The Pensions Regulator publishes climate adaptation report urging small DC schemes to improve climate risk governance or consolidate

The Pensions Regulator (TPR) has published a report on climate-related financial risks for UK private occupational pension schemes, warning that small defined contribution (DC) schemes that cannot take appropriate action to protect savers’ retirements from climate risk should consider improving quickly or consolidating into a larger scheme. The report frames climate change as a material financial risk for schemes managing around GBP 1.4 trillion of retirement savings. TPR finds too many small DC schemes have limited trustee understanding of the scale of climate-related financial risks and weaker governance than larger schemes. Survey data cited in the report show only 17% of DC schemes had dedicated time or resources for climate risk, rising to 100% for master trusts and 92% for large schemes, compared with 53% for medium, 25% for small and 4% for micro schemes. Only 28% of respondents said they understood the scale of climate-related financial risks ‘very well’ or ‘fairly well’, with much higher rates for master trusts (100%) and large schemes (90%) than for micro (17%) and small schemes (29%). TPR reiterates expectations that trustees, consistent with fiduciary duties, consider and mitigate material financial risks from climate change and nature loss, and it will continue educating and challenging trustees, enforcing statutory climate-related duties, encouraging action beyond minimum compliance, and working with government, regulators and industry on climate and ESG risk initiatives.