Climate adaptation report 2025

This report is our contribution to the national assessment of the resilience of the UK to climate change and future adaptation priorities and includes how we are supporting our regulated community to meet the risks and challenges of climate change.

Published: 10 April 2025

1. Foreward

UK private occupational pension scheme trustees manage retirement funds for millions of savers. Our expectation is that those overseeing £1.4 trillion worth of retirement savings have the highest standards of investment governance. Those trustees and schemes must make the best long-term decisions for their savers.

Climate change remains a major systemic financial risk and a threat to the long-term sustainability of the UK's occupational pensions. In our second climate adaptation report, we set out those climate change risks most relevant to occupational pensions schemes, the approaches scheme trustees are taking to tackle them, the level of commitment and way forward, together with our response as a regulator and an organisation.

Since I joined The Pensions Regulator (TPR) in March 2023, embedding environmental, social and governance (ESG) considerations, including the impacts of climate change, across our regulatory and corporate activity remains a foundational pillar of our approach. This is both across how we improve investment governance in the market and informing our own responsible corporate decision-making as a regulator.

Pension schemes, with investment horizons long into the future, are uniquely placed to understand that short-termism in the face of systemic risk is not the right approach for their pension savers.

Good investment governance is critical to protecting and enhancing outcomes for pension savers. We expect trustees in line with their fiduciary duties, when making investment decisions, to consider material financial risks arising from climate change and nature loss and how they can be mitigated.

We are witnessing a shift in the occupational defined contribution (DC) pension schemes’ landscape towards fewer, bigger and better run schemes with an increasing dominance of participation in a small number. Our recent survey indicates that there is still a long tail of schemes where the trustees' knowledge of the scale of financial risks posed by climate change is limited. Where schemes cannot compete on value or governance, we have been clear that the trustees should consider consolidating and exiting the market.

But we must also change how we work as a regulator to encourage the delivery of enhanced outcomes for savers. TPR needs to be proactive and innovative, from the use of AI to supervising schemes differently to identify risk sooner. We will work together productively to support the development of innovative solutions with savers’ interests at their heart.

In tandem we will continue to:

• educate and support trustees, questioning their decisions where appropriate
• enforce against trustees of schemes failing to meet statutory duties relating to climate change and ESG duties
• encourage trustees of schemes in scope to go beyond the regulatory minimum and build their capacity in managing climate change and wider sustainability risks
• work with government, regulators and industry on initiatives to improve industry’s management of climate and ESG risks

This work will be vital to ensure trustees protect pension savers from the risks of climate change and enhance savers' outcomes by managing the opportunities presented by the transition to a net-zero economy.

Nausicaa Delfas Chief Executive

2. Introduction

1. This report is the contribution of The Pensions Regulator (TPR) to the national assessment of the resilience of the UK to climate change. In highlighting risks and adaptation actions it supports the UK Climate Change Risk Assessment (CCRA) and Third National Adaptation Programme (NAP3) by helping to build an understanding of the degree of preparedness across key sectors for the impacts of climate change at a sectoral and national level.
2. The NAP harnesses a wide range of evidence and analysis to propose actions for the UK government and others to adapt to the challenges of climate change in the UK while the the CCRA is a requirement of the Climate Change Act 2008 for the UK government to provide an independent assessment of climate risk every five years and lay it before Parliament. This includes risks to people and the economy.
3. This is the second time that TPR has reported under the Adaptation Reporting Power (ARP) pursuant to section 65 of the Climate Change Act 2008. The report covers the risks from climate change that are most relevant to trust based occupational pension schemes, the policies and practices to address them and progress since the last ARP report in October 2021.  It approaches this in regard to (i) those we regulate and (ii) TPR as an organisation.
4. TPR continues to deliver against our climate change strategy launched in April 2021 and aligned with our corporate strategy, published in the same year. These set out our increasing focus on managing savers' exposure to economic risks including Environmental, Social and Governance (ESG) risks. They also set expectations including the changes we expect of industry by the end of 2024 including the publication of climate disclosures.
5. Building on this, in May 2024 we published our Corporate Plan 2024 to 2027. This sets out how TPR will deliver better outcomes for savers by being more market focussed, proactive and strategically aligned. Key to this is the creation of three new directorates: the Compliance and Enforcement Group, Market Oversight and Strategy Policy and Analysis. Together they will protect pension savers' outcomes, enhance outcomes for pension savers and enable the market to innovate. The plan set out a number of priority outcomes. These include Priority Outcome 2.3 Improved ESG recognition. This focuses on baselining the percentage of Taskforce for Climate Financial Disclosure (TCFD) aligned climate reports that demonstrate understanding of the issues and challenges related to climate scenario analysis. Such understanding is essential if scheme trustees are to make appropriate informed investment decisions in the interests of savers.
6. In terms of climate change and other financially material ESG risks and opportunities, our work is focussed on encouraging trustees to take any actions that may be necessary to adapt and enhance the resilience of scheme portfolios and investment strategies and where applicable funding strategies in the interests of savers. For schemes with at least 100 members that fall within the scope of the Occupational Pension Schemes (Investment) Regulations 2005, we expect trustees to set out their policy in relation to such financially material considerations in their statement of investment principles, as required by the regulations. For schemes with fewer than 100 members that are not in scope, we support and encourage trustees to both consider these factors, and document how they have done so, when taking investment decisions and seeking to build resilience.

