UK Pension Schemes Compelled to Report on Climate Risks

Pension providers in the UK may be required to report on how climate change could impact the returns of their members' investments.

New rules from the Pensions Regulator could mean that the UK's 100 largest pension schemes must report more climate data, including climate change risks and the greenhouse gas emissions of their investment portfolios.

These schemes hold more than £5bn each in assets and, if the rules are approved under consultation, will have to start publishing climate data by the end of 2021.

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.

Said: Secretary of State for Work and Pensions, Thérèse Coffey.

Smaller pension providers could also be required to follow suit in 2022, as part of efforts to reach net-zero carbon emissions in the UK before 2050. 

This signals a major change, as, at the moment, almost half of all major pension providers in the UK have no plans to share this kind of information with their customers, according to the Institutional Investors Group on Climate Change.

According to green economy campaigners Client Earth, a 'large proportion' of the £3.0 trillion invested in pension schemes in the UK last year was poured into industries which ultimately power climate change and global warming.

At the moment, pension schemes have a duty to report on how climate change could impact their customers' returns, but are not required to share this information with members or to compile data on their investments' carbon emissions.

Under the new rules, they would need to make a full evaluation of investments' ecological impact the climate, and make this data publicly available.

I recognise that these proposals come as trustees are dealing with the impact of the COVID-19 pandemic. However, this is also a time of opportunity – as we 'build back better', trustees must turn their minds to the transition to the low carbon economy. Acting now to manage climate risks, and to take advantage of the opportunity of the low-carbon transition, will put schemes in a stronger position for the future.

said Pensions Minister Guy Opperman

As they stand, the proposed changes would oblige pension investors to carry out testing in order to predict how various temperature changes could impact the returns on investments, and report these to the Pensions Regulator.

In addition, they must also make public information about the greenhouse gas emissions of their investments.

All of the findings that a pension provider compiles from these climate reports should be made available to members, who must be informed of where to find them.

The consultation on the new regulations began on Wednesday and is due to be finalised on October 7^th 2020.