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Climate: pension schemes are policy change enablers

9 March 2020: the Private Pensions and Arm’s Length Bodies and The Pensions Regulator have set out how climate change risk should be incorporated into their work, following the publication of the UK government’s Green Finance Strategy in July 2019.

The Pensions Regulator has an important role to play within the UK Government’s Green Finance Strategy to help pension funds deal with the material financial risks arising from climate change. This was the subject of correspondence between the Director of Private Pensions and Arm’s Length Bodies at the Department for Work and Pensions and The Pensions Regulator.

A letter from the former to the latter set out the Department for Work and Pensions’ view on integrating climate change risks and opportunities into the Regulator’s activities. It points out that mitigating climate change aligns with three of the regulator’s core objectives:

  • to protect the benefits under occupational pension schemes of, or in respect of, members of such schemes;
  • to reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund; and
  • to promote, and to improve understanding of, the good administration of work-based pension schemes.

Zsuzsanna Schiff, Technical Manager in ICAEW’s Financial Services Faculty, highlights that, as asset owners, pension schemes are the ultimate enablers of change. “Considering climate change financial risks now means you can adopt a strategic approach, rather than just reacting and following eventual regulation,” says Schiff.

The letter also sets out recommendations for the regulator’s upcoming report on climate change adaptation, including covering the regulator’s policy and regulatory approach to adapting to climate change.

In his reply to the letter, Charles Counsell, Chief Executive of The Pensions Regulator, sets out how the body is responding to climate change. The Regulator’s strategy will include how it will continue to engage with the recommendations of the Taskforce on Climate-related Financial Disclosures. He also highlights master trusts as an area of focus.

To read further on climate risk, please visit our Climate Hub.

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