A survey of DB schemes by LCP highlights that some schemes are still unconvinced about the importance of Net Zero with 30% feeling it isn’t relevant to them despite increasing regulatory pressure to manage climate-related risks & opportunities.  

The data forms part of LCP’s annual “Chart your own course” report which uses an industry survey and other analysis to explore the latest trends and ideas in DB pension scheme journey planning.  The full report will be published later this month.  

LCP conducts a similar survey every year, and the latest results show that there has been a dramatic increase in the number of schemes taking action on net zero across all scheme sizes. For schemes over £5bn there has been a particularly noticeable increase, with 80% saying they either have or are working on a net zero target compared to just over 30% last year.  Schemes who feel this type of action isn’t relevant, however, were seen across the spectrum of scheme sizes. 

70% of survey respondents also said they had considered the impact and opportunities of climate change on covenant (the ability of the sponsor company to support the pension scheme) compared to 50% last year. The biggest rise was in the £500m-£1bn bracket with over half saying that they have considered this compared to just under 30% in 2021. Fewer smaller schemes considered the impact of climate change on covenant this year compared with last - perhaps a symptom of cost pressures, a current lack of regulatory guidance in this area, or, because there is a lot else going on.   

LCP urges schemes to continue to consider climate issues and to take actions including:  

• Working closely with their scheme sponsors to understand the impact climate issues could have on sponsor success.  Climate risks and opportunities are high on many sponsor agendas. 
• Thinking about how they can position their investments to mitigate against the potential market disruption as investment markets adjust to government policy, technological developments and behavioural changes as society looks to achieve net zero targets.  Climate-aware investment portfolios and investment managers with strong climate practices will both help with this.   
• Getting ahead of the pack if insurance solutions are their chosen target, by implementing a pensioner buy-in now, whilst pricing is attractive.  Insurers are likely to increasingly reflect climate issues in their pricing, which may cause pricing to worsen as they factor in the downside tail risks.   

Mary Spencer, Partner and author of the report, commented: “With discussions on climate change dominating the headlines, government commitments and new requirements for larger pension schemes, it’s little wonder that many people are experiencing ‘climate fatigue’. Against this backdrop it’s a little surprising that more pension schemes didn’t cite climate risk as a top priority over the next year.  

“Saying that, we have seen a distinct shift towards action being taken, with a dramatic increase in the number of larger schemes working towards a net zero target. Whether or not an explicit net zero target is right for each scheme, there is no doubt that climate issues will impact their future journey, so they need to stay on top of what actions they can take that will make a real difference, as well as complying with regulation.” 

Notes to editors  

The Chart Your Own Couse analysis is based on a market survey from April 2022 and data from LCP Sonar: a risk profiling tool that benchmarks pension schemes covering a range of risks that could throw a scheme off course (including covenant, investment, funding and governance risks).  The latest LCP Sonar data is taken at 31 March 2022.