The Pensions Climate Risk Industry Group (PCRIG) has launched a public consultation on its guidance for pension fund trustees to assess, manage and report on climate-related risks.

The draft guide, aimed at DB and DC trustees, is designed to help trustees meet existing legal obligations to consider financially material factors in their investment decision making and provides suggestions on how to integrate the consideration of climate-related risks within trustee governance and risk management processes.

It is structured sequentially, based on the way a pension trustee board might typically approach decision making, with part one introducing climate risk as a financial risk to pension schemes and sets out the legal requirements for pension scheme trustees to consider climate-related risk in their decision making.

The second part sets out a suggested approach for the integration and disclosure of climate risk within the typical governance and decision making processes of pension trustee boards. This focuses on how trustees might usefully consider climate-related risks and opportunities when defining investment beliefs and setting investment strategy and when selecting, reviewing and monitoring asset managers. It also touches on issues pertinent to defined benefit schemes, including how climate-related risks may impact employer covenant and approaches to scheme funding.

The third part contains technical details on recommended scenario analysis and metrics that trustees may wish to consider using to record and report their findings.

PCRIG was set up last summer by the DWP, TPR and other government departments to develop industry-wide guidance for pension scheme trustees on climate-related risks and voluntary alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Speaking at the launch of the consultation at the PLSA’s investment conference, Pensions Misnister Guy Opperman, said: “I am committed to ensuring all pension scheme trustees do everything they can to act to limit the risk climate change poses to their members’ future retirement income. TCFD is the most widely-adopted way in which organisations are managing and reporting climate risk, and I want to ensure all trustees have the help they need to align their schemes with its recommendations. That is why I welcome this guidance and the subsequent consultation.”

PCRIG chair Stuart O’Brien added: “Most trustees will have acknowledged the financial risk of climate-related risk on their pension schemes but so far few have developed concrete plans to quantify and address the risks of climate change or capitalise on the opportunities of the transition to a net zero carbon economy. It is for that reason that we are providing new cross-industry guidance to help pension trustees meet their existing legal responsibilities."

Responding to the consultation launch, Barnett Waddingham principal Pete Smith, said: “Climate risk is the topic of the decade, and that’s true too for pension scheme trustees. All of our trustee clients have indicated that they recognise ESG as a financial risk, and the use of temperature differentials for scenario analysis is a helpful way to makes the subject more accessible. However, we recognise the challenge the consultation presents to developing deeper client understanding. This is a significant change for trustees; it is vital they have access to expertise and guidance throughout the process, and we look forward to supporting them now and ahead of any developments."

Aon climate change insights and modelling head, and PCRIG member Mark Jeavons added: “Climate change poses a global systemic risk for economies, markets and pension schemes. It is therefore essential for trustees and investors to understand how physical and transition risks from climate change will impact pension scheme member outcomes.

"The TCFD guidance provides consistent and comparable guidelines for disclosures, which helps trustees to assess a pension scheme’s resilience to climate change properly and to have the information needed to address climate related risks and opportunities. Our hope is that this will ultimately contribute to good pension scheme member outcomes and result in a more sustainable future.”

The consultation opens today, 12 March 2020 and closes at 11:45pm on 7 May 2020, with PCRIG aiming to publish final guidance in Autumn 2020.

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