The Pensions Regulator (TPR) has urged pension scheme trustees to consider how they can improve their governance and reporting of climate-related risks and opportunities, after a review by TPR revealed a number of common issues.

TPR's review of pension schemes’ annual climate reports aimed to share emerging best practice following the introduction of new Taskforce on Climate-related Financial Disclosures (TCFD) requirements in October 2021.

The review revealed variation in pension schemes; reports, ranging in length from 10 to 85 pages, with an average of 34 pages.

There was also a “great deal” of good practice, with 43 of the 71 reports analysed including a formal net-zero target, representing around £450bn of assets under management and more than 18 million memberships of schemes.

Several reports also contained examples of broader action being taken by pension scheme trustees, including planning climate and sustainability training, developing a trustee policy on investment beliefs in relation to climate change, and working with investment managers to obtain better data.

Additionally, some trustees have taken steps to allocate more funds to sustainable investments, use stewardship to manage climate-related risk, or switched to climate-tilted pooled funds.

However, there were also several areas where reports could be improved, with the research revealing a number of common issues, including a lack of sufficient background information on the scheme meaning disclosures were difficult to interpret.

In addition to this, the regulator identified some accessibility issues, including long or complicated web addresses and use of PDFs not compatible with those using reader accessibility requirements, which it warned could make it difficult for savers and others to find and access reports online.

In particular, TPR found that disclosures of strategy, scenario analysis and metrics activities were not always provided at the appropriate level as described in statutory guidance from the Department for Work and Pensions (DWP).

In light of this, TPR pointed out that the statutory guidance refers to “must” as a requirement imposed by law, also clarifying that when “should” is used, trustees should follow the approach set out, and if they deviate from that approach, they should explain in detail the reasons why they did so.

The regulator also emphasised that it expects to see an improvement in this area for the next round of reporting, confirming that where it sees a failure to meet these standards, it will consider whether enforcement action is necessary.

TPR director of regulatory policy, analysis and advice, Louise Davey, stated: “Although this is a new and emerging area for trustees our review found a great deal of emerging good practice. However, we also identified several areas for improvement trustees should take note of.

“Climate change is likely to continue to pose a core financial risk to savers’ pensions for the foreseeable future, so I urge all trustees in scope of the regulations, and their advisers, to read our review and consider how they can improve their governance and reporting of climate-related risks and opportunities.

“Smaller schemes, not currently in scope, may also find the results of our review useful in improving their management of climate-related risk and opportunities.”

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