Pension scheme trustees must prioritise effective climate action despite resource constraints in 2025, the Trustee Sustainability Working Group (TSWG) has said, emphasising the need for trustees to have a plan to manage climate risk and contribute to the solution.

The group stressed that this was particularly important because the temperature target of no more than 1.5 per cent above pre-industrial levels has already been breached.

Given this, the group outlined its thoughts on areas it believes schemes could address to make the best use of their time, with a divided focus on large, medium and small schemes.

The group said that large schemes, which it defined as "extremely well-resourced", typically have multiple sub-committees, full-time staff and advisors and manage their own assets, should continue to invest in impact in 2025.

Given this, the group suggested that these schemes should push their managers and consultants on due diligence processes and work to make investment opportunities accessible to small and medium-sized schemes.

The TSWG also said large and medium schemes should prioritise Task Force on Climate-Related Financial Disclosures (TCFD) reporting, including specific climate modelling.

It noted some large schemes are already heavily involved in the development of climate modelling and suggested that schemes should continue to work with organisations and institutions to develop these models.

However, it stated that, as numerous publications have pointed out, most climate modelling performed by pension schemes using traditional asset and liability management (ALM) techniques is not fit for purpose.

The group therefore suggested that these schemes challenge their consultants on whether climate models need to be redone and use the narrative permitted by legislation to direct resources elsewhere.

Furthermore, the group urged large schemes to participate in discussions about replacing TCFD with transition plans, which it said are more actionable and could consolidate financial disclosure documents related to climate, biodiversity, and social factors.

The TSWG said that large schemes should also be monitoring the environmental, social, and governance (ESG) credentials of their managers, particularly how they are working with other industry participants to put pressure on policymakers.

In addition to this, the group suggested that large schemes reassess their climate-related efforts to ensure they drive "real change" rather than merely collecting data and increasing the reporting burden on managers and corporations.

It noted that most stewardship programs were not originally designed for climate and ESG initiatives.

Meanwhile, for medium schemes, which the group defined as "well-resourced", and potentially having sub-committees, multiple advisors, and segregated and pooled mandates, it recommended scrutinising ESG credentials of any new managers/fund, including asking about policy advocacy and work.

The TSWG also emphasised that medium schemes should be implementing or considering implementing voting policies, which address the “urgent” needs of climate change and nature.

The group acknowledged that the smallest schemes, which it defined as reliant on advisors, mainly in pooled funds, including micro schemes that probably have one advisor and one pooled fund manager, have little influence on their own and often do not have access to the options available to medium and large schemes.

It stated that small schemes are likely preparing implementation statements and updating their Statement of Investment Principles regarding voting and stewardship and may struggle to manage voting across all their holdings.

Given this, the group encouraged small schemes to speak to their consultants on simplifying reporting requirements and awareness around the industry initiative to amplify the collective voice of small schemes on key issues.

The TSWG stated that there is an ongoing industry discussion about simplifying reporting requirements, particularly for the smallest schemes.

Therefore, it said small schemes should encourage its consultants to participate in these discussions to help shape more efficient reporting standards, allowing small schemes to focus their limited ESG resources effectively.

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