Tegs Harding: We urge the DWP to be bold in this review
In June, the Department for Work and Pensions launched a consultation on UK sustainability reporting standards and corporate disclosure requirements – adding it would also consider whether to update the current rules for pension schemes. In this article, Tegs Harding takes a look at the current TCFD framework and asks how it could be improved.
There's no doubt that the introduction of the Taskforce on Climate-Related Financial Disclosures (TCFD) regime was a milestone; It pushed climate risk onto trustee agendas and elevated awareness across the pensions landscape.
While issues of climate and sustainability are now firmly on the agenda for schemes, Department for Work and Pensions (DWP) now need to take this a step further and provide a framework for action.
As ever, the goal should be to deliver better outcomes for members. To do so, we need a more pragmatic and realistic approach, one that acknowledges both the limitations of current modelling and the real-world backdrop against which climate change is playing out.
Let's start with the fundamentals. While TCFD has helped normalise the idea of scenario analysis, the frameworks that underpin it are fundamentally flawed. The climate scenarios used in most reports assume a neat, linear transition to a low-carbon economy, but the real world is proving to be anything but linear.
Despite huge strides in technology and growing investment in renewables, global emissions continue to rise, energy demand is outpacing our ability to decarbonise. Meanwhile, climate tipping points are looming closer, with significant implications for the global economy and the long-term value of pension assets.
TCFD reports often rely on consultancy-led scenario analysis that omits feedback loops and systemic risks creating a false sense of security with trustees left believing that even the most severe climate scenarios will have only a modest impact on their portfolios. In reality, the risks are likely to be more acute and less predictable.
When TCFD guidance was first published, it made sense to focus heavily on transition risk, the financial implications of decarbonisation policies and the shift to a greener economy.
But that world has changed. Transition risk has not played out as swiftly or as universally as anticipated, around the world, political pushback on ESG is growing. Legal and reputational risk have made asset managers more cautious about engaging on climate issues, in short, the global transition is faltering; and TCFD has not kept up.
In the meantime, physical climate risks are accelerating, yet they continue to receive limited attention in trustee discussions and remain a secondary focus in reporting frameworks. As a result, adaptation, the practical steps needed to protect member outcomes in a warming, more volatile climate, is often overlooked. This reflects how the current framework directs attention away from the risks that are most urgent and least understood.
It's important to be clear: we still believe trustees should be considering and reporting on climate-related risks, climate change remains one of the most serious long-term threats to the security of retirement income, but the process must evolve to be useful.
We believe the DWP has an opportunity to re-shape the framework in a way that delivers more value for members and more clarity for boards. That should begin with a simplification of the framework. Reporting has become overly technical, resource-intensive, and opaque. We should enable trustees to focus more on decisions and less on disclosure for its own sake.
The emphasis also needs to shift from reporting to action, boards should be supported and encouraged to take concrete steps on climate adaptation, not just mitigation. That includes revisiting investment beliefs, strengthening stewardship, and re-assessing exposure to physical risks.
Greater transparency is also needed so members have a clearer view of how their savings are being managed in light of climate risks and what trade-offs are being made. That transparency can help rebuild trust and reduce any greenwashing that may have crept in.
The TCFD framework set the stage for progress, but in practice, it stopped short of driving the kind of challenge to the status quo that was needed. But like everything, it must now evolve. We live in a more complex and more politicised climate environment than when these requirements were first introduced. Pension schemes, and the boards who govern them need tools that reflect that reality.
We urge the DWP to be bold in this review and to work with the industry to develop a framework that supports practical, member-focused decision-making. Because when it comes to climate risk, the cost of inaction, or misdirected action, will be borne not by schemes today, but by the members of tomorrow."
Tegs Harding is a trustee director and head of sustainability at Independent Governance Group (IGG)
The DWP consultation on UK sustainability reporting standards closes on 17 September 2025.
