On Apr. 11, UK TPR issued review on pension trustees' climate risks.
UK TPR review shows pension trustees are addressing climate risks and opportunities.
Review Overview
A new review of climate-related disclosures has revealed pension trustees are acting to address climate risks and opportunities, and since 2022, schemes with over £1 billion in assets under management and authorized schemes were required to publish reports.
As these are new requirements on schemes UK TPR has analysed a selection of reports and has now published its various findings to help to raise standards across industry.
Review found many examples of good strategic decision-making and that over 60% of reports in UK TPR’s sample had form of net zero goal with a target of 2050 or earlier.
UK TPR’s Climate and Sustainability Lead, Mark Hill, commented that climate change disclosures should be the product of good risk management on the part of trustees.
That's why UK TPR wants all pension schemes to know what good does look like and to improve the management of all of their climate-related risks and their opportunities.
Even if not yet in scope for disclosures, pension schemes should act now and read this report to help them in their strategic decision-making in relation to climate reporting.
Review Findings
As well as detailed feedback for trustees and those preparing climate disclosures, the report includes observations on good practice and improvements, split by section.
The review also found examples of trustee action on climate risk including updating defined contribution default lifestyle strategies to allow sustainable fund inclusion.
Also increasing allocation to low carbon tracker funds or companies with high levels of green revenue and exploring opportunities like forestry, green bonds or renewables.
When preparing reports, UK TPR said trustees should consider providing information like scheme size, structure of DB sections, DC popular default funds, early in reports.
In terms of materiality, where reports referred to investment mandates, explaining the size in relation to total scheme assets helps readers understand an issue’s materiality.
Also as far as generic wording is concerned, these should now include specifics on policies, steps to manage risks and information from advisers could improve reports.
When identifying developments between reports, it makes sense to reuse parts of previous reports, providing that all of the legal requirements are met, in new report.
In terms of length, the quality of reports did not necessarily correlate with their length as reports reviewed varied in length, up to 94 pages, but with an average of 38 pages.
As for member summaries, some reports had some excellent plain English summaries.
In relation to action plans, where trustees used the reporting process to identify additional work, they should set a plan, monitor and update on progress in next report.
Scenario Analysis
UK TPR said it observed good practice on scenario analysis but also areas of concerns.
It added future reports could be improved by trustees considering a qualitative analysis based on clear narratives while quantitative analysis is still developing in the market.
Also, by providing commentary on the challenges and all the limitations of the scenario analysis they have undertaken taking into account the challenges and limitations of their analysis when drawing conclusions about the scheme’s exposure to various risks.
UK TPR suggested points trustees could discuss with advisers, including latest market developments and whether any of these mean it is the scenario analysis is then re-run.
Net Zero Targets
In the review, more than 60% (19 out of 30) of the reports provided within UK TPR’s sample had some form of net zero goal, all set with a target date of 2050 or earlier.
While there is no requirement for trustees to set a net zero target, UK TPR said such targets can be consistent with sensible risk management and benefit climate change.
