Pension schemes should not be deterred by environmental, social and governance (ESG) data issues, industry experts have said, arguing that whilst reporting may be a case of “best endeavours” currently, this should not take away from the direction of travel.

Speaking at the PLSA ESG Conference 2022, BT Pension Scheme head of sustainable investment, Victoria Barron, warned that data was “a really big challenge” when undertaking TCFD reporting, as there is not full coverage across all asset classes.

“I think there is a concern that if you don’t have information you’ve done something wrong, but the reality is we don’t all have perfect data,” she clarified.

Some asset classes are also more problematic than others, as Barron warns that sovereign debt can be particularly nail-biting, with the appropriate way to calculate sovereign debt emissions still “kind of undecided”.

However, Barron suggested that the industry will "just have to accept the fact that we’re not going to have everything, and we will publish what we can when we can".

This was echoed by Mercer partner and director of consulting, and PLSA policy board member, Brian Henderson, who acknowledged that early adopters will have holes in their data.

In particular, Henderson suggested that scope 3 emissions were likely to be missing from some scheme disclosures for a while, warning that it can be quite startling how big they are compared to scope 1 and 2.

However, Henderson argued that whilst it may be best endeavours for now, this should not take away from the direction of travel, emphasising the need to remain flexible early on.

This was echoed by Border to Coast head of responsible investment, Jane Firth, who stated: “TCFD have always acknowledged that not everyone is in the same, that some have greater resources than others and it is a journey”.

Firth also suggested that there are steps that smaller schemes, which are not yet covered by TCFD requirements, can take, stating that a good place to start is to consider the TCFD reports completed by larger schemes and to “leverage all the relationships you can" with external managers and consultants.

Adding to this, Henderson said that there may also be some steps that smaller schemes may be able to omit from their TCFD process, emphasising that “the key thing here is to get your carbon dioxide emitted per million pounds invested down”.

“You can jump to action reasonably quickly if you’re governance is good and you’ve got reasonably engaged trustees,” he explained, suggesting that a lighter version of the requirements could be introduced for smaller schemes in due course.

“My personal view is there are easily a subset in there that smaller schemes can work with, but that does start to unravel the concept of TCFD and I’m not sure the regulator is up for that," he added.

The panellists also raised concerns over the how TCFD reports are communicated with members and stakeholders, as Firth confirmed that there had been "scrutiny and interest from various stakeholders and lobbying groups as well".

"The issue is that we are having to produce so many different reports," she continued, warning that "there’s a great degree of overlap", with ensuring these reports are not too long or too technical presenting a "real challenge".

"This is where it would be really helpful for the regulator to have those conversations," she continued, "because we want to make sure we're not spending loads of time producing these different reports and are focused on carrying on engagement for the active stewardship piece".

Indeed, Barron also warned that whilst there are regulatory considerations around the TCFD disclosures, it is also important to ensure that these disclosures are intelligible and interesting for members to read.

"What does really good look like, not just from a regulatory perspective, but also importantly for the members who we represent?" she queried.

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