On 8 June 2021 the DWP published a response to its consultation on the governance and reporting of climate risk by occupational pension schemes as part of the government’s wider work to implement the recommendations of the Task Force on Climate-related Financial Disclosures (‘TCFD’).

The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 and the Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021 were made on 13 and 15 July respectively and come into force on 1 October 2021 for authorised master trust schemes and schemes with £5 billion or more in relevant assets. Trustees of occupational schemes with £1 billion or more in relevant assets at the end of the first scheme year ending on or after 1 March 2021 will be in scope from 1 October 2022 (or, if later, from the date on which the trustees obtain audited accounts in relation to that scheme year end date).

The regulations were largely unchanged from the drafts initially consulted on though Guy Opperman MP, Minister for Pensions and Financial Inclusion, stated that changes to the government’s policy following feedback were made to ensure that “the regulatory burden is reasonable and proportionate whilst still retaining the wider benefits of the measures.”

Trustees will be required to meet climate change governance requirements which underpin the 11 recommendations of the TCFD, and to report on how they have done so. The requirements include undertaking scenario analysis, obtaining data, calculating and using metrics, measuring performance against trustee set targets, and ensuring that their knowledge and understanding of climate change risks is sufficient to allow them to meet the requirements. There are also new disclosure requirements. Trustees will be expected to take reasonable and proportionate steps to meet the requirements as far as they are able, and the DWP has set out in statutory guidance what it considers these steps to be. The DWP has said it will review the requirements in the second half of 2023 to establish whether any updates are needed or whether the objectives could be achieved in another way.

The Pensions Regulator will be responsible for overseeing compliance with the new obligations, and is currently consulting on its draft guidance in relation to its approach and a proposed appendix to its monetary penalties policy. The draft guidance describes activities that trustees either “must do” (because it is a requirement imposed by legislation) or “should do” (because it is an approach that TPR expects trustees to take).

It appears that TPR’s initial focus is likely to be on governance rather than levels of detail with some pragmatism around the information that may be available to trustees from the investment industry to begin with.