UK considers climate risk governance for pension schemes

Under the proposal, trustees will be required to report on the financial risks of climate change within their portfolios, which include calculating a carbon footprint

The UK government has launched a consultation on proposals for mandatory climate risk-related governance and risk management by larger occupational pension schemes and certain other pension providers, and for this activity to be disclosed in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The Department for Work and Pensions (DWP) said the proposals would ensure trustees were legally required to assess and report on the financial risks of climate change within their portfolios.

Among the activities required would be calculating a carbon footprint and assessing how the value of the schemes’ assets or liabilities would be affected by different temperature rise scenarios.

The DWP also said the consultation would “signal an intent” that schemes report on the extent to which their portfolios are aligned with the Paris Agreement, although it was holding off on including such a requirement in the current consultation in anticipation of better methodologies emerging to measure and report a portfolio’s so-called implied temperature rise.

Outlining the plans during a visit to Glasgow today, Thérèse Coffey, work and pensions secretary of state said the proposals were “one of the most significant steps to date in the UK’s progress on tackling climate change”.

We were the first major economy to commit to reaching net zero by 2050 - to deliver this we must start now, working with investors and others to achieve this ambitious target, she added. These measures will ensure pension schemes are in an ideal position to drive change to a sustainable, low carbon economy which will benefit everyone.

Mark Carney, UN special envoy for climate action and finance and the prime minister’s finance adviser for COP26, said: By requiring pension schemes to report against the Taskforce’s recommendations, the occupational pensions of over 24 million UK citizens, representing over £1.3trn of investments, can be managed to mitigate the risks from climate change and seize the opportunities from an economy-wide transition to net zero.