Pension schemes in the UK are to be forced to explain how millions of their members’ retirement pots will be affected by rising temperatures under new government measures as part of a response to climate change.
On Wednesday, the government will announce plans to “step up” existing requirements on pension schemes managing tens of billions of pounds of retirement cash to disclose what they are doing to manage climate risks for their savers.
Current rules require “defined contribution” schemes to have a policy on how they consider climate change in their investment strategy, to publish that policy, and to report annually on how they took the issue into account.
New requirements will require much more detailed disclosures from trustees of these schemes, such as setting out how a saver’s pot would be affected by a rise in temperature of 2 degrees Celsius, or even 4 degrees.
In addition, schemes will also be required to explain their governance and management of climate change risks and to set out their exposure to carbon-intensive companies.
“Pension schemes shouldn’t be dragging their heels when it comes to their climate change strategy,” said Therese Coffey, work and pensions secretary. “We’ve already introduced regulations that require pension trustees to set out their policy on climate change, but now we’re taking things a step further.
“I want the UK to continue leading the way on the climate emergency defining the 21st century.”
The measures follow a meeting last week between Mark Carney, the governor of the Bank of England, and Ms Coffey on ways to encourage pension schemes to use their investment muscle to tackle climate change.
However, the trade body representing thousands of workplace pension schemes warned that the new measures could give the government “unprecedented” powers over the investment strategies of private-sector schemes.
“We fully support initiatives that help pension schemes with assessing climate change risks,” said the Pension and Lifetime Savings Association, which represents workplace schemes with 20m members.
“However, parts of these new amendments appear to go significantly beyond current requirement for schemes to disclose what they are doing on scheme investment around climate change and would give unprecedented new powers to government bodies to interfere and request changes to private sector schemes’ investment strategies. If that’s the case it would set a dangerous precedent and be wholly inappropriate.”
News of the stiffer requirements on schemes came a week after The Pensions Regulator was urged to investigate whether trustees were complying with a new obligation to make public their investment policy on climate.
New laws that came into force last year required them to prepare a policy for protecting retirement investors against financial risks arising from climate change and other environmental, social and governance (ESG) issues.
Market analysis of schemes representing around 3m members by the UK Sustainable Investment and Finance Association (UKSIF), found that only one-third of trustees had complied with the new rules.
“It is vital that pension schemes protect savers’ money from the financial risks of climate change,” said UKSIF, in response to new measures. “We welcome this important step on the road to building a financial system that is more responsible and responsive to climate change.”
The government has already pledged to bring all greenhouse gas emissions to net zero by 2050. It said the measures, which will go out for consultation, would initially only apply to large pension schemes.