1. The UK will be a leader in climate change requirements for pension schemes
Mercer’s comment: The new measures will ensure trustees are legally required to assess and report on the financial risks of climate change within their portfolios. The commitment from the UK government is encouraging, and sets a clear signal to UK pensions trustees that decisions on their response to the new requirements should be made sooner rather than later. Although the requirements are aimed at trust-based arrangements, we hope that a similar level of reporting will be considered for providers of contract-based arrangements.
2. Large schemes need to report by 2021, but smaller schemes can expect to report as soon as 2024
Mercer’s comment: We are working closely with our larger clients on their reporting requirements for later this year, but also starting to work with all clients on reporting in advance of 2024. We believe that the direction of travel is clear, and that many schemes should be able to report on some or all of the requirements sooner than 2024. The reporting requirements are onerous, therefore we would encourage all schemes to start planning as soon as possible.
3. The frequency of reporting has been reduced: scenario analysis is triennial, emission-based reporting and reporting against targets will be annual.
Mercer’s comment: We are encouraged by the recognition that some of this reporting will be intensive, but it is likely that some form of annual review or response will still be expected. As this evolves over time, yearly reporting of these complex issues should become simpler.
4. TCFD requirements will be made mandatory across the economy.
Mercer’s comment: As we have seen recently in other reporting requirements, we need clarity across the industry at all levels to ensure consistent and comparable data are available as a result of these requirements.
5. Divestment is not the answer.
Mercer’s comment: We have been working with clients for a number of years on their approach to climate change and sustainable investing. We believe that stewardship and engagement can be powerful tools, but that this area is challenging and more needs to be done to encourage asset managers to engage with the companies they invest in.
6. Smaller schemes should prove value for members or consolidate.
Mercer’s comment: The Pensions Regulator has been vocal over the last few years about its view that a number of smaller schemes do not offer good value for members. We believe that schemes with less than £100 million in assets should consider their journey plan either to consolidate or to better governance, and have a plan in place with their sponsoring employer.
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