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DC market must pay more attention to climate change, survey shows

Ref: PN21-02

Issued: Tuesday 2 February 2021

Too few trustees and managers of defined contribution (DC) schemes are paying proper attention to risks and opportunities from climate change, says The Pensions Regulator (TPR).

TPR’s annual survey of DC schemes (PDF, 922KB, 42 pages) shows that while the number of DC schemes whose trustees are considering climate change in their investment strategies has doubled since 2019, it still stands at just 43%.

The annual survey, published today, found that of those schemes whose trustees had not considered climate change in their investment strategies, 19% were planning to review this, while a concerning 21% felt climate change was not relevant to their scheme.

The pre-COVID survey was carried out across 200 single-employer and multi-employer group schemes and 16 master trusts between January and March 2020 before the first national COVID-19 lockdown.

David Fairs, TPR’s Executive Director of Regulatory Policy, Analysis and Advice, said: “Our survey shows trustees of DC schemes must give greater attention to the risks and opportunities facing their schemes from climate change.

“The Pension Schemes Bill – which we expect will become law very soon – will see requirements for the effective governance of climate change risks and opportunities written explicitly into pensions law in the most comprehensive way to date.

“Trustees already need to consider climate change as part of their statement of investment principles but the new Act will significantly increase the expectations placed upon them.

“Although a phased approach means the new Act won’t affect all DC schemes to start with, it will increase the expectations savers have of those responsible for their pension pots when it comes to climate change.

“Climate change risks will threaten pension savings right across the industry. This means trustees should build their capacity in this area now, so they can understand what climate change will mean for their scheme and so be better placed to make decisions contributing towards good outcomes for savers.”

In the spring we will, for the first time, publish a strategy setting out how TPR will help trustees meet challenges around climate change.

Notes for editors

  1. The survey questions on climate change were directed to schemes with more than 100 members and/or which are used for automatic enrolment. Together these schemes cover 95% of DC members.
  2. David Fairs, TPR’s Executive Director of Regulatory Policy, Analysis and Advice, warned the pension industry’s response to the climate change challenge will determine its future prosperity in a blog post in October 2020.
  3. In a speech to the 2021 Professional Pensions Investment Conference about climate-related risks, Minister for Pensions Guy Opperman said: “Climate change is a major systemic financial risk and threat to the long-term sustainability of private pensions. With £2 trillion in assets under management, all occupational pension schemes are exposed to climate-related risks.”
  4. The Department for Work and Pensions is calling for views on draft legislation and guidance that would enact government’s proposals to ensure occupational pension schemes have – and report on – effective governance, strategy, risk management and accompanying metrics and targets for the assessment and management of climate-related risks and opportunities. The consultation closes on 10 March.
  5. The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).

Press contacts

Dan Menhinnitt

Media Officer
pressoffice@tpr.gov.uk
01273 349511

Matt Adams

Senior Media and Parliamentary Manager
pressoffice@tpr.gov.uk
01273 662086

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