U.K. retirement plans with at least £5 billion ($7.1 billion) in assets will be required to assess and publicly report climate change risks in their portfolios starting in October under regulations presented to Parliament on Tuesday.
The new regulations, which are subject to parliamentary debate, fall under the Pension Schemes Act 2021 and will require trustees to identify and evaluate climate risks and opportunities that may affect investment strategies over the short, medium and long terms.
Investors will also be required to disclose in annual reports the carbon emissions of their portfolios. They must conduct scenario analysis, select and calculate climate metrics that impact on the portfolio, and set climate targets and review performance against them.
For this purpose, investors will use Taskforce for Climate-Related Financial Disclosures standards. The measures will be extended to plans smaller than £5 billion starting in 2024, the U.K. Department of Work and Pensions said in a news release.
"These world-leading regulations we outline today ensure these risks are accounted for, and are done so with total transparency," Guy Opperman, U.K. minister for pensions and financial inclusion, said in the release.
The DWP said on its website that the U.K. would become the first among leading industrial nations in which trustees of retirement funds are required to consider, assess and report on the financial risks of climate change within their portfolios.
"We warmly welcome the government's publication of the proposed pension climate reporting legislation embedding TCFD requirements in pension fund disclosures," Will Martindale, group head of sustainability at consultant Cardano, said in an email.
Mr. Martindale added that the regulation will level the playing field and raise minimum standards in terms of the use of climate-related metrics, climate scenarios and targets.
"Trustees will be relieved that there are few material changes since January's consultation drafts," said Claire Jones, partner and head of responsible investment at consultant Lane Clark and Peacock, in a separate email.
The government ran a consultation period with the U.K. retirement industry on draft regulation in January and February.
Ms. Jones welcomed the government's response to practical issues raised by industry participants during the consultation period, such as a new threshold for defined contribution plans for which scenario analysis is required. Plans with at least £100 million in assets — rather than 250 plan participants — will be required to at least assess the resilience of their strategies to a global temperature increase of 1.5 to 2 degrees Celsius.
Defined benefit funds will also be allowed to align the scenario analysis requirement with their triennial valuation, she said.
