Pensions Regulator blog highlights trustees’ duties on climate scenario analysis

On August 29, 2023, the Pensions Regulator published a blog on climate scenario analysis under the Taskforce on Climate-related Financial Disclosures (TCFD) reporting framework for trustees of large occupational pension schemes.   

Trustees of schemes with at least £1bn in assets are obliged to undertake scenario analysis "as far as they are able", addressing the potential impact of climate change on scheme assets and liabilities, and the resilience of the scheme's investment and funding strategies. Scenario analysis is required in the first scheme year to which the requirements under the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 apply and then at least every three years thereafter. 

In intervening years, trustees are obliged to consider whether new analysis is appropriate to ensure they have an up-to-date understanding.  

While the blog assures trustees they do not need to be climate science experts, it says it is "essential trustees … feel confident to question and challenge their advisers and the output from climate scenario analysis". They should ensure their analysis "addresses a fuller range of real-world risks and uncertainties". To this end, trustees should:

• Have an appropriate level of knowledge and understanding of climate issues, and undertake regular training.
• Regularly review the climate-related capabilities of service providers and consider the need for additional specialist input.
• Understand the narratives underlying climate scenarios and the limitations and assumptions applying to them.

The blog reports that around 90 schemes had published TCFD reports by  July 31, 2023, and a further 180 are expected to publish by November 6, 2023. It suggests that if trustees have completed scenario analysis but not finalised their TCFD report, they could add additional commentary to the report on how they expect the analysis to develop. If the report is completed, additional comments could be recorded in board minutes.

The Regulator hopes to encourage more debate in this area in advance of the DWP’s review of the statutory requirements under the regulations later this year.