Small schemes risk 'missing the boat' on climate opportunities

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Smaller defined benefit schemes could be left behind on climate change mitigation and opportunities, a new report has warned, as schemes below £1bn said climate risk is not a priority in the short or medium term.

For DB schemes with less than £1bn in assets, climate change risk is not a priority at all, while large schemes with £5bn or more in assets under management listed it as the top priority over the next three years, new research has found.

The new report by consultancy Willis Towers Watson also found that over the next year, climate change is a top five priority for schemes with £5bn or more. Schemes with assets between £1bn and £5bn said they did not consider climate change a priority over the next 12 months, but view it as a top five issue over the next three years. 

The findings seem to indicate that climate risk management is largely driven by the new requirements on £5bn plus funds to produce a Task Force on Climate-related Financial Disclosures report. The scope of the rules will be extended to schemes of £1bn or more from October next year.

Climate change poses risks - and offers opportunities


Edwin Sheaf, a senior director at WTW, said climate change poses material risks to all pension schemes, regardless of their size, adding that it also provides opportunities arising from the transition if schemes look for them. 

Given the legal requirement on larger schemes to consider and report on climate change, he said: "Perhaps it’s not surprising that it is an issue of more pressing urgency for larger schemes. But dealing with the impact of climate change shouldn’t just be a regulatory tick-box exercise. It’s something that all schemes – and society in general – can benefit from.”

The report argues that smaller schemes are at risk of 'missing the boat' on benefitting from climate change opportunities

Sheaf added that the pressure on trustees to manage and mitigate climate risk will only increase. “Even if you are not yet required to comply with the TCFD regulations, the Pensions Regulator nonetheless expects you to build consideration of climate change into everything that you do," he said. “The arguments for taking action now go far beyond the need to comply with regulatory requirements."

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