The Pensions Regulator issued guidance Thursday to help U.K. pension trustees meet new standards for climate-related governance and reporting of both risks and opportunities.
Part of trustees' responsibility is making sure that the external advice they get is relevant and competent, the regulator said in a news release.
"We recognize that the governance and reporting of climate-related risk is relatively new, so trustees may be more reliant on external experts while they build their scheme's capability in this area," said David Fairs, executive director of regulatory policy, analysis and advice for TPR, in the release.
"Trustees must take responsibility for ensuring their advisers have the appropriate skills and expertise and the advice they offer is relevant, helpful and represents value for money. After all, ultimately it's trustees who are responsible for any decisions," Mr. Fairs said in the release.
The finalized guidance and new reporting rules apply to pension funds with assets of £5 billion ($6.6 billion) and will be expanded to funds with £1 billion or more as of October 2022. The Department for Work and Pensions will consider extending the rules to smaller funds in 2023. A step-by-step guide is planned for 2022.
Mr. Fairs said in the release that the guidance "offers an opportunity for all trustees to improve their scheme's structures and governance in relation to climate-related risk and opportunities in preparation for any expansion."
TPR said it will be looking for "clear evidence" that trustees are taking proper account of climate change when making decisions, have carried out that analysis in accordance with Task Force on Climate-related Disclosure recommendations, and have seriously considered climate change risks and opportunities relevant to their pension funds. Trustees will have to disclose that analysis and report on targets set to achieve goals resulting from it.
The guidance covers both requirements and what the agency says should be done. For rules imposed by legislation, trustees failing to meet them could lead to enforcement action. For other steps recommended in the guidance, trustees would need to explain their reasons for taking a different approach.
Nigel Peaple, director of policy and advocacy with London-based Pensions and Lifetime Savings Association, said in a separate statement that that plan trustees need more guidance and tools to deal with climate-aware investing as soon as possible. "We would welcome more guidance to be made available to trustees in both the toolkit and on the issue of covenant guidance — the employer's legal obligation and financial ability to support the scheme now and in the future, while integrating new climate change risk with accuracy," Mr. Peaple said.