Several key changes came into effect for occupational pension schemes in the UK on 1 October 2021. They include the entry into force of the first wave of new climate risk governance and reporting requirements.
Climate change has been a hot topic in the occupational pensions landscape for some time now but, from 1 October, the latest round of changes started being phased in. Back in the summer, the Department for Work and Pensions (DWP) published draft regulations and statutory guidance on improving climate change risk governance and reporting, in line with the UK Taskforce on Climate-related Financial Disclosures (TCFD) recommendations (see also our ESG guide).
Among other things, schemes will have to produce and publish (on a publicly available website, accessible free of charge) a report on how they have met the relevant climate change governance requirements and inform members of its publication. To ensure that they are able to understand the outputs of activities such as scenario analysis and calculating emissions-based metrics, and to incorporate them into their new climate change risk management processes, trustees of schemes which are in scope must also have the appropriate degree of knowledge and understanding.
The new requirements are being phased in. Master trusts and schemes whose net assets (excluding bulk and individual annuity contracts) are GBP 5 billion or more must comply from 1 October 2021, and produce their report within seven months of their scheme year end date. Schemes with GBP 1 billion or more of assets will follow suit from 1 October 2022, and so should start taking preparatory action as soon as possible. Bearing in mind trustees have a fiduciary duty to actively consider climate change as a likely financially material risk, schemes currently out of scope should nonetheless consider whether to voluntarily adopt some or all of the requirements as a matter of good governance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.