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The Pensions Regulator’s guidance on governance and reporting of climate-related risks and opportunities

  • United Kingdom
  • Pensions


The Pensions Regulator has published the final version of its guidance on the new climate change governance and reporting requirements. The guidance applies to trustees of schemes caught by the requirements, such as authorised DC master trusts and those schemes with assets in excess of £5 billion (moving to schemes with assets in excess of £1 billion from 1 October 2022). The DWP will review whether the statutory requirements should extend to smaller schemes in 2023.

Trustees must produce and publish their TCFD report within seven months of the end of the scheme year in which they are subject to the requirements.

The guidance does not impose any new requirements on trustees; it “complements and should be used alongside” the DWP’s statutory guidance and includes some useful practical steps to help trustees comply with the climate governance and reporting requirements. Most trustees in the first wave of compliance will be well underway with implementing these practical steps, but we think the guidance is still helpful to them (and also to trustees in the second wave of compliance) as it will enable them to confirm alignment with the Regulator’s expectations and understand how the Regulator interprets the statutory guidance.

Trustees are required to undertake scenario analysis, obtain emissions data, select and calculate metrics, use metrics to identify and assess climate-related risks and opportunities (“CRRO”) and measure performance of the scheme against targets “as far as [they] are able”. The guidance does not prescribe what constitutes “as far as trustees are able” because the parameters will be scheme-specific and depend on trustees’ resources, budget, support and the materiality of climate risk to their scheme. Where trustees are unable to carry out activities due to incomplete information, they should record the steps they have taken and set out plans to improve and develop disclosure and outcomes.

The Regulator recommends that trustees take certain actions and practical steps to meet the statutory requirements. We consider the key points in the guidance are as follows:


  • add CRRO to the remit and terms of reference of one or more appropriate sub-committees
  • document the roles and responsibilities of parties making climate-related decisions, including information flows, objectives, monitoring of outcomes and oversight
  • consider whether the main trustee board (or relevant sub-committee with delegated authority to oversee CRRO) needs specific training – e.g. specific climate risks for different asset classes
  • add climate change as a standing trustee agenda item
  • review skills and resources of relevant service providers to address and advise on CRRO, including their tools and software to support climate-related risk assessment and monitoring
  • review your investment consultant’s service agreements and objectives in order to monitor performance

Note the Investment Consultants Sustainability Working Group’s guide sets out five themes to evaluate investment consultants’ competency in identifying and dealing with CRRO.

Strategy and scenario analysis

  • decide the short, medium and long-term time horizons for your scheme and commit to a regular review – e.g. following any material change in the scheme membership, developments in data quality and modelling capabilities, or as part of any SIP review

For a closed mature DB scheme looking to buy-out, the Regulator suggests short-term is 3 years, medium term is 7 years and long-term is 12 years; whereas, for a DC master trust offering decumulation, the Regulator suggests short-term is 5 years, medium term is 10 years and long-term is 30 years.

  • consider CRRO in the context of the scheme’s investment strategy and include a CRRO section in your investment performance and risk monitoring reports

For DB schemes, consider CRRO as part of your ongoing monitoring of scheme funding and covenant, including how your sponsor assesses CRRO.

  • assess the resilience of your investment strategy (and, for DB schemes, your covenant and funding strategy) against two scenarios in line with statutory requirements
  • develop the sophistication of your scenario analysis by starting with a qualitative approach and moving towards quantitative analysis
  • consider the potential effect of scenarios on: (i) the nature of the transition to a low carbon economy (e.g. orderly/disorderly); (ii) specific asset classes and material holdings; (iii) any adjustments to strategy; and, for DB schemes, (iv) different tranches of liabilities and the employer’s covenant
  • consider updating your scenario analysis after significant changes – for example, increased data availability, (for DB schemes) changes to the scheme’s liability profile and (for DC schemes) changes to the membership profile
  • document your scenario analysis and incorporate it into the wider governance, strategy and risk management of the scheme

Risk management

  • consider developing a CRRO dashboard to include in your regular reporting cycle (with a section on funding and covenant for DB schemes)

The Regulator has provided an example of a dashboard to help trustees prioritise the different strands of climate-related work and material issues affecting the level of CRRO for their scheme.

  • include CRRO in your investment beliefs, risk register and new policies and frameworks, such as a dedicated set of climate principles or a climate risk management framework

For DB schemes, integrate climate-related considerations into scheme funding measures, covenant assessment, contingent support and your overall risk management framework and develop processes with the scheme’s sponsor for alerting you to emerging risks.

  • ensure service providers are responsible for reporting: (i) emerging CRRO (such as new government policies that could affect the profitability of certain sectors); (ii) climate-related risks within portfolios; and (iii) engagement, voting and stewardship activities in relation to climate-related matters


  • review (in conjunction with your advisers) the range of metrics available and how they might be applied to the scheme, given the nature of the investments held and the current data limitations
  • use the DWP’s statutory guidance to help select at least three metrics, including an absolute emissions metric, an emissions intensity metric and an additional climate change metric, and develop a process to review these metrics at regular intervals. Note that, under the DWP’s proposals, trustees will also need to select and calculate a portfolio alignment metric (relative to the objectives of the Paris Agreement) from 1 October 2022
  • ensure metrics are objective, understandable, trackable over time, comparable across the portfolio and support decision making
  • establish systems and processes to obtain the Scope 1, 2 and 3 greenhouse gas emissions attributable to the scheme’s assets and fill gaps with estimated or proxy data, as far as you are able
  • use the most recent data available to calculate your metrics, as far as you are able, even if the data is not from the current year
  • use the metrics to identify those parts of your portfolio that are more exposed to climate-related risks, prioritise your actions and document outcomes (e.g. changes to investment strategy)


  • set one or more targets for your metrics that are relevant to the scheme’s investment strategy and the way you want to manage CRRO, including a framework for delivering against your targets (including interim targets)
  • monitor progress against one or more targets

Monetary penalties

Trustees must publish their TCFD report on a publicly available website free of charge which is indexable by search engines. Trustees of DC schemes must inform members about their published TCFD report in annual benefit statements.

Where trustees do not publish a report, the Regulator must issue a mandatory penalty of at least £2,500 with a maximum penalty of £5,000 for individual trustees and £50,000 for corporate bodies. The mandatory penalty does not relate to the content of the report (and so it is different from the mandatory penalty for chair’s statements).

Where the Regulator believes trustees have not met the climate governance requirements, it has a range of enforcement options, including the discretion to issue a penalty notice. In appendix 3 of its monetary penalties policy, the Regulator provides examples of how it proposes to approach penalties for breaches of the regulations.  

In general, the Regulator will apply a risk-based approach depending on the materiality of the breach and its wider implications (split into bands 1-3):

  • “band 1” may constitute a failure to include a required disclosure (e.g. failure to explain a decision not to undertake new scenario analysis but the report otherwise gives a good explanation to members)
  • “band 2” may constitute a failure to include a required disclosure in a climate change report which materially affects members’ understanding of how well the scheme is managed (e.g. a failure to disclose scheme resilience in the scenarios analysed)
  • “band 3” may constitute a failure to identify and assess the impact of CRRO on investment strategy, which is a far more severe, structural breach of the regulations