Government Publishes Regulations And Guidance On Climate Risk Governance For Pension Scheme Trustees

• Published date: 21 July 2021
• Subject Matter: Corporate/Commercial Law, Employment and HR, Environment, Corporate and Company Law, Corporate Governance, Retirement, Superannuation & Pensions, Environmental Law, Climate Change, Trusts
• Law Firm: Shoosmiths
• Author: Julian Richards

The draft Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 ('Regulations') have been laid before parliament and are due to come into effect on 1 October this year.

The Pensions Minister announced on June 8 the final version of the Regulations which are designed to regulate how trustees of certain trust-based occupational schemes must engage with, and report on, climate change risk as part of their duties.

Accompanying guidance ('Guidance') published in June by the Department for Work and Pensions ('DWP'), sets out how and when trustees must implement climate change governance measures and produce a report containing relevant disclosures, which they must publish their on a publicly available website, accessible free of charge.

The Regulations are the final upshot of the 2017 report by the Task Force on Climate related Financial Disclosures ('TCFD') which made recommendations on how climate related financial risks and opportunities should be published by organisations, including pension schemes. The TCFD recommended that pension schemes should report the greenhouse gas emissions of their investment portfolios, as well as how their investments would perform under a range of temperature increases, including where global (average) temperature rises are limited to well below 2'C (of pre-industrial levels) as required by the Paris Agreement.

Background

In 2020, following the TCFD report, the government published its plan to compel organisations across the economy to produce TCFD aligned climate related disclosures by 2025. As a marker to that destination, a significant proportion of organisations will be compelled to do so by 2023. A DWP consultation proposed that large occupational pension schemes and authorised master trusts should be required to put in place systems of effective governance, strategy, risk management, and targets for the assessment and management of climate risks and opportunities, from 1 October 2021.

As part of the implementation process, section 124 of the recently passed Pension Schemes Act 2021 acts to add a new section 41A to the Pensions Act 1995, to allow regulations to be made which address the issue of climate change risk within occupational schemes. That new power has now been used to put in place the Regulations which will impose requirements on trustees of certain occupational schemes to secure that there is effective governance of the scheme with respect to the effects of climate change.

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