Written evidence from The Pensions Regulator (TPR) (PSC0014)



TPR is the UK’s regulator work-based pension schemes. Our statutory objectives are to:

TPR is a non-departmental public body established under the Pensions Act 2004 and sponsored by the Department for Work and Pensions. Parliament sets the legal framework in which we operate.

Proposed regulations under the Pension Schemes Act 2021 (PSA 2021) will require trustees or larger pension schemes, and all master trust and collective DC schemes, to consider the effects of climate change and the risks and opportunities arising from the response to this global emergency. They will need to think more thoroughly about the risks and opportunities a transition to a low-carbon economy will bring, and publicly report the steps they are taking. Pensions are one part of the financial system, and these measures reinforce the need for TPR to continue working closely with other regulators to ensure that risks arising from climate change are properly factored into that system as a whole.

Climate change impacts broadly across society. Every business, all parts of the economy and the financial market will be impacted. As such, it is systemically significant to pensions, to our regulatory regime and our statutory objectives. For example, it’s directly relevant to our objective of protecting member benefits. If trustees fail to consider risks and opportunities from climate change, or fail to exercise effective stewardship, then they face the risk investment performance will suffer. Defined contribution (DC) savers will miss out on the best outcomes. Defined benefit (DB) schemes will be sponsored by employers whose financial positions and growth prospects depend, to varying extents, on how they respond to climate change.


Our recently published climate change strategy[1] sets out how proposed regulations will require trustees of larger schemes, and all master trust and collective DC schemes, to maintain oversight of, and make mandatory disclosures in relation to, climate-related risks and opportunities. Beyond these proposed requirements, the strategy outlines TPR’s expectations that all scheme trustees will comply with existing duties, such as the requirement to publish their statement of investment principles (SIP) - including their policies on stewardship and financially material environmental considerations - and implementation statement.

A key policy driver in our work on climate change is the government’s Green Finance Strategy[2] (GFS). This aims to transform the UK’s financial system for a greener future and sets out steps towards the unprecedented levels of investment in green and low-carbon technologies, services and infrastructure needed to meet the government’s commitment to bring domestic greenhouse gas (GHG) emissions to net zero by 2050.

This transformation requires climate and environmental factors to be fully integrated into mainstream financial decision-making across all sectors and asset classes. One of the most influential international initiatives to achieve this is the Taskforce on Climate-related Financial Disclosures (TCFD). Recommendations drawn up by the TCFD have become a key framework for a co-ordinated approach that puts climate change at the heart of financial decision-making. In the GFS, the government set out an expectation that large asset owners would disclose in line with the TCFD recommendations by 2022.

For occupational pension schemes, this expectation is being taken forward through the PSA 2021, which writes climate change into pensions law in the most comprehensive way to date.

The proposed regulations adapt TCFD recommendations to make them relevant to trustee decision-making structures. For example, a TCFD recommendation under the heading of ‘governance’ translates into a requirement for trustees to have oversight of climate-related risks and opportunities. Under the heading of ‘metrics and targets’, trustees will be asked to work out the scheme’s carbon footprint by calculating GHG emissions of the investment portfolio. Trustees will also have to set climate-related targets. Trustees will have to disclose their findings by publishing a report sharing what they’ve discovered about their scheme and details of their governance arrangements.

While mandatory disclosure of climate risks in line with the TCFD recommendations initially applies to larger schemes and all master trust and collective DC schemes, all schemes already have duties in relation to climate change. For example, as of 2019, trustees of schemes with 100 or more members have been required to set out in their statement of investment principles (SIP) policies on stewardship and on environmental, social and governance considerations (including climate change) that they consider financially material. These schemes need to publish their SIPs and their implementation statement on a publicly accessible website, too.

We know there are excellent examples of trustee action on climate change. For example, Nest - the UK’s largest pension scheme by membership - has set out plans to be net zero across its investments by 2050 or earlier. Meanwhile, the BT Pension Scheme - the UK’s largest private sector DB scheme - has announced it’s heading to net zero GHG emissions by 2035.

