The industry has called on the regulator to provide greater clarity in key areas of its guidance on climate change governance and reporting.
The Pensions Regulator's (TPR) consultation on its draft guidance on governance and reporting of climate-related risks and opportunities - which closes today (31 August) - complements statutory guidance for trustees published by the Department for Work and Pensions in June.
The regulator's guidance aims to provide schemes with a guide to each of the key elements of governance; strategy and scenario analysis; risk management; and metrics and target setting - clarifying the steps trustees must take to put in place the relevant processes for each area.
It also provides a separate list of things schemes need to describe in their Taskforce on Climate-related Financial Disclosures (TCFD) report.
Industry respondents said the guidance was useful but said there were some areas were greater clarity and examples would be helpful, particularly when it came to smaller schemes.
Redington head of stewardship and sustainable investment strategy Paul Lee explained: "For example, schemes with fewer resources, either due to size or structure, will likely face considerable challenges in implementing all the relevant governance processes necessary to meet the requirements. As such, we think that a case study signalling the resources required, and the sequencing of actions including timelines, meeting cycles and lessons learned, would prove helpful to schemes at the beginning of their journey."
Premier head of investment consulting Mark Hodgson agreed that smaller schemes faced challenges - noting the guidance highlighted the need for advisers and consultants to help smaller schemes streamline the process and keep costs down.
Hodgson said: "From 1 October 2021, many trustees face new climate-related reporting requirements. Getting effective climate change reporting in place can't be done overnight; as a process it entails a lot of work and will take time to achieve meaningful consistency. Overall TPR has done a good job of driving this issue and has provided solid, clear guidance but we hope it will engage with schemes, offering advice, at least initially, with trustees and schemes that don't quite measure up.
"If requirements on trustees are made too onerous it will be the smaller schemes with fewer resources that suffer the most. Advisers and consultants have a role to play here; they, of course, need to be commercial but they also need to prioritise and be pragmatic and keep a sharp focus on streamlining the reporting process."
Additional guidance
Lee said Redington would also welcome additional guidance with example steps schemes should take around strategy and scenario analysis - noting the guidance was currently more focussed on identifying and assessing climate-related risks than on processes for managing these.
He said: "In regards to risk management, we believe it's vital that a scheme's climate risk management process is not siloed from other risks a scheme faces. We would like focus in this area to be on encouraging schemes to take an integrated holistic view of all the risks faced (including climate change).
"The guidance highlights that including climate risk on the scheme's risk register is one way in which this can be done. Given the complexity and difference in nature of climate risks to other risks scheme face though, case studies showing how these can be mapped to existing risk types on a scheme's risk register, would go some way in helping trustees implement this."
Redington said it would also like to see additional guidance for trustees on the considerations that should go into setting specific climate-related targets, to ensure this does not create a ‘tick-box approach'.
Lee noted: "As an exercise we are currently undertaking across our client base, we believe it's vital that targets are well thought out and integrated into a decision-making framework in order to be truly decision-useful."
Confidentiality concerns
The Employer Covenant Practitioners Association (ECPA) called for greater clarification as to how trustees and sponsors should report on climate-related risks and opportunities from a covenant perspective - saying the was critical in ensuring that climate-related risk is being managed in an integrated way.
In particular, the ECPA said it would be helpful to understand the extent to which the regulator expects employers to be able to limit the amount of information that they provide to trustees on the grounds of confidentiality given the public nature of trustees' reports.
ECPA chair Andy Palmer said: "For some employers the impact of climate-related risks and opportunities on their covenant could be significant and require considerable investment to be made or significant strategic decisions to be taken. The commercial sensitivities around these matters could be such that public disclosure would be strongly resisted."
