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Challenges ahead as UK pension schemes face mandatory climate reporting

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UK pension schemes will face challenges in reporting on the climate impact of their investments, as the Pensions Regulator closes a consultation on its draft guidance for Task Force on Climate-related Financial Disclosures (TCFD)-aligned reporting.

UK pension schemes will face challenges in reporting the climate impact of their investments, says the investment industry as The Pensions Regulator closes a consultation on its draft guidance for Task Force on Climate-related Financial Disclosures (TCFD)-aligned reporting.

From 1 October, pension schemes with more than GBP5 billion in assets will be required to start reporting on the climate impact of their investments.

The Pensions Regulator’s draft guidance aims to guide schemes on areas including governance, strategy and scenario analysis, risk management, and metrics and target setting, and publishing a TCFD-aligned report.

Joe Dabrowski, deputy director of policy at industry body The Pensions and Lifetime Savings Association (PLSA), says that the draft guidance “strikes the right balance between encouraging ambitious governance standards and acknowledging the many challenges schemes face”.

Nevertheless, “further clarification” is required on issues including “reporting expectations across different asset classes, where data availability may be highly varied”.

“We look forward to working with TPR to address these areas as quickly as possible,” says Dabrowski.

Jos Vermeulen, head of solution design at  Insight Investment, notes that there are still “lots of challenges” for pension schemes’ TCFD-aligned reporting. 

Insight Investment manages almost GBP750 billion in assets, across liability driven investment, fixed income and currency, multi-asset and absolute return strategies.

“There are a lot of issues around how do you come up with a total figure [carbon emissions] for a pension scheme,” says Vermeulen. 

UK pension schemes will be required to report their absolute total carbon emissions for scheme assets, as well as the carbon intensity per million pounds invested by the scheme.

Vermeulen explains one of the difficulties in calculating total carbon emissions. “To give an example, if you think about it just from a UK perspective, we have the UK’s total greenhouse gas emissions. Now, that will include the corporates that operate within that country’s emissions as well. So if you want to calculate your share of the total greenhouse gases, as an investor, there is a bit of double counting.” 

Vermeulen notes that pension schemes will rely on asset managers to supply data about the carbon emissions related to specific investments.

“And then, how can we add these things up, I think that’s probably the biggest challenge – how do we add up these different metrics or different measures to come up with our equity absolute emissions figure, our credit absolute emissions, etc,” says Vermeulen. 

“Fortunately the regulator has recognised that this is very much work in progress. So I think it’s more about creating awareness and starting on this direction as opposed to everything’s going to be set in stone and you’re never allowed to change anything. So the industry is working hard to come up with sensible measures that the trustee board can then monitor,” says Vermeulen.

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