UK Pension Regulator Targets Plans for Climate, ESG Non-Compliance

The Pension Regulator, the U.K.’s watchdog for workplace pension plans, is targeting plan trustees who are not meeting their environmental social governance and climate change reporting requirements.

TPR said it will begin a regulatory initiative in the spring to see if U.K. pension trustees are publishing key ESG-related data, and it is sending emails to defined benefit, defined contribution, and hybrid plans as it analyzes their return data to monitor compliance.

The regulator said it is checking to see whether trustees of pension plans with more than 100 members – unless exempt – have published a statement of investment principles, which details the policies managing how a plan invests, including how they consider financially material ESG and climate factors. Trustees are also required to publish an implementation statement, which shows how the principles in the statement of investment have been implemented.

TPR, which said it plans to review a cross-section of statement of investments and implementation statements this summer, is warning trustees it may take enforcement action against them if they fail to publish their statement of investment principles and/or implementation statement. The regulator has the authority to impose a fine of up to £50,000 ($60,900).

TPR, which is currently reviewing data provided through the 2022 defined contribution scheme return, said that initial analysis has highlighted a number of plans that did not provide valid website addresses of the statement of investment principles and implementation statements. TPR said it will be contacting the plans next month.

Authorized plans, as well as plans with relevant assets of £1 billion or more must also publish an annual climate change, or Task Force on Climate-related Financial Disclosures report. TPR said it plans to issue a statement on TCFD reports this spring.

“These reporting disclosures represent compliance with the basic requirements in relation to ESG and climate change, so it’s disappointing some trustees are failing to meet them,” Nicola Parish, TPR’s executive director of frontline regulation, said in a release. “Trustees who fail to comply risk us taking enforcement action against them and I expect to see an improvement in compliance levels.”

In regards to climate risks, TPR said that it will be looking for “clear evidence” that plan trustees:

Are taking proper account of climate change when making plan-related decisions.
Have carried out an analysis in a way that is consistent with the TCFD recommendations.
Have seriously considered the risks and opportunities that climate change will bring to their plans in their particular circumstances.
Have decided what to do as a result of the TPR’s analysis and have set a target to help meet that goal.

“We acknowledge that the requirements of the climate change regulations are new and may appear daunting for trustees,” TPR said. “However, the requirements are formed around the TCFD framework, and trustees might benefit from working through the governance and reporting requirements in a structured way.”