These are impressive plans and we welcome them. We want all schemes to learn what they can from these examples and take steps, as appropriate, to improve their governance of climate-related risks and opportunities.

  1. How should pension schemes contribute to setting COP26 targets and helping to achieve the targets once agreed?

TPR works with trustees, seeking to ensure compliance with legislation so savers can be confident their money is being looked after for their retirement.


Trustees’ primary concern is to act in the best interest of savers. COP26 targets - that is, targets set by signatory countries to the UN Framework Convention on Climate Change - that are effective at limiting global heating will have a bearing on this. They will affect the viability of schemes’ investment and funding strategies. Trustees are already considering how climate change affects asset prices and looking at the huge opportunities from a global pivot towards low-carbon economies. In a world where the climate emergency is real and urgent, this is the prudent approach.


While COP26 targets are relevant to pension schemes, trustees should not be responsible for setting them – that is the job of policy-makers and governments.


We believe the role of trustees is to ensure any legal targets, and any risks and opportunities arising from them, are fully considered in scheme governance. For example, transition risks will arise for a scheme with carbon-intensive assets if policy-makers at COP26 were to decide on a policy that implied a swift transition to a low-carbon economy.


The new regulations proposed under the PSA 2021 for larger schemes will help direct trustees in how they consider climate-related risks and opportunities. For example, the temperature target under the UN COP process is that of the Paris Agreement, which aims to limit the increase in the global average temperature to well below 2°C. Proposed regulations under the PSA 2021 will require trustees to test the resilience of their scheme in a 2°C or lower scenario.


Similarly, there is a proposal that trustees should set at least one target for their scheme in relation to climate-related metrics. We would expect – for the purposes of managing climate risk alone - alignment with broader government policy would be considered in the setting of such targets, and so COP targets would likely be a factor for trustees here. We welcome the setting of clear and robust COP26 targets. Pension savers’ best interests would be best served by a policy framework that is effective in avoiding dangerous climate change.



  1. What role should international standards have in supporting pension schemes to assess climate change risks when considering scheme investments?

International standards would help towards consistent and comparable reporting on climate-related risks.

In November 2020, along with other UK financial regulators and government departments we signed up to a joint statement[3] welcoming work by the Trustees of the International Financial Reporting Standards (IFRS) Foundation towards assessing demand for international sustainability reporting standards.

The statement set out that:

“Climate change and sustainability are challenges that extend beyond national borders. They therefore demand international solutions. Internationally agreed sustainability reporting standards will help to achieve consistent and comparable reporting on environmental, social and governance (ESG) matters. This in turn will help to inform international investment flows to support transitions to a net zero emission economy amongst other public policy goals.”

  1. Are there suitable financial products to enable pension funds to make climate-conscious investments? How should such investment be facilitated and supported?

Are there suitable financial products to enable pension funds to make climate-conscious investments?

Pension trustees have been able to access some climate conscious investments for a significant number of years. However, the range was limited and often based around renewable funds (for example, solar and wind power), thematic funds and some funds with a significant focus on ESG or with an overlay of screens and exclusions to make them more climate ‘friendly’.

In recent years, there has been greater focus on ESG and climate change, in part driven by the introduction of The Pension Protection Fund (Pensionable Service) and Occupational Pension Scheme (Investment and Disclosure) (Amendment and Modification) Regulations 2018. These regulations, among other items, required trustees to include policies in their SIPs on ESG factors (including climate change) that they consider to be financially material. These new requirements, combined with a growing awareness of the importance of integrating consideration of climate change, have resulted in significant progress in the development of climate and ESG-focussed benchmarks.  

These factors contributed to a significant increase in the range of funds (both within asset classes and across asset classes) that offer either more ESG or climate conscious investment opportunities.

