UK pension funds would be the first in the world to be legally required to report their exposure to climate risk and detail how they plan to manage that risk if a bill currently before Parliament is passed.
An amendment added to the Pension Schemes Bill imposes requirements on trustees and managers of certain occupational pension plans to take into account the effects of climate change and to publish information relating to those effects.
According to the bill, the requirements include reviewing the exposure of a plan to climate risks, and determining, reviewing, and, if necessary, revising a strategy for managing the plan’s exposure to climate risks. Additionally, the bill says regulations may require the trustees or managers of an occupational pension plan to publish information describing the effects of climate change on the plan. Financial penalties would be imposed on trustees who do not abide by the climate disclosure rules.
Guy Opperman, head of the UK’s Department for Works and Pensions (DWP) praised the amendment to the bill, saying in a tweet that it is a “massive step forward in [the] battle against climate change.”
The proposal was also lauded by environmental groups, such as ShareAction, a UK-based charity that promotes responsible investing.
“We’re delighted that the UK government is taking steps to implement TCFD [Task Force on Climate-related Financial Disclosures] on a mandatory basis,” Fergus Moffatt, head of UK policy at ShareAction, said in a statement. “ShareAction has been working closely with DWP on guidance for pension schemes, and we’re very hopeful these world-first reforms will accelerate climate action. … The level of disclosure required under these laws would make it plain to see which pension schemes are really walking the talk on tackling the climate crisis.”
However, UK trade association the Pensions and Lifetime Savings Association (PLSA) said it had concerns over the reach of the proposed legislation and the new powers it would give the British government.
“We fully support initiatives that help pension schemes with assessing climate change risks,” Joe Dabrowski, head of defined benefit, local government pension scheme and standards at the PLSA, said in a statement. “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.”
Dabrowski warned that it could set a dangerous precedent and be “wholly inappropriate,” adding that “nothing should cut across schemes’ fiduciary duty and freedom to invest in members’ best interests—and this will vary scheme by scheme. We urge the government to redraft the amendments and clarify its intent and respect for this principle.”