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Government publishes regulations and guidance on climate risk governance for pension scheme trustees

The draft Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (‘Regulations’) have been laid before parliament and are due to come into effect on 1 October this year.

The Pensions Minister announced on June 8 the final version of the Regulations which are designed to regulate how trustees of certain trust-based occupational schemes must engage with, and report on, climate change risk as part of their duties.

Accompanying guidance (‘Guidance’) published in June by the Department for Work and Pensions (‘DWP’), sets out how and when trustees must implement climate change governance measures and produce a report containing relevant disclosures, which they must publish their on a publicly available website, accessible free of charge.

The Regulations are the final upshot of the 2017 report by the Task Force on Climate related Financial Disclosures (‘TCFD’) which made recommendations on how climate related financial risks and opportunities should be published by organisations, including pension schemes. The TCFD recommended that pension schemes should report the greenhouse gas emissions of their investment portfolios, as well as how their investments would perform under a range of temperature increases, including where global (average) temperature rises are limited to well below 2°C (of pre-industrial levels) as required by the Paris Agreement.


In 2020, following the TCFD report, the government published its plan to compel organisations across the economy to produce TCFD aligned climate related disclosures by 2025. As a marker to that destination, a significant proportion of organisations will be compelled to do so by 2023. A DWP consultation proposed that large occupational pension schemes and authorised master trusts should be required to put in place systems of effective governance, strategy, risk management, and targets for the assessment and management of climate risks and opportunities, from 1 October 2021.

As part of the implementation process, section 124 of the recently passed Pension Schemes Act 2021 acts to add a new section 41A to the Pensions Act 1995, to allow regulations to be made which address the issue of climate change risk within occupational schemes. That new power has now been used to put in place the Regulations which will impose requirements on trustees of certain occupational schemes to secure that there is effective governance of the scheme with respect to the effects of climate change.

Which schemes are in scope?

The Regulations are restricted in scope to trustees of large schemes, master trusts and collective money purchase schemes and will come into effect in different waves.
With effect from 1 October, trustees of schemes which have assets over £5 billion, trustees of all authorised master trusts and trustees of all authorised collective money purchase schemes must comply with the Regulations.

With effect from 1 October 2022, trustees of schemes which have assets over £1 billion will be required to comply with the Regulations.

Master trusts which, after 1 October 2021 cease to be authorised and whose assets are less than £500 million will cease to be in scope of the Regulations. However, should such formerly authorised master trusts grow in size of assets to over £1 billion, the trustees will again become subject to the Regulations

Specific measures

The key requirements of the Regulations are set out in Part 1 of the schedule to the Regulations and will require trustees of in scope schemes to comply with measure broken down into for areas – Governance, Strategy, Risk management, and Metrics and targets.

Governance – trustees will be required to establish and maintain oversight of relevant climate related risks and opportunities. This will involve trustees putting in place processes to ensure that any scheme adviser (other than legal advisers) who advises or assists the trustees on or with governance activities, or any person who undertakes governance activities for the trustees, takes adequate steps to identify and assess relevant climate related risks and opportunities.

The Guidance clarifies that firms carrying out asset management alone would not typically be considered to be undertaking governance activities. Nor would scheme administrators be likely to be in scope unless they were undertaking activities related to the scheme to which climate related risks and opportunities are relevant.

Strategy – scheme trustees will have to:

  • identify, and assess the impact on investment and funding of, climate related risks and opportunities;
  • undertake analysis of the likely effect of an increase of global temperatures of between 1.5 and 2 degrees (above pre-industrial levels), in particular in relation to:
    • the impact on the scheme’s investments of such a temperature rise, including the impact of decisions which might be taken by government;
    • the resilience of the scheme’s investment strategy in such a scenario; and
    • where the scheme has a funding strategy, the resilience of the funding strategy in such a scenario.

Trustees will have to undertake the scenario planning in the first year after becoming subject to the Regulations and every three years subsequently. In intervening years, trustees will be required to review their most recent scenario analysis to ensure they have an up to date understanding of its impact.

As part of their identification and impact assessment process, trustees will be required to consider the likely impact over the short, medium and long term, although the time periods which comprise the short, medium and long term are the time periods that the trustees feel to be appropriate.

Risk management – trustees of in scope schemes will be required to ensure that they have in place appropriate processes to identify, assess and manage the impact of relevant climate related risks and incorporate such risk management into the overall risk management of the scheme.

Metrics and Targets – trustees will be required to select a minimum of:

  • a metric to measure the total greenhouse gas emissions of the scheme’s assets;
  • a metric to measure the total carbon dioxide emissions per unit of currency invested by the scheme; and
  • an additional metric to measure climate change.

Trustees will then be required to annually obtain data to enable them to determine the metrics against set targets.

Reporting requirement

Trustees will be then be required to produce an annual TCFD report, to be published on a publicly accessible website, which contains information relating to:

  • their oversight of relevant climate related risks and opportunities;
  • their analyses of climate related risks and opportunities and the likely;
  • the likely impact on their scheme of temperature increases in their identified scenarios; and
  • the outcomes of their metrics against any selected targets.

Part 2 of the schedule to the Regulations sets out the detailed requirements for the TCFD report which, in practice, will constitute the evidence, publicly available free of charge, that trustees have complied with their obligations under Part 1.


Failure to comply with the Regulations may lead to a compliance notice being issued and subsequently a fine being imposed. Similarly, failure to publish a TCFD report on a publicly available website may also result in a fine.

In both scenarios, the fines levied would be up to £5,000 if the person is an individual or £50,000 if the person is a corporate body, a Scottish partnership or any other person. Fines levied for non-publication of a TCFD report on a free to view website will not be less than £2,500.


The Regulations place significant new duties on trustees, and requirements for certain advisers.

However, the Guidance makes clear that proportionality should be the watchword. It says that whilst climate-related risk is a major financial factor for trustees to take account, they must balance that with the other risks affecting schemes, in line with their fiduciary duties.

As such, trustees will be expected to take a proportionate approach to managing climate-related risks and opportunities and the time they spend doing so should not come at the expense of considering other major risks, including financially material social and governance factors.


This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2022.


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