On the go: As new reporting requirements on environmental, social and governance considerations come into force, the Pensions Regulator has warned trustees to build capacity in this area as climate change is a fundamental consideration for schemes.
Under new implementation reporting requirements, which came into effect on Thursday, trustees will be required to produce implementation statements disclosing how they have followed the objectives and policies set out in their statement of investment principles over the previous year.
In a blog post, David Fairs, TPR’s executive director of regulatory policy, analysis and advice, argued that climate change “is no passing fad”.
He stressed that ESG considerations are fundamental, “given the long-term nature of pension schemes”.
“Trustees must take account of long-term risks and opportunities to deliver the pensions people will need in the future — and that may be in an environment very different from today’s,” Mr Fairs said.
“There’s no stepping away from the questions raised by climate change. They’re integral to good scheme governance and can’t be ducked.”
While noting that climate change has the potential to have a big effect on scheme investments and sponsor covenants, and that it will affect how TPR approaches meeting its statutory objectives, Mr Fairs exemplified how schemes can use the new implementation statements.
These can be a tool to “show how trustees have held their investment managers to account, explaining how they have engaged with, influenced and challenged investment service providers where necessary”, he said.
“Trustees could also explain how they have embedded their principles in service agreements and checked these have been upheld,” he added.
Mr Fairs concluded by advising trustees to build capacity in this area if they have not done so already, since this way they will be better placed to understand what climate-related issues mean for their schemes, “and better able to make decisions that contribute towards good saver outcomes”.
