Government unveils climate risk disclosure proposals for schemes

The UK’s largest pension schemes will be legally required to assess and report on climate change-related risks within their investment portfolios, under government proposals.

Under the consultation, trustees of schemes with £5 billion or more in assets would be mandated to report on their climate risk management and accompanying metrics and targets in line with the Task Force on Climate-related Financial Disclosures (TCFD) by the end of 2022. Those schemes with £1 billion or more would be expected to meet those requirements by 2023.

Schemes would also be required to report on the extent to which their investments are aligned with the Paris Agreement, which includes a commitment to keep the average global temperature to “well below” two degrees above pre-industrial levels.

These proposals would see the UK become the first major economy in the world to require climate risks to be specifically considered by pension schemes and will ensure trustees are legally required to assess and report on the financial risks of climate change within their portfolio, said Work and Pensions Secretary, Thérèse Coffey.

“We are at a climate change crossroads – we must begin to look at green and sustainable assets as the investments for the future of the planet and of our pensions,” said Coffey. “And any scheme that has no plan for the transition, is risking its future and the future of its members.”

They would also need to provide the Pensions Regulator with the website address where the latest TCFD report has been published.

Kyla Taylor, lawyer at charity ClientEarth, said: “This consultation could be the crucial next step towards meaningful governance and reporting of climate risks by pension schemes. It stems from the ongoing climate change risk amendments proposed in the Pension Schemes Bill, which are also welcome.”

The proposals could serve as a framework for others within and outside of the pensions industry that need to follow suit, Taylor added.