A look into the increased focus on climate and ESG non-compliance

The Pension Regulator (TPR) is increasing its focus on climate and environmental social governance (ESG) non-compliance, but what does this mean for you as the Trustee and your scheme?

TPR is in the process of launching a regulatory initiative in Spring 2023 to ensure the reporting of ESG by Trustees meets a required standard.

Part of this initiative will include a deeper analysis of scheme return data to monitor compliance and increased attention diverted to 100 plus member schemes (unless exempt) on the publishing and content of Statement of Investment Principles (SIP), including a policy on environmental considerations (including climate change) and the consideration of material ESG and climate factors, and the Implementation Statement (IS), explaining how the principles behind the SIP have been applied to the scheme.

TPR will complete a review of a cross-section of the SIP and IS statements in Summer 2023 and will report the outcome of the review to the industry and Trustees to emphasise good practice.

It should be made aware to Trustees that schemes in scope who unsuccessfully publicise their SIP and/or IS could have enforcement action taken against them, with TPR having the power to employ fines.

It should be noted also, for large schemes (+£1 billion assets), authorised master trusts and CDC schemes, must publish an annual climate change, Taskforce on Climate-Related Financial Disclosures (TCFD) report. Trustees of these schemes will be required to provide the URL to this report in their scheme return.

TCFD’s were created to improve an increase in reporting of climate-related financial information. Schemes are required to have published their report within seven months of the scheme’s first year end, and then each scheme year thereafter where the scheme requires to meet the authorised criteria. Further regulatory guidance will also be published by TPR in Spring 2023.

But what are the benefits of better disclosure?

• Risk assessment – a more effective evaluation of climate-related risks to the scheme and advisors
• Investment allocation – better informed decisions on where and when to invest your contributions and scheme assets
• Strategic planning – better evaluation of risks and exposure over the short, medium and long terms

The key aspects of reporting for pension schemes will need to be transparent about how they are investing their members’ money especially if it is detrimental to the environment.

If you would like more information on the disclosure changes and regulatory requirements for your scheme in relation to climate and ESG, please get in contact with us at info@assureuk.co.uk or you can call us on 020 71128300