Pensions body joins climate risk group

The UK's PLSA represents more than 1,300 pension schemes with combined assets of over £1 trillion

The Pensions and Lifetime Savings Association (PLSA) has joined the government’s newly-launched climate risk working group to improve ESG disclosures in the sector.

The Pensions Climate Risk Industry Group, set up by The Pension Regulator (TPR) and chaired by Sackers partner Stuart O’Brien, will provide guidance on how trustees should integrate, manage and report on climate risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The group will also provide support in complying with the 2022 requirements outlined in the government’s Green Finance Strategy.

The launch of the working group – which also includes representatives from the Department for Work and Pensions, and Department for Business, Energy and Industrial Strategy – follows a law change implemented on 1 October 2019 requiring trustees to state their climate change policies as part of a scheme’s Statement of Investment Principles (SIP).

The PLSA has been involved in a number of initiatives to improve understanding of ESG issues and disclosures in the pensions industry.

In 2017, the PLSA – which represents over 1,300 pension schemes with combined assets of over £1 trillion – published its Climate Risk Guide which provides a framework for pension funds to manage the severe risks posed by climate change, and has also published a practical guide on ESG and stewardship trustee duties.

“It is widely acknowledged that climate change poses a severe risk to investment portfolios and it is firmly in schemes’ and savers’ interests to seek to address it,” Caroline Escott, policy lead for investment and stewardship and the PLSA’s representative on the TCFD working group, said.

“I look forward to working closely with industry colleagues to provide guidance for schemes of all sizes on using the TCFD framework to help them manage and report on climate risk,” Escott added.

Pensions funds have previously been exposed over their lack of understanding and awareness of ESG issues.

A major survey in November 2018 found just 5% of UK corporate pension funds had made arrangements for a specific climate change policy in their portfolios, and no schemes had a specific target for low carbon investments.

The survey, conducted by law firm Pinsent Masons among 43 corporate pension funds, also found that only 12% had a way of measuring the sustainability of their investments.

And in a study published last month, nearly half of British pension trustees (48%) said they still believe there is a lack of evidence that ESG issues are linked to the financial performance of investments.

The 2019 ESG Survey from law firm Sackers also found trustees are seeking greater availability of “jargon free” advice to guide them through the flood of ESG products and services which have been launched in recent years.