UK Pensions Regulator launches consultation on climate regulation

July 9, 2021

The UK’s pensions watchdog has launched an eight-week consultation to assist trustees in meeting stricter sustainability and governance measures.

Under the proposed rulings, the Pensions Regulator (TPR) will penalise governance shortcomings as opposed to punishing trustees for poor quality data when trying to meet new climate-related reporting requirements.

A fine of at least £2,500, and a consecutive penalty of £5,000 will be put in place for trustees who do not publish a freely available climate change report.

“We are proposing to treat failures of governance activities more seriously than failures in reporting,” said David Fairs, TPR’s executive director for regulatory policy, analysis and advice.

The draft guidance “aims to give more clarity of what’s expected of them [trustees and advisers], and what will happen if they don’t comply”, he said. It will “act like a checklist of steps that trustees should take”.

Initially, the regulation will apply to trust-based schemes with £5bn or more in assets, expanding to those with £1bn or more in assets from October 2022. Similar requirements for local government pension schemes are expected in the autumn.

TPR said it recognised that without uniform and enforced data throughout the investment supply chain, trustees and their advisers would find it difficult to access and analyse all of the data.

The Financial Conduct Authority is expected to issue similar rules for the contract-based pension schemes it regulates in the near future.

The announcement came after chancellor Rishi Sunak announced requirements for pension schemes to disclose sustainability information.

In a speech at London’s Mansion House on 1 July, Sunak said that the UK’s financial services sector must be “more open, more competitive, more technologically advanced, and more sustainable” while strengthening links with China.

China has pledged to become carbon-neutral by 2060, but its energy sector has been falling short of its carbon targets.

The rapid pace of development within the corporate governance landscape has given rise to the need for expertise and insight to adapt to and accommodate expanding regulation.

As pressure mounts on major investors to improve their stewardship credentials, Manifest’s reporting services can equip corporate boards with the information they need to prepare for investor engagement and the increased focus on long-term sustainability. Find out more here.