The government is pushing forward with legislation that will require pension scheme trustees to assess and report on the risks of climate change to their investments, making the UK the 'first major economy' to have such requirements on the statute books.

The new regulations, which are subject to parliamentary debate in the coming months, will affect all authorised master trusts and schemes with £5bn or more in assets from October 2021, under a phased approach.

This approach is expected to allow the government to identify best practice, with a subsequent consultation expected to then extend the measures to smaller schemes as soon as 2024.

Under the requirements, trustees of the schemes in scope must meet climate governance requirements, publish a Taskforce on Climate-related Financial Disclosures (TCFD) report and include a link to the report in their annual report and accounts.

The government previously launched a consultation on the draft regulations in January 2021, having confirmed its intention to have the regulations on the statute book prior to COP26 in November.

It has now also published draft statutory guidance for trustees on the new requirements, with the Pensions Climate Risk Industry Group non-statutory guidance for trustees highlighted within this.

The government’s guidance has also provided further clarification around the requirements, including on the the “as far as they are able” caveat, explaining that for any data trustees were unable to obtain, they must describe the reasons for this in their report.

Furthermore, it recognised that scope 3 emissions of a scheme’s investments are “likely to be challenging”, confirming that trustees are therefore not required to obtain scope 3 emissions in the first scheme year that the regulations apply to them.

The government has argued that the requirements, coupled with the ongoing work around illiquid investments, will enable it to mitigate against the dangers of climate change while also grasping the opportunities available as we transition to net zero.

Commenting on the news, Pensions Minister, Guy Opperman, stated: “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 Ministry of Housing, Communities and Local Government (MHCLG) recently confirmed that it was "close to the point" of consulting on extending the regulations to Local Government Pension Schemes, with industry experts cautioning that many may not be prepared for this.

The news also follows the launch of a new nature-focused market-led global initiative, which seeks to “build upon the success" of the TCFD, with a consultation from the TCFD on portfolio alignment metrics also expected to be launched later this month.

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