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Jurisdiction: GB
Commencement: 1st October 2021
All pension schemes are exposed to climate-related risks, irrespective of their current investment strategy. This legislation has been introduced because it has been identified that there is a risk that members of pension schemes may be overexposed to financial risks of climate change which could affect their estimated financial outcomes in retirement. Trustees of pension schemes are already required to consider all financial risks; these Regulations strengthen the focus on climate change related risks.
Trustees of pensions schemes that meet the below asset thresholds are required to meet the requirements of this legislation. They come into force on 1st October 2021.
A scheme year is a year specified in any document for the scheme. If there is not one specified, the scheme year usually runs for 12 months starting 1st April each year.
Trustees of schemes with relevant assets of £5billion or more at the end of the scheme year that ends on or after 1st March 2020 will be subject to the requirements of this legislation from 1st October 2021.
Trustees of schemes with relevant assets of £1billion or more at the end of scheme year that ends on or after 1st March 2021 will be subject to the requirements of this legislation from 1st October 2022.
If a scheme’s relevant assets fall below £500million on any scheme year-end date, the trustees will no longer need to be compliant with the requirements of this legislation (unless the scheme is an authorised scheme). However, the annual report must still be published for the scheme year that has just ended, unless exemptions apply.
Other exemptions are given in regulation 3(6). It is recommended that trustees thoroughly check the guidance to see if they are obligated under these Regulations.
For schemes where the trustees are required to obtain audited accounts, the relevant assets are the total amount of net assets of the scheme recorded in the audited accounts for the scheme year, less the value of the assets of the scheme represented by any relevant contract of insurance recorded in those accounts.
For schemes which are ear-marked schemes, the relevant assets are the value of the assets represented by any policies of insurance or annuity contracts that are allocated for provision of benefits of individual members, or anyone else who has a right to benefit under the scheme, less the value of the assets of the scheme represented by any relevant contract of insurance.
Trustees have a duty to establish and maintain oversight of the climate-related risks and opportunities which are relevant to the scheme. They must also establish and maintain processes to ensure:
Strategy and scenario analysis
Trustees must:
Trustees are required to establish and maintain processes to enable them to identify, assess and manage climate-related risks that are relevant to the scheme. These processes should be integrated into the overall risk management of the scheme.
Metrics
In the first scheme year in which they are obligated under these Regulations, trustees must select a minimum of:
to calculate in relation to the scheme’s assets.
The metric must be reviewed from time to time and replaced if it is determined appropriate to do so.
Trustees are required to obtain the scope 1, scope 2 and scope 3 greenhouse gas emissions that are attributable to the scheme’s assets. The data obtained should be used to calculate the absolute emissions metrics and selected emissions intensity metric. The metrics calculated should be used to identify and assess the climate-related risks and opportunities relevant to the scheme.
N.B. Scope 3 emissions are not required to be obtained for the first scheme year.
A target must be set in the first scheme year for the scheme in relation to one of the selected metrics. Performance against the target must be measured in each scheme year. The target may be retained or replaced when taking performance against the target into account.
Trustees must produce a report for any scheme year, or part of a scheme year when they are subject to the governance requirements.
The report must be published on a publicly available website and be accessible, free of charge and within 7 months of the end of a scheme year. The report must be signed by the chair on behalf of the trustees.
Information that must be included in the report is given in Part 2 of the Schedule.
Noncompliance with this legislation can result in compliance notices and financial penalties.
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