Pension schemes that don’t protect savers’ pension pots from climate change risks will face penalties under new rules from the UK’s industry regulator.
A new climate change strategy published last week by The Pensions Regulator (TPR) seeks to protect savers’ income from the ‘unprecedented risk’ of global warming and divert investment towards green energy initiatives.
The Pensions Regulator is the watchdog for the UK’s workplace pensions schemes and is tasked with ensuring employees are enrolled in retirement savings schemes and that savings trustees guard those investments responsibly.
The guidance for pensions trustees comes months ahead of new legislation, forcing the largest pensions companies to start issuing public reports on their green credentials to mitigate the impact of pension investments on fuelling climate change.
The Pensions Schemes Act’s climate sections will come in to force in October but only apply to the very largest trustees, withholdings of £5 billion or more, and will include schemes that manage £1 billion or more by 2022.
The new TPR guidance seeks to push smaller pension firms – which will not be affected by the new laws- to change their practice too, and protect savers’ pension pots.
Executive Director of Regulatory Policy, Analysis and Advice, David Farrs, said:
Work on climate change needs to happen right across the pensions landscape – climate change is a risk for schemes whatever the size or investment strategy. It is clear that all schemes need to build their capacity in this area if they haven’t already. This should include devoting more board time to climate change, considering specific training, and, most importantly, integrating consideration of climate change right across decision-making.
The new climate change strategy sets out guidance for smaller pension trustees on how to step up investments in green and low-carbon technologies and force firms to publish their investments online where savers can view them.
The guidance includes a Green Finance Strategy, which will see financial decision-makers required to consider the climate impact of investments and assets before signing off on them.
I welcome TPR stepping up on this issue – by increasing oversight of climate change and giving it the weight it deserves, they can provide better protection for pension savers from significant financial risk.
As well as financial risks to investors, scientific evidence projects that failure to cap the effects of climate change will result in a whole host of health and social risks.
According to the Met Office, cities such as Leeds could see up to 40% more flooding by the end of the century, while serious tropical diseases such as dengue, malaria and leishmaniasis could become endemic to the UK if there us not a slowdown in climate change.