The Pensions Regulator (TPR) has urged trustees and advisers to “help shape climate-risk guidance” amid the launch of a consultation on new guidance designed to assist trustees in meeting tougher standards of governance in relation to climate change.

The eight-week consultation, which was initially announced by TPR at the PLSA ESG Conference, is seeking views on draft guidance, which will sit alongside the new climate-related disclosure and reporting requirements coming into force from 1 October 2021.

Whilst the legislation will initially apply only to those schemes with £5bn or more in assets, extending to those with £1bn or more in assets from 1 October 2022, TPR noted that the Department of Work and Pensions is considering rolling out the rules further in 2023.

Furthermore, it stated that trustees not yet subject to the new requirements may nonetheless want to follow the guidance in order to improve the governance and resilience of their schemes in relation to climate change risks and opportunities.

In addition to the new guidance, TPR's consultation is also seeking views on a new appendix to its monetary penalties policy (MPP), which outlines its approach to imposing penalties for non-compliance.

Under the revised policy, trustees who fail to publish a climate change report on a publicly available website, accessible free of charge within the required timeframe, will face a mandatory penalty of at least £2,500.

TPR will also have a “range of enforcement options” for other breaches of the new regulations, including the discretion to issue a penalty notice.

As previously confirmed by TPR, the MPP is expected to see underlying governance activity failures treated more seriously than a failure to make a disclosure, with this expected to underscore the regulator’s ambition to ensure "a positive change in behaviour", and avoid “superficial box-ticking”.

The revised MPP also outlines TPR’s approach to the provision that some of the new requirements will only apply as far as trustees “are able”, in recognition that there may be some hurdles that, at least initially, prevent trustees from full compliance.

In particular, the MPP states that where all the information trustees need may not be available immediately, trustees are expected to provide a full explanation by setting out what efforts they have made to obtain the necessary climate-related data and fully explaining any gaps.

The regulator also stated that it expects trustees to outline their plans for overcoming obstacles, as the quantity and quality of the data available should improve for future reporting periods.

Commenting on the consultation, TPR executive director of regulatory policy, analysis and advice, David Fairs, warned that if trustees do not adequately consider climate-related risks and opportunities, or exercise effective stewardship, pension scheme investment performance and funding may suffer, which could mean savers missing out.

He continued: “This draft guidance sets out our expectations of trustees in response to the new climate change regulations. If trustees follow the guidance, and report on the steps they have taken, they should be able to demonstrate good governance of climate-related risks and opportunities.

“We want to work with trustees, and their advisers, to ensure climate-related risks and opportunities are considered as key elements of scheme governance and would we welcome feedback on the best way to deliver this.

“We are planning a range of events to engage with stakeholders on issue of climate-related risk over the coming weeks. These will help ensure stakeholders are able to feedback directly to us throughout the eight-week consultation period.”

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