment Consultants Sustainability Working Group template. They ask them to do so in relation to climate-related risks and opportunities relevant to the matters on which they are advising or assisting.

The trustees want to document the requirement to provide advice and assistance in relation to climate-related risks and opportunities. Therefore, following the review, they adjust:

  • their investment adviser’s service agreement
  • their investment adviser’s objectives against which they monitor their performance

In setting their investment adviser’s objectives, they make allowance for the current limited availability of data and the expected development of analytical techniques. They agree to re-consider the objectives annually, taking market developments into account.

The trustees then conduct a similar exercise with their scheme actuary and covenant adviser in relation to climate change relevant to the matters on which they are advising or assisting.

What to report


Read paragraphs 33 to 37 of part 3 of the DWP’s statutory guidance for what you must describe in your report. A summary is set out below.

When reporting on the steps you have taken, you must describe:

  • how you oversee climate-related risks and opportunities
  • the role of persons other than trustees who undertake scheme governance in identifying, assessing and managing those risks and opportunities
  • the role of persons other than legal advisers who advise or assist you with scheme governance
  • the processes you have put in place to make sure that such persons take adequate steps to identify and assess any climate-related risks and opportunities that are relevant to their work

You should also concisely describe:

  • how the board and relevant subcommittees are kept informed about climate-related risks and opportunities
  • how they assess and manage those risks and opportunities
  • how often those discussions take place
  • if you questioned and, where appropriate, challenged information provided to you by others undertaking, or advising and assisting with, climate-related governance
  • the kind of information you received from those people about their consideration of climate-related risks and opportunities for your scheme, and how often you received it
  • your reasons for spending the amount of the time and resources that you did on the governance of climate-related risks and opportunities
  • the training opportunities provided for relevant employees who are involved in, advise or assist with scheme governance about climate-related risks and opportunities. If you identify skills gaps, you may also describe whether you encouraged external advisers to provide training opportunities
1. Background
Strategy and scenario analysis