In March 2020, the Pensions Climate Risk Industry Group (PCRIG) published their draft guidance for pension fund trustees on “aligning pension scheme disclosures with the Task Force on Climate-related Financial Disclosures (TCFD)” for consultation. We extend our thanks to all those involved in developing this draft guidance and are grateful to have had the opportunity to comment. We have submitted a detailed response to PCRIG and summarised our key feedback below.

Climate change represents a significant source of risk for most pension schemes, who are long-term investors with even longer-term liabilities. Despite this, understanding and integrating the management of climate risk into decision making processes is still nascent. The first step towards managing a risk is understanding it and, in that respect, the draft guidance provides a detailed reference point for trustees and sets out a number of areas for them to develop their thinking. Whilst the draft guidance has focused on the trustees of private sector DB and DC schemes, it is equally relevant to public sector pension funds. 

The TCFD framework has been helpfully used to structure the guidance although, in our view, there are three areas in which the guidance should be developed further.

• To be clearer that the goal of the guidance is to deliver change. Pension funds will only contribute to the mitigation of climate risk through the reallocation of capital or through driving the change in the behaviour of others. There is a risk that the guidance could be seen as a means of fulfilling a (future) regulatory requirement on reporting, rather than to deliver material change. We believe this could be addressed in the positioning of the guidance.
• To be clearer on the potential users of climate related disclosures by pension funds. The guidance addresses disclosure which is the underlying intent of the TCFD although it does not consider who any future climate related financial disclosures may be targeted at. Whilst we support disclosure as a means of driving forward trustee adoption of best practice and creating change, we believe that the future users of TCFD disclosures are likely to be threefold:
  • other pension funds as a means of benchmarking practice
  • regulators as a means of assessing industry progress, and
  • NGOs as a means of exerting pressure on pension funds to improve practices 

We believe that the guidance should better distinguish between disclosures in a form which can engage members (particularly for DC members), and disclosure to meet TCFD requirements.

• To be clearer that climate scenario modelling is a means to an end, not an end in itself. The guidance focuses on how to carry out scenario modelling but is light on detail when it comes to making use of the results. We believe such analysis can help inform decision making by trustees, and we would like the guidance to explain how trustees too can use it to evaluate potential climate risks and evaluate different options, going beyond simply meeting disclosure requirements.

We would be delighted to discuss our comments in greater detail – please get in touch.