Regulators must consider TCFD burden on smaller schemes, say experts

Institutional investors and asset owners are calling for regulators to streamline Taskforce on Climate-Related Financial Disclosures (TCFD) reporting for smaller pension schemes, and consider their specific needs, amid concerns current rules on reporting could be “burdensome” for emerging schemes.

Head of responsible investment at USS Investment Management, David Russell, told delegates at the UK’s Pensions and Lifetime Savings Associations (PLSA) investment conference in May, that regulation must be altered to take the pressure off schemes with less capacity to adhere to mandated climate reporting.

“My hope is that [the UK pension policymakers and regulators] DWP and TPR will learn from the experience of the larger schemes going through first, then the next tier down and hopefully come up with something that’s a bit less burdensome for smaller schemes and do some kind of amendment or regulation,” he said.

Since October last year, pension schemes in the UK with over £5bn in assets, and authorized master trusts, were forced to comply with TCFD reporting requirements.

Smaller schemes with over £1bn in assets must comply from October 2022. The UK watchdog, The Pensions Regulator, is also expected to introduce further demands for schemes and trusts in its new Single Code of Practice this summer.

The UK Department of Work and Pensions, a government office tasked with retirement policy, has said it would consider rolling out the rules to smaller schemes next year.

According to PLSA panelists speaking at the event, smaller schemes will model compliance with TCFD on the methods of larger funds. They called for widespread industry recognition for the considerations of schemes with under £1bn in assets.

Redington head of stewardship and sustainable investment strategy Paul Lee said: “We all assume that something similar will be applied to the sub £1bn schemes and to local authority funds, but we do not yet know what that will look like, and I do think we need to encourage the authorities to think about ways in which this can be streamlined.”

In February, The Pensions Regulator announced extra guidance would be given to investment advisers and pension scheme trustees to align with new climate-related regulations, including the provision of examples on engaging with service providers and setting a framework for delivery against tailored targets.

Lee told Net Zero Investor: “What is vital for these smaller schemes is that some proportionality is applied so that there are fewer detailed reporting requirements. That will enable trustees to rise above the compliance side of TCFD reporting and actually gain the benefit of the process: the board-wide discussions of the investment implications of climate change and how they should appropriately respond.”