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Climate change and pension schemes: the view from the UK and other countries

United Kingdom
Environmental, social and corporate governance and climate change are increasingly central to occupational pension scheme management. In the UK, the largest schemes already have legal climate-related obligations, and from October 2022, these duties will be extended to GBP 1bn plus schemes.

Environmental, social and corporate governance (ESG) and climate change continue to be a key focus for occupational pension schemes. From 1 October 2021, larger schemes in the UK (whose net assets are GBP 5 billion or more and master trusts) have been required to comply with the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (the Regulations). Schemes with GBP 1 billion or more of assets will be in scope from 1 October 2022.


As ESG-related matters have risen in prominence, the consideration of climate-related issues has become part and parcel of trustees’ trusts law and regulatory duties. For further details and background please see here and here.  

During the summer, the Department for Work and Pensions (DWP) published the Regulations and statutory guidance on improving climate change risk, governance and reporting, in line with recommendations from the UK Taskforce on Climate-related Financial Disclosures (TCFD). Established by the international body, the Financial Stability Board, in 2017, the TCFD published 11 recommendations for all organisations, aimed at identifying, assessing, managing and disclosing climate-related financial risks and opportunities across sectors and jurisdictions.  

The Pensions Regulator (TPR) also consulted earlier in the year on their own guidance on governance and reporting of climate-related risks and opportunities (see here). The proposed TPR guidance describes what trustees need to do and report on in their annual climate change (or TCFD) report to comply with the Regulations (see below). 

The Regulations

The Regulations impose requirements on trustees for the identification, assessment and management of climate-related risks and opportunities and publication of an annual report on a publicly available website. The requirements fall under four broad headings used by the TCFD of: governance, strategy, risk management, and requirements to select and calculate climate-related metrics and to set and measure performance against targets.

Trustees’ obligations are summarised below.


Trustees must establish and maintain, on an ongoing basis, oversight of the climate-related risks and opportunities which are relevant to the scheme. Trustees must also establish and maintain processes to satisfy themselves that persons undertaking governance on their behalf (and/or who advise or assist the trustees in respect to governance), are taking adequate steps to identify, assess and manage climate-related risks and opportunities which are relevant to the scheme.


Trustees must identify and assess, on an ongoing basis, the impact of climate-related risks and opportunities which they consider will have an effect over the short, medium and long term on the scheme’s investment strategy.

Scenario analysis

Trustees must, as far as they are able, undertake scenario analysis assessing the impact on the scheme’s assets and liabilities, the resilience of the scheme’s investment strategy for at least two scenarios.

Risk management

Trustees must establish and maintain, on an ongoing basis, processes for identifying, assessing and effectively managing climate-related risks which are relevant to the scheme and integrate them into the trustees’ overall risk management.


Trustees must select certain climate-related metrics to monitor and report on an annual basis. The current requirement is that such metrics should include at least one absolute emissions metric and one emissions intensity metric, as well as one additional climate change metric. However, amendments to the Regulations proposed by the DWP would require trustees to additionally obtain and report a fourth ‘portfolio alignment metric’ describing the extent to which their investments are aligned with the goal of limiting the increase in the global average temperature to 1.5°C above pre-industrial levels.

In relation to all emissions-based metrics, trustees will be required, as far as they are able, to use Scope 1 (direct) and 2 (indirect) greenhouse gas emissions in the first scheme year they are subject to the requirements, and then Scope 1, 2 and 3 in all subsequent years (other indirect emissions, explained here).


Trustees must set a non-binding target for the scheme in relation to at least one of their chosen metrics and, so far as they are able, measure and report performance against it on an annual basis.

GBP 1 billion plus schemes: timings

Trustees of schemes with net assets (excluding bulk annuity and individual annuity contracts) greater than GBP 1 billion:

  • must meet the climate change governance requirements for the current scheme year from 1 October 2022 to the end of that scheme year; and
  • must publish the report on a publicly available website within seven months of the end of that scheme year, and a link must be included in the Annual Report and Accounts for that scheme.


You can find a series of timelines for Defined Benefit and Defined Contribution schemes of different sizes and with scheme year ends of either 31 December or 31 March here.

GBP 1 billion-plus schemes: next steps

Schemes whose net assets are GBP 1 billion or more should now be gearing up to be compliant by 1 October 2022. The Regulations not only set out what trustees of schemes in scope must disclose, but also prescribe specific actions that must be undertaken first. Trustees of such schemes should be starting to consider these actions now and making sure that climate-related risks and opportunities are integral to their usual governance procedures.

The view from other places.

Written by
Sackers is the largest boutique firm focusing on HR law
Lucy Swart-Mallett
Senior Associate - United Kingdom