The Occupational Pension Scheme (Investment) Regulations 2005, impose certain duties on trustees in exercising their powers of investment (either directly or where discretion has been delegated). Trustees are also obliged under the Pensions Act 1995 to take proper advice. The combined effect of this legislation is that any consideration of ‘suitable’ investments needs to be more nuanced. For example, suppose trustees decide they want to invest in asset class X given its investment and risk characteristics as part of their scheme’s overall investment strategy. This would then give rise to two distinct questions:

  1. Are there investment manager funds/propositions (pooled or segregated) available which would enable the trustees to invest in that asset class with a climate-conscious focus?
  2. Are those propositions of sufficient ‘quality’ i.e. would they meet the ‘buy-list’ criteria of their investment consultant 

In relation to the first question, we are aware that in recent years, driven by market demands, consideration of ESG and climate credentials has expanded considerably beyond ‘core’ equity mandates, though it still is a work in progress, particularly in relation to some alternative and private market asset classes. This has expanded the opportunity set for trustees and their advisers to consider.

The second question is probably more important than the first, in that many investment products may come to market, but not all will be credible (or suitable to invest in for a pension scheme). Some will be driven more by the market opportunity and the ‘wall of money’ behind the climate transition than investment effectiveness. To an extent, ‘greenwashed’ funds are an example of this.

Trustee stewardship has a key role in ensuring that an investment portfolio remains robust in the face of climate change. We expect trustees to talk to their service providers and advisers about the way short-, medium- and long-term risks and opportunities arising from climate change are built into their advice. We also expect trustees to make sure their policies on climate change are reflected in the expectations they set for those who manage the scheme’s investment portfolio.

We welcome the establishment of the Investment Consultants Sustainability Working Group. We believe it will improve sustainable investment practices across the industry. For example, the guide for assessing climate competency of Investment Consultants[4], which the group published at the beginning of this year, can help trustees assess the climate competencies of these key service providers.

In recent years the requirement for trustees to improve their stewardship and governance activities has increased following the introduction of The Pension Protection Fund (Pensionable Service) and Occupational Pension Scheme (Investment and Disclosure) (Amendment and Modification) Regulations 2018 and The Occupational Pension Scheme (Investment and Disclosure) (Amendment) Regulations 2019[5] (together the “OPS regulations”), These regulations which imposed additional duties on trustees, and together with the UK Stewardship Code, which took effect on 1 January 2020, set new expectations in relation to the integration of stewardship in investments.   

Through engagement, trustees (and other investors) can seek to encourage companies to change their ‘climate profile’ and adapt / accelerate their adaption to the de-carbonised economy transition. In instances where companies do not respond or are unwilling or unable to respond, trustees (and other investors) may consider divestment. Ultimately, engagement can be used to seek to drive change and enable trustees to adopt a climate-conscious approach.    

How should such investment be facilitated and supported?

The regulations that introduced new requirements in relation to the SIP in recent years were a good starting point. The forthcoming regulations which will impose governance requirements and TCFD reporting duties on trustees of in-scope schemes will also be very helpful. The pensions and investment industry is going through a period of accelerated transition, trustees are on a learning curve and further improvements in climate data capture and modelling (across the full universe of investment opportunities) will take place as processes and practices develop.

As such, we believe there is enough industry momentum, across trustees, advisers and investment providers to drive effective change and to enable the development of a wider range of investment products and propositions that offer more climate-focused capabilities.

However, industry progress needs to be monitored and we are planning a review of scheme’s implementation statements later this year. These will need to set out how trustees have acted on policies set out in the SIP. We will also carry out a thematic review of the scenario analysis work by trustees of schemes in scope of the new regulations. This will help inform the review of the new requirements (and of the schemes that should come in scope) that DWP will carry out in the second half of 2023. We think the output from these reviews will help inform whether further interventions might be needed to facilitate and support additional investment.

