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TPR warns DB schemes must focus on climate change

A new survey of DB schemes has revealed that they are not prepared ahead of upcoming climate change regulations.

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A recent survey into DB pension schemes by The Pensions Regulator (TPR) has revealed that they are not as prepared as they should be regards climate change, and therefore need to act ahead of upcoming regulations.

 

Proposed regulations under the Pension Schemes Act 2021 will require trustees to look at management and governance of climate-related risks and opportunities in greater detail. This is also in line with Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.

 

Commenting on the study, David Fairs, executive director of regulatory policy and advice at TPR, said: “Climate change is a problem now. So, it’s welcome news some DB trustees are beginning to think about climate-related risks and opportunities. However, our survey shows an alarming proportion of trustees are not grasping the urgency to act.

 

“For DB trustees, it’s time to get to grips with the way climate-related risks and opportunities affect the employer’s covenant and include climate change in your integrated risk management framework.”

 

As part of the regulations, trustees of schemes with five billion pounds or more in assets, master trusts and collective defined contribution schemes, will initially be targeted when it comes into force in October.

 

From October 2022, trustees of schemes with one billion pounds or more in assets will be required to comply with the regulations and the Department for Work and Pensions has announced that in 2023 it will consider whether the measures should be rolled out to smaller schemes.

 

According to TPR’s annual survey, which was carried out between October and November 2020, too few trustee boards are:

  • Allocating enough time or resources to assessing financial risks or opportunities associated with climate change.
  • Assessing the risks/opportunities from particular climate-related scenarios.
  • Giving significant consideration to climate change in their investment and funding strategies.
  • Devoting significant consideration to climate-related opportunities.
  • Aware of the work of the TCFD.

“Climate-related risks threaten pension savings and affect funding strategies across the DB landscape,” Fairs added.

 

“This means trustees should build their capacity in this area now, so they can understand what climate change will mean for their scheme and their employer’s covenant, and so be better placed to make decisions contributing towards good outcomes for savers.”

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