DB pension scheme trustees should be careful to focus on the detail in insurance firms’ Taskforce on Climate-Related Financial Disclosures (TCFD) reports, when selecting a firm for risk transfer, warns Hymans Robertson, as it launches its latest report: Spotlight: Insurer TCFD reporting and net zero targets.

The research, from the leading pensions and financial services consultancy, looks at how DB pension schemes can best use the information in insurers’ TCFD reports as they make decisions about choosing a firm to insure their members benefits. It assesses some of the key challenges they face when looking at the data. It also highlights that while many schemes might be encouraged by insurers’ headline targets and commitments, understanding which firm is a good fit for their needs, will come from the ability to critically understand and assess the data in each TCFD report.

An example shown in the research is around the data included for net zero carbon emission targets. It looks in detail at how firms can use different metrics in their report which may lead to a scheme not comparing like-for-like. They could end up, therefore, misunderstanding an insurers’ approach.

Commenting on how DB pension scheme trustees on a journey to buy-out can use insurers’ TCFD reports to make informed decisions, Paul Hewitson, Head of ESG for Risk Transfer at Hymans Robertson, said:

“Ultimately, for DB pension schemes who are on a journey to buy-out but, are also wanting to address climate risks, the devil is in the detail. Schemes could be forgiven for relying on the bolder statements in insurers TCFD reports. However, to really make an informed choice and choose a match that’s right for them, they should make sure they compare both how each insurer plans to transition their assets to meet targets, with the insurers’ actual progress.

“The availability of this information now gives schemes the opportunity to make even more informed decisions but, it requires a focus on the long-term. Instead of concentrating on the short-term goal of being fully funded to buy-out, a consideration should be the role that insurers will play over a longer timeframe. As schemes become more familiar with the access to information in the TCFD reports, looking beyond the headlines should become second nature. In the meantime, as familiarity is being established, schemes will find decision-making easier if they note the differences between each insurers’ approach to how and what is measured.”

Commenting on the importance of DB pension scheme trustees remembering the role of social and governance factors when assessing an insurance firm to partner with on a journey to buy-out, Paul said:

“Trustees already assess firms by taking into account their approach across four key ESG (environmental, social and governance) factors: culture, integration, stewardship and transparency. Insurers’ TCFD reports add an additional layer of information to aid their decision-making. By combining an understanding of all these factors, schemes should be able to maintain a thorough and informed longer-term view that will help them to fulfil their duty to act in the best interests of members. It will enable them to choose an insurer that they believe can fulfil the responsibility of paying its members’ benefits long into the future.”

A copy of, Spotlight: Insurer TCFD reporting and net zero targets, can be found here.