We also think the recent formation of an Occupational Pensions Stewardship Council is positive and will help to promote change and the development of good practices

  1. How should the UK seek to share and learn from international best practice?

The UK is the first country to mandate climate reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosures. For this reason, we hope to lead by example on helping trustees and employers directly manage the risks arising from climate change.


  1. What regulatory changes or other government action has been most effective in delivering change in the UK; and what changes on the part of Governments elsewhere should the UK learn from?

There are two key (and related) initiatives we think will be particularly effective in delivering change in the UK.


The first of these is the UK’s Treasury-led joint regulator and government TCFD Taskforce. This reported last November and produced a roadmap[6] towards mandatory reporting across the UK economy in line with the recommendations of the TCFD.


This work will ensure the right information on climate-related risks and opportunities is available across the investment chain – from companies in the real economy, to financial services firms, to end-investors.


For TPR, the roadmap is significant. It joins up all the organisations key to managing pension investments. For example, it includes plans by the Financial Conduct Authority for asset managers to report on risks and opportunities arising from climate change. This is crucial information for trustees as they in turn make their own assessments on these risks and opportunities. We hope to see asset managers make disclosures at the level of products, so schemes and their members can see what is happening with the assets they actually own.


The second initiative key in delivering change is the new climate change regulatory framework due under the PSA 2021.


Proposed regulations will require trustees of in-scope schemes to look at the management and governance of climate risks and opportunities in far more detail than they’re likely to have done to date. Trustees will have to publicly report on this work, increasing transparency to us as the regulator and also for savers concerned about what their scheme is doing in light of climate change.


While the new climate regulations will only initially apply to larger schemes, master trusts and collective DC schemes, we believe they will have the effect of raising the quality of reporting on climate change across the pensions sector. For example, the advice and analysis available from service providers should begin to improve, if demand is set by larger schemes, and case studies become available. We hope to see trustees of all schemes, not just those initially in scope, fully examining the risks and opportunities from climate change.


  1. Do pension schemes have suitable information to assess climate risk, or do there need to be international reforms to financial reporting?

We have heard from trustees that data needed to assess climate risk can be limited and there can be a lack of consistency in how the information is presented. As well as this, research carried out by the PLSA[7] found the best available information may be based on many assumptions and extrapolated numbers.


We recognise there is more work to do for the information to be available for trustees to assess these risks. This is likely to progress in the near future as asset managers and funds develop their reporting in line with the recommendations of the TCFD.


As referred to under question 2, we support work towards international sustainability reporting standards.




Global heating has the potential to de-stabilise the social and economic conditions on which we depend for our pensions system. The impact has financial consequences as well.

We know trustees are already talking about this and exploring how climate change affects asset prices and looking at the huge opportunities that will come from a global pivot towards low-carbon economies. In a world where the climate emergency is real and urgent, this is the prudent approach. We believe that, wherever the focus lies for trustees, it is absolutely the case that any scheme that does not consider climate change is ignoring a major risk to pension savings and missing out on investment opportunities.

Regulators and government departments across the entire UK investment chain are committed to disclosure of climate information and the government is making plans to achieve its target of net zero carbon emissions by 2050. This means a landscape of resilient pension schemes that protect savings from climate risk is within reach. 



June 2021

[1] https://www.thepensionsregulator.gov.uk/en/document-library/corporate-information/climate-change-and-environment/climate-change-strategy

[2] https://www.gov.uk/government/publications/green-finance-strategy

[3] https://www.gov.uk/government/publications/joint-statement-of-support-for-ifrs-foundation-consultation-on-sustainability-reporting/initial-response-to-ifrs-foundation-trustees-consultation

[4] ICSWG - Consultant Climate Competence Framework (January 2021) (filesusr.com)

[5] https://www.legislation.gov.uk/uksi/2019/982/contents/made

[6] https://www.gov.uk/government/publications/uk-joint-regulator-and-government-tcfd-taskforce-interim-report-and-roadmap

[7] https://www.plsa.co.uk/Portals/0/Documents/Policy-Documents/2020/A-changing-climate.pdf