UK funds braced for tougher regulatory stance on climate

UK pension funds and listed companies are to be handed a new list of
reporting requirements, following publication of the UK government’s Green
Finance Strategy at the start of July.

The new report outlined “ambitious actions” which include the
requirement for better quality disclosures for occupational pension schemes by
“a new government and regulator sponsored working group.”

The move follows an earlier clarification by the Department of Work
& Pensions in 2018 on the fiduciary duty of trustees in relation to
environmental, social and governance (ESG) factors, including climate change
and the risks associated with stranded assets.

In the coming months, the government has tabled further discussions
with The Pensions Regulator, the Financial Reporting Council, the Financial
Conduct Authority and the Bank of England, to plan the next stage.

Separately, the Pensions Regulator will publish a recommended code of conduct on mapping scheme risks, which will have legal standing in the courts. It is already updating its DC investment guidance to reflect changes in regulation and to “clarify and strengthen” trustees’ duties in relation to ESG mapping.

Pensions Minister Guy Opperman addressed delegates at London Climate Action Week at the start of July, to explain the role that pension funds and institutional investors should have in tackling climate change.

“Over the last 19 years, we have been fighting to make the case that
climate change should be taken seriously, and we have not yet been completely
successful,” Mr Opperman said.

“Perhaps everyone in this room accepts that climate change is something
we need to tackle and acknowledges that their funds have a large role to play
in doing this. However, the vast majority of the population are not there yet.”

In 2018, the government passed legislation requiring pension schemes to
clearly outline their policy in how they take account of climate change within
their portfolios. As a result, from October 2019, occupational pension schemes
will need to public their policy on “financially material considerations” which
could arise from climate change. They will also have to produce updates on an
annual basis.

During his London Climate Action Week address, the Pensions Minister
said he was prepared to take an even tougher stance against schemes who say
that the responsibility for environmental risks should be left with the asset
managers who run their mandates.

“I don’t want to hear any more that ‘climate change is important, but
we leave it to our investment managers,’ he said. “I want to hear what trustees
are doing.”

To enforce his tougher stance, the legislation has been widened to
require defined benefit schemes to publish their policies on climate change
too.

At the end of 2019, The Pensions Regulator will begin another new consultation with scheme trustees, to respond to proposals to update the Occupational Pension Schemes Governance (Amendment) Regulations with specific guidance from the Task Force on Climate-related Financial Disclosures (TCFD).

Further details on the implications for pension schemes from the government’s new proposals are available in the full version of the Green Finance Strategy, available here.

Minerva is fully prepared for the upcoming changes with a fully-compliant TCFD solution. To find out more please contact David Crum, Managing Director, Asset Owner Solutions. Email: hello@minerva.info