PENSIONS AND CLIMATE CHANGE – LATEST DEVELOPMENTS
15 / 09 / 2022
Over the last few years we have witnessed significant developments for UK occupational pension schemes. Please refer to Pension Compass articles in March 2021 (click here), July 2021 (click here and here) and December 2021 (click here) for a potted history of the story so far.
The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (the “2021 Regulations“) impose a wide range of obligations on the trustees of the very largest occupational pension schemes (assets over £5bn) as well as master trusts and collective money purchase schemes with effect from 1 October 2021.
1 October 2022
With effect from 1 October 2022, trustees of schemes which have assets over £1bn will be required to comply with the 2021 Regulations. Trustees must also publish an annual climate change report describing how they have complied with the governance requirements.
Paris Agreement Alignment
The Paris Agreement is an agreement between c.174 countries within the United Nations Framework Convention on Climate Change on climate mitigation, adaptation and finance. Its goals include (amongst other things):
- seeking to limit global warming well below 2°C pre-industrial levels; and
- pursuing efforts to limit this temperature increase to 1.5°C above pre-industrial levels. It is commonly accepted amongst scientists that the 1.5°C goal requires zero carbon emissions sometime between 2030 and 2050 (i.e. not adding to the amount of greenhouse gases in the atmosphere).
The Occupational Pension Schemes (Climate Change Governance and Reporting) (Amendment Modification and Transitional Provisions) Regulations 2022 (the “2022 Regulations”)
The 2022 Regulations (which were made in July 2022) amend the 2021 Regulations to require schemes that are subject to the 2021 Regulations to:
- select and calculate a metric that gives the alignment of the scheme’s assets with the goal of limiting the increase in the global average temperature to 1.5°C above pre-industrial levels; and
- disclose this metric in their annual climate change report.
The 2022 Regulation will come into force on 1 October 2022.
The DWP has also updated its guidance on the 2021 Regulations explaining DWP’s expectations on reporting. This guidance will also come in to force on 1 October 2022.
Wedlake Bell Comment
From 1 October 2022, the second wave of schemes (assets of £1bn and above) will be required to finalise and follow a project plan for implementing a climate change governance and reporting structure.
The same requirements may be extended to smaller schemes (assets under £1bn) from late 2024 or early 2025 – smaller schemes may therefore want to consider whether to comply on a voluntary basis.
It remains to be seen what effect the war in Ukraine will have on these requirements given the energy crisis and the UK Government’s recent decision to once again embrace hydrocarbons (hydraulic fracking and North Sea oil and gas) as a means of securing the nations’ energy self-sufficiency.