27 January 2021
The Department for Work and Pensions (DWP) has today published the outcome of last year’s consultation “Taking Action on Climate Risk” about making climate change governance and reporting mandatory for large pension schemes. It is now consulting on the draft regulations and statutory guidance to implement these requirements, using the powers it will be granted once the Pension Schemes Bill 2019-21 gains Royal Assent.
Claire Jones, Head of Responsible Investment at LCP, welcomed this development: “The speed at which the Government has developed its proposals to require large pension schemes to take action on climate change demonstrates that it is treating this systemic financial risk with the seriousness it deserves.
“The headline changes that DWP has made in response to last year’s consultation suggests that it has struck an appropriate balance between addressing the practical concerns that we and others had identified and setting suitably high expectations for trustees’ climate action.
“For larger schemes, today’s publication is confirmation of what they knew was coming down the tracks: that by 1 October 2021 (or 1 October 2022 depending on their size), they will need to have a system in place to identify, assess and manage climate-related risks and opportunities and be preparing to publish annual TCFD reports. Although some of the technical details are still subject to consultation, there is now sufficient certainty that they can move ahead with confidence in getting ready to meet these new requirements.”
“Trustees of smaller schemes may think that today’s announcement doesn’t matter to them, but they would be mistaken. Whilst the new requirements do not yet apply to them, the Government made it clear last August that all trustees are expected to take action to address climate risk – whatever their scheme size – in line with their fiduciary duties. The DWP had already said it would consider in 2024 whether to extend the requirements to smaller schemes and today it has brought forward that review to 2023. In the meantime trustees of smaller schemes can look to the requirements for large schemes as an indication of best practice on climate risk.”