Working with national government to align UK pensions on climate risk

Climate change poses a systemic risk to nearly every sector, every business and across wider society. So, as Brunel acknowledges in its Climate Policy, it is important that pension funds not only reduce their own portfolio emissions but use their influence with wider stakeholders including government to help build a financial system fit for a low carbon future.

That’s why this week I was delighted that the Pensions Climate Risk Industry Group (PCRIG), an expert group set up by government departments including DWP and the Pensions Regulator, and which I am a member of, launched a consultation on a new guide to climate-related financial risks for pension schemes.

The new guidance for the trustees of occupational pension schemes (both defined benefit and defined contribution) offers practical advice on how to assess, manage and report climate-related risks, in a way that aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) – the most widely-adopted way in which organisations are managing and reporting climate risk.

It’s important that government and investors are aligned when it comes to advising pension scheme trustees. We need to work in unison to limit the risk climate change poses to pension members’ future retirement incomes.

The new guidance empowers funds to move forward in managing climate risk.

In 2019, regulations came into force to require UK pension schemes to document a policy on climate change and other financially-material risks related to ESG, and to update their Statement of Investment Principles accordingly.

But so far too few trustees have turned this acknowledgement into a concrete plan to quantify and address the risks of climate change or capitalise on the opportunities of the transition to a net zero carbon economy. This new cross-industry guidance, recommending the use of tools such as scenario analysis, will hopefully help pension trustees to do just that, as-well as meet their legal requirements.

The guidance also provides the framework that will help reassure trustees that all schemes, large or small, can manage exposure to the risk and opportunities of the transition to a low-carbon economy and the risk associated with a dramatically different climate in the future.

Pensions are all about savings for the long term and it’s vital that the pensions industry at large tackles climate change to invest in a sustainable long-term future for world worth living in.

Please take the time to share your views with the DWP – the consultation closes 7 May 2020.