EY comments on the DWP consultation paper: Taking action on climate risk: improving governance and reporting by occupational pension schemes
Gareth Mee, UK Sustainable Finance Consulting leader at EY, comments: “This consultation paper represents an important step forward for the UK on its journey to net zero emissions, and ultimately will protect people’s pensions by ensuring schemes are properly managing the material financial risks from climate change. Increased and more focused regulation in this space should accelerate much-needed better practice, and will keep UK firms at the fore on protecting against climate risk as we move towards COP26 and the #RaceToZero. We’re at a crucial crossroads in the journey to a more sustainable financial future, and now is the time for corrective and progressive action.
“This paper calls for higher levels of governance, more focused strategic direction and improved risk management from pension schemes, which is to be commended. However, the timings are ambitious, and are more challenging than those previously imposed on the banking and insurance sectors. The pensions industry has a significant amount of work to do to fully embed the proposed changes, which will likely include creating new investment strategies, new approaches to managing risk, new services and ways of engaging stakeholders, and better stewardship, which is already a challenge for asset owners as they look to meet the new 2020 UK Stewardship Code standards.
“What is encouraging is the commitment to consult on alignment to the agreed Net Zero trajectory in the short term. Reducing the financed emissions of UK pension schemes in line with the goals of the Paris Agreement is critical to achieving Net Zero, and the industry cannot afford to leave this to one side.”