The UK’s Department for Work and Pensions (DWP) has set out plans for reporting requirements and climate risk assessment for pension schemes. This comes as the TCFD launches its own consultation to determine the future of its reporting standards.

In a consultation response published on 8 June, the government outlined its intentions to require trustees to assess climate risks within their portfolios.

The new requirements are designed to be “reasonable and proportionate”, according to pensions minister Guy Opperman. The timing of the reporting requirements and their scope has been adjusted compared to the initial consultation, while the document also sets out targets, metrics, penalties, and scenario analysis risk management.

The government will legislate for the new measures over the summer in time for the COP26 summit in Glasgow in November.

Initially, schemes with £5bn of assets or more will have to comply with the new rules from October this year. This will include publishing reports in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TFCD), and providing a link to these in their accounts and annual reports.

The rulings will then be extended to incorporate smaller schemes from 2024.

Opperman said: “Climate change is the number one issue of our generation, and as such, it carries a material risk to our financial investments.

“These world-leading regulations we outline today ensure these risks are accounted for and are done so with total transparency.

“In a matter of just a few months, savers will be able to determine for themselves if the investment aligns with their values or if they are comfortable with how their pension could be affected by climate change.”

The UK government intends to introduce TCFD-based climate-related disclosures across the entire economy by 2025.

The UK's consultation comes as the TCFD has launched its own consultation looking to potentially expand the scope of reporting to consider ‘double materiality’ – effectively the consideration of a company's impact on climate, rather than just considering the financial impact of climate change on a company. The illustration below sets out how this could play out.

Whether the UK's own consultation will align with changes to the TCFD remains to be seen. More will become clear as the 'festival of consultations' continues for the ESG investing community.

Minerva offers a TCFD consultation service to help investors identify climate change risks and opportunities and meet regulatory requirements. Together with our strategic investor, Solactive, we are ready to help investors implement benchmarks suitable to their investment strategy, starting by looking at the four required areas outlined within the TCFD, shown in the diagram below.