The document discusses new regulations in the UK requiring pension funds to consider climate-related financial risks and opportunities when setting investment strategies. Trustees will need to publish disclosures on their approach by 2022. Climate change poses far-reaching financial risks to investments from physical impacts and the transition to a low-carbon economy. Pension schemes can be affected through impacts on asset values and sponsoring companies. The Pensions Regulator will review whether schemes are properly considering climate change risks in line with their duties.

1. Regulating for climate risk
September 2019

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. 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. 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. 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. 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. 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. 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. Guidance
These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction. 9

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. 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