The DWP has responded to its 2020 consultation on improving governance and reporting on climate risk for occupational pension schemes and begun a new consultation on the regulations to bring the new regime about. Large schemes will be required to disclose their approach to managing climate risks and opportunities, in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The new regulations will require trustees to satisfy the 11 recommendations of the TCFD and to report annually on how they have done so.

The focus is still on the largest schemes – with authorised master trusts and schemes with £5 billion of assets in scope from October 2021, whilst schemes with £1 billion of assets will follow one year later. One change has been to exclude bulk annuity contracts from counting towards the asset threshold. Scenario analysis has been expanded to include the impact of climate change on the sponsor’s covenant, as well as on the scheme’s liabilities. The possible extension of the new regime to smaller schemes will be reviewed in 2023 and consulted on in 2024. The new consultation runs until 10 March 2021, with the resulting regulations due to come into force on 1 October 2021.

Accompanying guidance from the Pensions Climate Risk Industry Group has also been published.