The new regulations will require occupational pension schemes to have – and report on – effective governance, strategy, risk management and accompanying metrics and targets for the assessment and management of climate-related risks and opportunities.

A key requirement is that pension schemes report disclosure aligned with the taskforce on climate-related financial disclosures (TCFD) framework.

Since an earlier consultation in this area, the government has announced its intention to make TCFD-aligned disclosures mandatory across the economy by 2025, with a significant portion of mandatory requirements in place by 2023.

The new regulations would require trustees to meet climate change governance requirements which underpin the 11 recommendations of the TCFD, and to report on how they have done so. Statutory guidance, which trustees must have regard to, will set out how trustees should meet the requirements and report in line with the TCFD recommendations.

The latest consultation acknowledges that responses by trustees of large pension schemes to October 2019 letters from the Minister for Pensions and Financial Inclusion indicated the need for a legislative nudge, with only 42% of the largest schemes making any TCFD-aligned disclosures or having plans to do so in the next 12 months.

DWP says it is mandating a proportionate approach. Trustees would be required to carry out scenario analysis and obtain data to calculate their chosen metrics ‘as far as they are able’.

This is defined in the draft regulations to mean that trustees are expected to take all such steps as are reasonable and proportionate in the particular circumstances, taking into account the costs incurred, or likely to be incurred, by the scheme and the time required to be spent by the trustees, or anyone acting on their behalf.

Trustees must select a minimum of two emissions-based metrics, one of which must be an absolute measure of emissions and one which must be an intensity-based measure of emissions, as well as one additional climate-related metric.

However, DWP acknowledged that the continuing rapid evolution of methodologies still poses the risk that different approaches could lead to different results being calculated for the same portfolio/assets.

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