UK Secretary of State for Work and Pensions, Thérèse Coffey unveiled plans for new climate risk disclosures from pension schemes. The new plans will initially apply to the 100 largest occupational pension schemes – those with £5 billion or more in assets, and including all authorised master trusts – requiring them to assess and report on the financial risks of climate change within their portfolios by the end of 2022. The following year, the rule will be extended to schemes with £1 billion or more in assets.

Coffey said:

“I am delighted to announce our proposals to make reporting on sustainable investments mandatory, one of the most significant steps to date in the UK’s progress on tackling climate change.

“We were the first major economy to commit to reaching net zero by 2050 – to deliver this we must start now, working with investors and others to achieve this ambitious target.

“These measures will ensure pension schemes are in an ideal position to drive change to a sustainable, low carbon economy which will benefit everyone.”

In a speech in Glasgow, Coffey explained that pension schemes have a responsibility to navigate the emerging financial risks and challenges created by climate change and global efforts to transition economies to low carbon energies and technologies. Additionally, managers have a duty to enable investors and trustees to be informed and empowered to take action to address these risks and protect the retirement savings of hard-working people. Coffey stated:

“We are at a climate change cross roads – we must begin to look at green and sustainable assets as the investments for the future of the planet and of our pensions. And any scheme that has no plan for the transition, is risking its future and the future of its members. Schemes of all sizes need to be acting right now for the financial risks and opportunities climate change presents, providing sustainable returns that will keep many pensioners comfortable in their retirement.”

Among the proposed disclosure requirements would be the calculation of pension schemes’ carbon footprint, including the greenhouse gas emissions of their portoflios, as well as an assessment of how the value of the schemes’ assets or liabilities would be affected by different temperature rise scenarios. This assessment would include the impact of limiting the global average temperature rise set out in the Paris Agreement.

The new plan will cover roughly 70% of occupational pension schemes assets and over 80% of members. The Department for Work and Pensions announced that it is launching a consultation on the new policy, and is also inviting responses on proposals to disclose these risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The consultation will remain open until October 7, 2020.

Longer term, the government will look to extend climate risk disclosure rules to smaller pension schemes, following an additional consultation.

United Nations Special Envoy for Climate Action and Finance and the Prime Minister’s Finance Adviser for COP26, Mark Carney, said:

“To achieve an orderly transition to net zero, managing climate risk and improving resilience needs to be at the heart of all financial decision-making. Corporates, asset owners, including pension schemes, and asset managers should use the Taskforce on Climate-related Financial Disclosures (TCFD) framework to disclose climate-related risks and opportunities.

“By requiring pension schemes to report against the Taskforce’s recommendations, the occupational pensions of over 24 million UK citizens, representing over £1.3 trillion of investments, can be managed to mitigate the risks from climate change and seize the opportunities from an economy-wide transition to net zero.”