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TCFD Briefing for pension trustees

By Alison Mungall
5th October 2021

Mandatory TCFD Reporting by UK pension trustees from 1 October 2021

This is the first briefing on the recently launched mandatory disclosures in line with the recommendations by the Task Force on Climate-related Financial Disclosures (TCFD). This briefing contains key information on the new reporting framework for occupational pension funds, cascading awareness of the new disclosures on climate risk and opportunities by  pension schemes to their stakeholders.

The Government is phasing in regulations to ensure that by 2023, pension scheme trustees, asset managers, and insurers will be disclosing climate-related financial risks and opportunities. These disclosures are in line with the recommendations by theTCFD.

From 1 October 2021 the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021  imposes requirements on trustees of certain occupational pension schemes, including trustees of schemes authorised to provide collective money purchase benefits and trustees of authorised master trust schemes,  to ensure that there is effective governance of those schemes with respect to the effects of climate change. The Regulations also impose associated reporting and publication requirements on the trustees.

 

Why is climate change particularly important to pension schemes trustees?

Trustees have a fiduciary duty to act in the best interests of their members. Trustees are already expected to have a policy to take account of climate change in their investment decisions. It is named as a financially material consideration in the regulations that set out statements required in a Statement of Investment Principles (SIP). 

These new regulations aim to improve both the quality of governance and the level of action by trustees in identifying, assessing, and managing climate risk. They also impose associated reporting requirements on pension scheme trustees. 

 

Qualification and timescale

Please see government guidance here for details and definitions of terms. The Department of Work and Pensions has also published a Quick Guide for Pension Trustees here

Qualification of “1st wave” schemes: from 1 October 2021

Trustees of occupational pension schemes which have relevant assets of £5bn or more at the end of their first scheme year ending on or after 1 March 2020 will be subject to the new regulations from 1 October 2021. If the first qualifying scheme year is later, from the date they obtain audited accounts for that scheme year.

Trustees of authorised master trusts and authorised collective money purchase schemes will be subject to the regulations from 1 October 2021 or, if later, the date the trust becomes authorised.

Qualification of “2nd wave” schemes: from 1 October 2022

Trustees of occupational pension schemes which are not captured by the first wave and whose relevant assets are £1bn or more at the end of their first scheme year ending on or after 1 March 2021 will be subject to the requirements from 1 October 2022 or, if later, the date they obtain audited accounts in relation to that scheme year (the “second wave”).

 

Other schemes: 

Trustees of schemes captured by neither the first nor second waves, whose relevant assets are £1bn or more at the end of a scheme year which falls on or after 1 March 2022 will be subject to the requirements from the beginning of the scheme year which is one scheme year and one day after the scheme year end date when the relevant assets were £1bn or more.

Where a scheme’s relevant assets fall below £500m, the trustees will cease to be subject to the requirements with immediate effect (unless the scheme is an authorised scheme). 

Requirements for qualifying trustees:

Trustees in scope are required to:

  • Implement climate change governance measures and produce a TCFD report containing associated disclosures; and
  • Publish their TCFD report on a publicly available website, accessible free of charge
  • Reports must be signed by the chair of the trustees.

Trustees must publish the TCFD report within 7 months of the end of any scheme year in which they were subject to the climate change governance requirements. 

 

Part 1: Governance requirements 

Governance

Trustees must establish and maintain oversight of the climate-related risks and opportunities which are relevant to the scheme.

Strategy

Trustees must continually identify and assess climate-related risks and opportunities which affect the scheme’s investment strategy over the short, medium, and long term. The time periods are to be determined by the trustees, appropriate to the scheme’s liabilities and its obligations to pay benefits.

Trustees must, as far as they are able, undertake scenario analysis in at least two scenarios where there is an increase in the global average temperature. The scenario analysis must be undertaken in the first scheme year in respect of which the requirements apply; and every three years thereafter. This is a “comply or explain” provision, see Part 2 below.

Risk management

Trustees must establish and maintain processes for the purpose of enabling them to identify and assess climate-related risks relevant to the scheme.

Metrics and targets

Trustees must report metrics a minimum of:

  • One metric which gives the total greenhouse gas emissions of the scheme’s assets (“absolute emissions metric”)
  • One metric which gives the total carbon dioxide emissions per unit of currency invested by the scheme (“emissions intensity metric”), and
  • One other metric relating to climate change (“additional climate change metric”).

 

Trustees must set a target for the scheme in relation to at least one of the metrics which they have selected to calculate.

Trustees must measure on an annual basis, as far as they are able, the performance of the scheme against any target they have set.

Part 2: Summary of information to be included in the report 

The report must include a statement describing the following:

  • How the trustees maintain oversight of climate-related risks and opportunities which are relevant to the scheme and the role of any person who undertakes governance activities in relation to the scheme
  • The climate-related risks and opportunities which the trustees have identified 
  • The time periods which the trustees have determined should comprise the short, medium and long term
  • The impact of the climate-related risks and opportunities on the scheme’s investment strategy 
  • The most recent scenarios which the trustees have analysed and their potential impacts on the scheme’s assets and liabilities
  • The resilience of the scheme’s investment strategy in the most recent scenarios the trustees have analysed 
  • In cases where the trustees have determined not to undertake new scenario analysis, the trustees’ reasons for this determination
  • The processes which the trustees have established for identifying and assessing climate-related risks to the scheme 
  • How the processes are integrated within the trustees’ overall risk management of the scheme
  • The metrics which the trustees have calculated and, if the trustees have not been able to obtain data to calculate the metrics for all the assets of the scheme, why this is the case
  • The target, or targets which the trustees have set and the performance of the scheme against such targets.

 

Contact Us

If you would like to speak to one of our experts about voluntary or mandatory TCFD reporting, email info@carbon.ci.