Reporting on climate risk in Statement of Investment Principles’ (SIP) will become more challenging for trustees next year as focus shifts towards the disclosure of processes and implementation, Pensions Climate Risk Industry Group (PCRIG) chair, Stuart O’Brien, has warned.

Speaking at the Pensions Age Annual Conference 2020, O’Brien noted that some pension trustees have just been adopting the correct wording to ensure they are complying with regulations.

Although he expected most schemes to be compliant with the current climate risk disclosure regulations in next month’s SIPs, he warned that from October 2021 trustees would find it harder to “employ boilerplate wording”.

“This year’s SIP updates are quite wordy, there are requirements that have to be met. We are getting a bit of sense that trustees are just adopting the right wording so that they are compliant by October, and I’m sure most will be,” stated O’Brien.

“Where things get more interesting, there is the requirement after that to produce implementation statements. As soon as you have to start reporting on what you’ve done in practice, it becomes a little less easy to employ boilerplate wording.”

He pointed to the Department for Work and Pension’s (DWP) consultation on climate-related risk disclosures as another reason that it will become more difficult to treat climate disclosures in SIPs as a tick-box exercise.

“Then you move forward to the DWP’s consultation and trustees start having to report on climate risk,” O’Brien continued.

“When you go through the details of the DWP’s proposals it’s not just reporting a few numbers, it is describing trustee governance processes and how trustees think about these risks.

“I think that becomes very hard to do on a tick-box basis. My expectation is, trustees might have just got away with just putting a few stock phrases in the SIPs last year and might do so again this year, but that is probably not going to hold.”

O’Brien urged trustees to view climate change as a financial risk, and encouraged them think about the effect it might have on defined benefit (DB) funding levels and investment performance, and what impact it could have on member pots in defined contribution (DC) schemes.

“I think there is probably still more to do. I mentioned some of the civil society groups and organisations like Make My Money Matter, they come at this from a slightly different perspective and they do want pension funds to try and change the world, and there’s nothing wrong with them having that aspiration,” he added.

“But from a trustee point of view, that is not really the trustee role. The trustee role is to look after their own pension scheme and ensure that benefits can be paid. That does not mean these two views are mutually incompatible. I think trustees have to look at climate-related issues as a financial risk.”

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