Defined benefit (DB) pension schemes with less than £1bn in assets risk being left behind on climate change as they do not see it as a priority, according to Willis Towers Watson.

The consultancy’s report, Climate Change: Risks and Opportunities for Pension Schemes, found that schemes with £5bn or more in assets identified climate change as a ‘top five’ priority over the next year, and their number one priority over the next three years.

Meanwhile, schemes with assets of between £1bn and £5bn did not view climate change as a priority over the next 12 months but did see it as a top five priority over the next three years.

Schemes with less than £1bn in assets did not see climate change as a priority at all.

“Climate change poses material risks to all pension schemes, regardless of their size, but it also provides opportunities for all schemes if they look for them,” commented Willis Towers Watson senior director, Edwin Sheaf.

“The law already compels £5bn-plus pension schemes to address these risks by preparing disclosures in line with the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD).

“From October 2022, schemes with assets of £1bn or more will also have to comply with these new regulations. So perhaps it’s not surprising that it is an issue of more pressing urgency for larger schemes.

“But dealing with the impact of climate change shouldn’t just be a regulatory tick-box exercise. It’s something that all schemes – and society in general – can benefit from.”

Willis Towers Watson’s report highlighted that, alongside the physical risks posed by climate change, the transition to net zero also brought risks and opportunities.

It warned that, whilst schemes subject to the TCFD requirements will look at these risks and opportunities in detail, there was a danger than other schemes will continue to focus elsewhere and could ‘miss the boat’ on taking advantage of potential opportunities.

“No matter what size your scheme is, you can expect to hear more and more about climate change as an urgent issue for trustees and sponsors,” Sheaf continued.

“Even if you are not yet required to comply with the TCFD regulations, The Pensions Regulator nonetheless expects you to build consideration of climate change into everything that you do.

“The arguments for taking action now go far beyond the need to comply with regulatory requirements. Thoroughly considering the risks and opportunities arising from climate change is the right thing to do for scheme members, for scheme sponsors and for society in general. It would be a real shame if it was only the largest schemes that benefitted.”

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