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Review shows how pension trustees are addressing climate risks and opportunities

Ref: PN24-18

Issued: Thursday 11 April 2024

A new review of climate-related disclosures has revealed that pension trustees are acting to address climate risks and opportunities.

Since 2022, schemes with more than £1 billion in assets under management and authorised schemes have been required to publish climate reports.

As these are new requirements on schemes, The Pensions Regulator (TPR) has analysed a selection of reports and published its findings today (Thursday) to help raise standards across industry.

The review found many examples of good strategic decision-making and that more than 60% of reports in TPR’s sample had some form of net zero goal with a target date of 2050 or earlier.

Mark Hill, TPR’s Climate and Sustainability Lead, added: “Climate change disclosures should be the product of good risk management.

“That's why we want schemes to know what ‘good’ looks like and improve their management of climate-related risks and opportunities.

“Even if not yet in scope for disclosures, schemes should act now and read this report to help them in their strategic decision-making.”

Review findings

As well as detailed feedback for trustees and those preparing climate disclosures, the report includes observations on good practice and improvements, split out by each main reporting section.

The review also found examples of trustee action on climate risk including:

  • updating defined contribution default lifestyle strategies to include sustainable funds
  • increasing allocation to low carbon tracker funds or companies with 'high levels of green revenue'
  • exploring opportunities such as forestry, green bonds or committing funds to private market renewables
  • encouraging fund managers to engage with top carbon dioxide emitters

And when preparing reports, TPR said trustees should consider:

  • Context: Providing information, such as scheme size, structure of DB sections, DC popular default funds, early in the report helps put it in context for readers.
  • Materiality: Where reports referred to specific investment mandates, explaining their size in relation to total scheme assets helps readers understand an issue’s materiality.
  • Generic wording: Including specifics on policies, steps to manage risks and information from advisers could improve reports.
  • Developments between reports: Reusing parts of previous reports is sensible, providing legal requirements are met. These elements should be supplemented with a summary of developments and activities during the reporting year.
  • Length: The quality of reports did not necessarily correlate with their length. Reports reviewed varied in length, up to 94 pages with an average of 38 pages.
  • Member summaries: Some reports had excellent plain English summaries.
  • Action plans: Where trustees used the reporting process to identify additional work, they should set a plan, monitor and update on progress in their next report.

Scenario analysis

TPR said it had observed some good practice on scenario analysis but also areas of concerns.

It added future reports could be improved by trustees:

  • considering a qualitative analysis based on clear narratives while quantitative analysis is still developing in the market
  • providing commentary on the challenges and limitations of the scenario analysis they have undertaken
  • taking into account the challenges and limitations of their analysis when drawing conclusions about their scheme’s exposure to risks

TPR suggested points trustees could discuss with their advisers, including latest market developments and whether any developments mean it is appropriate scenario analysis is re-run.

Net zero targets

More than 60% (19 out of 30) of the reports in TPR’s sample had some form of net zero goal with a target date of 2050 or earlier.

While there is no requirement for trustees to set a net zero target, TPR said such targets can be consistent with sensible risk management. 

Notes for editors

  • TPR’s review of 30 published climate-related reports relates to scheme year-end dates between 1 October 2022 and 30 September 2023. This represents about 10% of the total reports for that period. We selected a representative sample of reports to review including from defined benefit, hybrid, single-employer DC schemes and a DC master trust.
  • Climate reporting is required for some schemes under the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021. Broadly, this applies to large schemes, with more than £1 billion in assets under management, and authorised schemes, such as DC master trusts. The regulations had a phased introduction, initially applying to trustees of all authorised master trusts and larger DB, DC and hybrid schemes with relevant assets of £5 billion or more from 1 October 2021. From 1 October 2022, the requirements were extended to trustees of DB, DC and hybrid schemes with relevant assets of £1 billion or more.
  • The requirements were developed from the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD) so climate reports may be referred to as TCFD reports.
  • On Tuesday (9 April) The Transition Plan Taskforce (TPT) published its final set of transition plan resources. Mark Hill, The Pensions Regulator’s Climate and Sustainability Lead, said: “We welcome the publication of the TPT’s latest set of resources. Transition planning is a developing area. While not a legal requirement on trustees, it is likely to be  integral to achieving the UK’s net zero ambitions. It is also important  for the effective management of material climate-related financial risks and opportunities by the pensions industry.”
  • Last month, TPR published a report setting out how it is also working towards net zero emissions from its own operations.
  • In February, TPR published a blog post by Mark Hill who urged trustees to think about how they could further develop their approach to managing wider environmental, social and governance risks and opportunities.
  • TPR is the regulator of workplace trust-based pension schemes in the UK. Our statutory objectives are to:
    • protect members’ benefits 
    • reduce the risk of calls on the Pension Protection Fund
    • promote, and to improve understanding of, the good administration of work-based pension schemes
    • maximise employer compliance with automatic enrolment duties
    • minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only)

Press contacts

Jackie Stevens

Media Officer
01273 349511

Dan Menhinnitt

Media Officer
01273 349511

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