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Trustees and advisers urged to help shape climate-risk guidance

Ref: PN21-20

Issued: Monday 5 July 2021

New guidance designed to help trustees meet tougher standards of governance in relation to climate change risks and opportunities has been launched for consultation by The Pensions Regulator (TPR).

TPR wants trustees and their advisers to play a key part in shaping the guidance by taking part in an eight-week consultation.

The consultation, which ends on 31 August, also includes the publication of TPR’s monetary penalties policy (MPP), which outlines its approach to imposing penalties for non-compliance.

From 1 October 2021, trustees of certain schemes face new requirements intended to improve the quality of governance and reporting as they address climate-related risks and opportunities.

The guidance describes what trustees will need to do and report on in order to comply with the new legislation.

Trustees not subject to the new requirements may also wish to follow the guidance in order to improve the governance and resilience of their schemes in relation to climate change risks and opportunities.

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.

“This draft guidance sets out our expectations of trustees in response to the new climate change regulations.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 we welcome feedback on the best way to deliver this.

“We are planning a range of events to engage with stakeholders on issue of climate-related risk over the coming weeks. These will help ensure stakeholders are able to feedback directly to us throughout the eight-week consultation period.”

Initially, the legislation will apply to authorised schemes, and to those with £5 billion or more in assets. However, it will also apply to schemes with £1 billion or more in assets from 1 October 2022.

The Department for Work and Pensions has said it will consider rolling the rules out further in 2023.

Monetary penalties policy

The consultation also seeks views on an appendix to the MPP which outlines TPR’s approach to imposing penalties for non-compliance with the new regulations.

Where trustees in 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, TPR has a range of enforcement options, including the discretion to issue a penalty notice.

The MPP proposes that failures to carry out underlying governance activities will be treated more seriously than a failure to make a disclosure. This underscores TPR’s determination to ensure its regulation drives a positive change in behaviour and to see more from trustees than a superficial, box-ticking.

‘As far as they are able’

The new appendix also touches on TPR’s approach to the Department for Work and Pensions' (DWP) provision that some of the new requirements only apply as far as trustees “are able”, which recognises there may be some hurdles that, at least initially, prevent trustees from full compliance.

For example, the MPP acknowledges that all the information trustees need may not 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. TPR also wants trustees to outline their plans for overcoming obstacles, as the quantity and quality of the data available should improve for future reporting periods.

Notes for editors

  • Details on the consultation, the guidance on governance and reporting of climate-related risks and opportunities and a new appendix to TPR’s monetary penalties policy can be found on our climate-related governance and reporting consultation. TPR does not expect respondents to have to answer every question in order to submit a response.
  • TPR will hold a virtual workshop on 3 August. Those interested in attending should visit the climate change virtual workshop registration page to secure a place.
  • TPR published its climate change strategy in April 2021.
  • 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).

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01273 662086

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