Pension trustees are acting to address climate risks and opportunities, with more than 60 per cent of pension schemes included in The Pensions Regulator’s (TPR) latest review having some form of net-zero goal with a target date of 2050 or earlier.

Following the introduction of new climate-related disclosures for schemes with more than £1bn in assets under management in 2022, TPR undertook an analysis of a selection of reports in an effort to help raise standards across the industry.

This review found many examples of good strategic decision-making, as well as examples of trustee action on climate risk.

This included updates to defined contribution (DC) default lifestyle strategies to include sustainable funds, and increased allocation to low carbon tracker funds or companies with ‘high levels of green revenue’.

In addition to this, TPR found examples of trustees exploring opportunities such as forestry, green bonds or committing funds to private market renewables, and encouraging fund managers to engage with top carbon dioxide emitters.

But whilst TPR said it observed some good practice on scenario analysis, it also highlighted a number of areas of concern.

Given this, it said that future reports could be improved if trustees consider a qualitative analysis based on clear narratives while quantitative analysis is still developing in the market, and provide commentary on the challenges and limitations of the scenario analysis they have undertaken.

It also encouraged trustees to take into account the challenges and limitations of their analysis when drawing conclusions about their scheme’s exposure to risks.

More broadly, TPR encouraged trustees to think about a number of key issues when putting together these reports, including context, materiality, generic wording, developments between reports, length, member summaries, and action plans.

Commenting on the review findings, TPR climate and sustainability lead, Mark Hill, stated: “Climate change disclosures should be the product of good risk management.

“That’s why we want schemes to know what ‘good’ looks like and improve their management of climate-related risks and opportunities.

“Even if not yet in scope for disclosures, schemes should act now and read this report to help them in their strategic decision-making.”

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