The Pensions Regulator (TPR) is giving evidence to two parliamentary inquiries this week.
One is looking back at the corporate collapse of Carillion at the Work and Pensions Select Committee, while the Environmental Audit Committee’s Green Finance inquiry is looking to the future, considering matters including investment in long-term sustainable development and proposals for disclosure of climate-related financial risk.
The Environmental Audit Committee’s role is to hold government (and non-departmental bodies like TPR) to account and to audit performance against sustainable development and environmental protection targets. Unlike most select committees, the Environmental Audit Committee’s remit cuts across government rather than focusing on the work of a particular department.
The Green Finance inquiry is broad-ranging; a key element of this inquiry for pension trustees looks at proposals for the assessment and reporting of climate liabilities and risks to schemes.
The committee has been hearing evidence on how trustees perceive their fiduciary duties, including considering environmental, social and governance factors, and how some trustees are leading the way on climate risk. However, submissions have expressed concerns that many trustees are not doing enough to manage climate risks to their scheme.
Evidence given to the inquiry has been that not all pension trustees appreciate the financial risk presented by climate change; some trustees are taking a leadership role but others are resistant to change or underestimate the financial impacts on their pension scheme.
Climate risks impact broadly across business, the economy and markets and are not just an issue for scheme investments. Many schemes are also sponsored by employers whose financial positions and prospects for growth are dependent on current and future policies and developments in relation to climate change.
The existing framework requires trustees to take financial considerations into account when setting and implementing the scheme’s investment strategy and, while we specifically call out climate risk throughout our investment guidance, many trustees seem to be behind the curve in assessing and managing climate risk to their schemes.
Improving standards of governance and risk management are priorities for TPR and the impact of climate risk sits within that as one of many risks trustees need to consider and act upon. We are part of the UK Regulators’ Climate Forum, formed in 2017 and chaired by the Bank of England, where we meet regularly with the Bank, the Financial Reporting Council and Financial Conduct Authority. As a group we share knowledge, insights and approaches, looking to identify areas where co-ordination and collaboration would be helpful.
There is more to do in this space, so we welcome the committee’s inquiry and will continue to work together across the pensions and broader financial sector.
By Anthony Raymond
Acting Executive Director of Regulatory Policy