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Regulating for climate risk

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The Pensions Regulators thoughts on regulating for climate risk

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Regulating for climate risk

  1. 1. Regulating for climate risk September 2019
  2. 2. “I don’t want to hear any more that ‘climate change is important, but we leave it to our investment managers’” London Climate Action Week 2019 “Pensions should be harnessed to fight the climate emergency” Times editorial, May 2019 “there are real financial risks resulting from climate change. With the long-term horizons of pension investing, trustees must now consider that when they set out their investment strategies. Trustees who do not consider those matters will be breaching their statutory and potentially their fiduciary duties not only to current but future members.” Parliamentary debate, May 2019 These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 2
  3. 3. Expectations • In June Parliament passed legislation to move towards net zero carbon emissions by 2050 • Green Finance Strategy - by 2022, large pension funds will be publishing climate- related financial disclosures These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 3
  4. 4. Distinctive elements of climate risk • Far-reaching impact in breadth and magnitude • Foreseeable • Irreversible consequences • Dependency on short-term actions These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 4
  5. 5. Three ways in which schemes affected These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 5 physical transition litigation
  6. 6. 2019 DC governance survey These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 6 will review this?consideration of climate change
  7. 7. October 2019 requirements • policies in relation to financially material considerations (including on ESG considerations, such as climate change) • the extent (if at all) to which members’ views on non-financial matters are taken into account in investments • stewardship of investments, including engagement with investee firms and the exercise of voting rights These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 7
  8. 8. October 2020 – DC implementation report intent action These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 8
  9. 9. Guidance These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 9
  10. 10. Questions to consider include… • Have trustees discussed an approach to climate-related risks and opportunities? Will such a discussion happen at least annually? • For DB, has the trustee board considered how the scheme sponsor might be impacted by climate risk? • Have trustees discussed with advisers the impact of climate risk on the scheme’s portfolio, both transitional risks and potential physical damage under different climate scenarios? • Do you plan to monitor and oversee advisers’ and managers’ approach to climate change, to ensure consistency with the scheme’s SIP? These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 10
  11. 11. Positive signs Hymans Robertson: • 96% are ready for new rules • 80% reported implementation challenge • “Trustees need to continue to question their investment managers and their advisers, recognising that challenge can be a catalyst for improving standard” These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. Sackers: • 85% have updated or will update their SIP • 13% have made or intend to make material changes to their investments following the review 11

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