Pension funds to report on Paris alignment from October
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The Department for Work and Pensions is moving ahead with requiring large pension funds to report their portfolio alignment with the Paris Agreement from 1 October this year.
The DWP has responded to its consultation from last October on proposed policy, regulations and statutory guidance about large schemes including a Paris alignment metric in their climate risk reports.
It also wanted to hear from stakeholders about non-statutory guidance explaining best practice for schemes’ statements of investment principles and proposed statutory guidance explaining the DWP’s expectations across the implementation statement.
The proposals are being implemented with relatively minor tweaks. “Government has listened to stakeholders’ feedback on Paris alignment and we have made changes to our statutory guidance to provide further clarity for trustees on their portfolio alignment reporting,” said work and pensions secretary Thérèse Coffey and pensions minister Guy Opperman.
The response noted that data coverage, a concern for some, was improving rapidly, and that the government is planning to put in place new Sustainability Disclosure Requirements.
Some respondents had questioned the government’s fast pace, with the Pensions and Lifetime Savings Association proposing to delay the new Paris alignment metric by a year, but the DWP said there was no reason to do so as those in scope already have to produce a TCDF report.
No vote reporting template in stewardship guidance
The DWP said its stewardship guidance highlights where disclosures can align with the UK Stewardship Code, adding that it wants to ensure disclosures are as aligned as possible with it and that it will work with the Financial Reporting Council to this end.
It has made some changes to the stewardship guidance; among others, it said it will refrain from including a vote reporting template, as most respondents favoured an industry template, arguing that this would be more flexible.
However, the government is not fully convinced that existing templates by the PLSA and the Investment Consultants Sustainability Working Group are currently ideal, saying: “Evidence to this consultation suggests that both the PLSA template and the ICSWG guidance could benefit from further development.” It cited the fact that few trustee boards have so far used the ICSWG guide, and highlighted concerns over transparency in reporting with the PLSA template.
Complaints about governance burden fall on deaf ears
Reporting creates a burden on trustees, but the DWP had limited understanding for complaints, saying trustees should already have governance systems in place that could deal with the new requirements.
As for costs, “we do not deny that trustees who choose to obtain independent assurance of their disclosures would incur additional costs. However, this would be a voluntary choice by the trustee and is not a mandatory requirement under our proposals."
What are your thoughts about the new guidance and regulations?