Pension funds are leading the way in addressing the complexities and nuance of the newly imposed TCFD regulations, say the authors of Pensions for Purpose’s white paper, One year on – TCFD reporting for pension funds.
Those authors are at pains to point out that the paper is not about banging a drum for best practice. TCFD reporting regulations are new and changing and best practice will continue to be reviewed and adapted.
Instead, it aims to share the perspectives of pension funds that have taken on the reporting process, share insights on the challenges and issues faced, and to explore how funds are making use of the output.
It found that training trustees is critical for governance, as is making use of experts to maximise efficiency to ensure the right choices are made when collecting and analysing data.
TCFD is not yet influencing investment strategy for most funds and scenario analysis has yet to evolve for more than a limited application. But it is essential to communicate investments in climate solutions with carbon offsets, even if they are not yet accounted for.
Risk management is not proportional to the efforts being undertaken to calculate risk, but funds could consider highlighting material risks to funding. Pension funds should also compare the risk of omitting portfolio emissions data versus the risk of estimating it. The latter is far greater, says the report.
It is also acknowledged that problems remain with data quality and coverage. But an increasingly important area is the targeting of forward looking metrics to allow funds to assess how they fit into a net zero world.
Funds are also more likely to increase member engagement around climate action if they extract and communicate insights from their TCFD reports.