Commenting on DWP’s Consultation ‘Taking action on climate risk: improving governance and reporting by occupational pension schemes’, Simon Jones, Head of Responsible Investment, Hymans Robertson says:

“We welcome the considerable efforts the DWP has made to create legislation and guidance that recognises the important role UK pension schemes need to play in combatting climate risk, and in supporting the UK Government in its ambitious, legally binding climate targets. It is evident the DWP has considered a diverse range of stakeholder feedback, and we are pleased with the majority of amendments made to the draft regulations which seek to clarify and simplify, and which include a number of our own suggestions.

“Of note is the deferral by one year of the requirement for trustees to gather and report on Scope 3 emissions data. The need to disclose more comprehensive emissions data from the second year of the new requirements being in place clearly places the financial services industry on notice that pension funds require this information, but gives additional time for data providers to enhance and finalise their Scope 3 data reporting capabilities.

“We are also encouraged by the DWP’s message that climate change is one of many wider environmental, social and governance factors that trustees should be considering within their integrated risk management processes. Whilst climate change is a significant financial risk and clearly warrants significant attention, trustees need to continue to ensure that they address other ESG issues, many of which could be exacerbated by the ongoing impact of climate change.

“Climate risk and opportunities that will arise through the transition to a low carbon economy continue to evolve. This legislation builds in a degree of pragmatism and recognition that individual schemes are best placed to assess their own climate positions. The inclusion of a review of this legislation and guidance in 2023 gives the DWP opportunity to reflect on the efficacy of its proposition. Retaining a degree of flexibility as data and protocols evolve, and addressing any initial material concerns from participants, is an important component of generating the best long-term outcome.

“On balance, we consider the finalised regulation and guidance a powerful tool that will help pension scheme trustees better understand the risks and opportunities climate change poses. We are already working with our clients to address climate risk within their investment and funding arrangements and we look forward to supporting our clients implementing these strengthened requirements.”