The government has published a consultation on plans to require pension trustees to calculate and disclose a portfolio alignment metric setting out the extent to which their investments are aligned with the Paris Agreement goals.

The consultation, which runs until 19 December, seeks views on the Occupational Pension Schemes (Climate Change Governance and Reporting) (Amendment, Modification and Transitional Provision) Regulations 2022, as well as draft amendments to statutory guidance.

The regulations are scheduled to come into force from 1 October 2022, subject to consultation, and would require trustees to obtain and use data to calculate their selected portfolio alignment metric “as far as they are able”.

Trustees would then be expected to use these metrics to identify and assess climate-related risks and opportunities.

The consultation also seeks views on draft non-statutory guidance explaining best practice in relation to the Statement of Investment Principles (SIP) and draft statutory guidance explaining its expectations across the Implementation Statement (IS).

The Pensions Regulator (TPR) has welcomed the plans to require large pension schemes
to be clear about how far their investments align with the Paris Agreement’s ambition to curb global temperature rises.

“Some schemes already recognise the risk to pension pots from climate change and the potential opportunities from the transition to net zero that will be needed to meet the Paris Agreement’s goals and have voluntarily adopted net-zero targets," TPR executive director of regulatory policy, analysis and advice, David Fairs, said.

“These recommendations will require more schemes to recognise those risks and opportunities and enable them to clearly communicate their progress on addressing them to savers.”

Adding to this, ShareAction head of UK policy, Fergus Moffatt, said: "We warmly welcome the DWP’s proposals to require schemes to report on the extent to which their portfolios are aligned with the Paris Agreement on climate change.

"Aligning private capital with the objectives of the Paris Agreement – to limit the increase in global average temperature rises to 1.5C above pre-industrial levels – will help to scale up financial flows moving towards sustainable investments and help to tackle the threat of climate change.

"We see trustees reporting alignment as a powerful communication tool to help themselves, scheme members, and the regulator to understand the scheme's position on climate risk.

"We think that this additional metric will be a significant addition to trustees' TCFD reports."

Moffatt also "strongly" supported the proposals on new guidance for trustees relating to the SIP and the IS.

"The new guidance geared towards improving the quality of SIP reporting, developing best practice for IS reporting, and improving consistency and comparability across the board is therefore extremely welcome," he said.

"We particularly support the emphasis on trustees taking ownership of these reports and not delegating responsibility to asset managers and advisers.

"Taken as a package of measures, these proposals will go a long way towards driving up standards across the pensions sector.”

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