The Pensions Regulator: what we do

7. TPR is the public body that protects workplace pensions in the UK. Our statutory objectives are to:
   • protect the benefits of members of occupational pension schemes
   • protect the benefits of members of personal pension schemes (where there is a direct payment arrangement)
   • promote and to improve understanding of the good administration of work-based pension schemes
   • reduce the risk of situations arising which may lead to compensation being payable from the PPF
   • maximise employer compliance and employer duties and the employment safeguards introduced by the Pensions Act 2008
   • minimise any adverse impact on the sustainable growth of an employer in relation to Defined Benefit (DB) scheme funding
8. Read more about our responsibilities, priorities, our approach to regulation and values we hold that enable our vision of being a strong, agile, fair and efficient regulator.

Building organisational capacity

9. Since the last report TPR has recruited a dedicated ESG, Climate and Sustainability Lead together with a Senior Sustainability Advisor, who are supported by a wider team of specialist advisors drawn from across the regulator and TPR's Sustainability Network. This is an evolving internal community of practice.
10. In spring 2024 TPR announced its intention to restructure the organisation to better align with the evolving occupational pension scheme landscape. Some implementation details for the revised structure are still being worked through but the move towards a more prudential style of regulation continues at pace. As part of the restructure, work is also underway to establish a central ESG, climate and sustainability team resource with the lead and senior advisor being respectively responsible for overseeing the embedding of ESG, climate and sustainability into our regulatory and organisational activity, from climate disclosures to procurement and our participation in the net zero transition.
11. Working with our Learning and Development Team, the lead and senior advisor are also leading on raising awareness, knowledge and understanding across TPR. This includes building on a successful pilot study using the Carbon Literacy Programme, which has qualified TPR for the bronze level of literacy attainment, with further plans being developed to expand the programme across all business areas. The pilot study was based on the Civil Service and Public Sector Toolkits accredited by the Carbon Literacy Project, but the intention is to further tailor the programme to the work of TPR and occupational pensions.
12. In the second half of 2024 TPR joined the UN Global Compact as a demonstration of our commitment to embedding ESG and climate and becoming a more sustainable organisation.  Membership also provides access to the Compact’s online academy which will form the foundation for future development programmes targeted at individual roles and teams in TPR.

3. Those we regulate

The occupational pension scheme risk landscape

1. TPR regulates two main types of funded occupational pension scheme (OPS) arrangement, Defined benefit (DB) and defined contribution (DC). Across those two segments, there are a number of hybrid (DB and DC) schemes and there are a few emerging scheme models, collective defined contribution (CDC) schemes and DB superfunds. The nature of pension scheme benefit provision is changing and DC benefit provision is becoming the norm. The starting point to understand the climate risk characteristics of the OPS DB and DC schemes is to start with that nature of the OPS DB and DC scheme universe.

OPS DB scheme universe

2. The OPS DB market as outlined in the PPF’s Purple Book dataset was made up of 4,969 schemes with total assets of £1,167.1 million as at 31 March 2024. The market is rapidly maturing and heading towards liability run-off/transfer.
   • 74% of schemes are now closed to new benefit accrual (up from 12% in 2006), 19% are closed to new members (ie active members can still accrue new DB benefits) and only 4% of schemes are fully open (ie to new members and to new benefit accrual).
   • The estimated funding level on a full buyout basis was 94.4% (up from 55.9% in 2006).
   • In 2023, around £50 billion of liabilities transferred from OPS DB schemes to the insurance bulk annuity market and it is expected that around £45 billion will transfer in 2024. Going forward, industry expectations are that £50 to £60 billion of liabilities will transfer each year to the insurance bulk annuity market.
3. Assets within that OPS DB scheme dataset are heavily concentrated within a few schemes and there is a long tail of small schemes:
   • 1,852 schemes have fewer than 100 members
   • 3,859 (78%) schemes have less than £100 million of assets
   • 220 (4%) schemes have more than £1 billion of assets
4. The asset allocation is heavily biased towards lower risk matching assets including gilts, bonds and insurance annuities:
   • 70% of schemes’ investments are now invested in bonds (up from 28% in 2006) and 45.4% of schemes' investment are now invested in UK Government Fixed Interest and Index Linked Bonds
   • around 10% of schemes' investments are now held in insurance annuities (up from 2.1% in 2016 (it was '0' before that).
   • around 6% of schemes' investments are now held in property (up from 4.3% in 2006).
   • only 15.5% of schemes' investments remain invested in equities (down from 61.1% in 2006) of which, only 1% is invested in UK quoted equity, with 7.7% being held in overseas quoted equities and 6.8% in unquoted equity.
5. There are also a number of current market developments which are relevant to how the OPS DB universe might evolve and how the risk landscape might develop.
   • The first DB superfund (Clara) which met the standards set by TPR's interim regime for superfunds has now completed three scheme transactions, for a total asset value of around £1.4 billion. The Clara model is a bridge to buyout model and generally expects to transfer liabilities taken on to the bulk purchase insurance market within 7 to 10 years.
   • In 2025, the proposed Pensions Bill is expected to introduce long-term legislation for DB superfunds, and further superfunds are expected to enter the market. Some of these models are expected to target a long-term liability run-off model rather than a bridge to buyout model.
   • The government consulted in February 2024 on options for defined benefit schemes the consultation included options for:
     • well-funded schemes to run on (rather than transfer to an insurer or consolidator) and payments to be made from scheme surplus to sponsoring employers.
     • a public sector consolidator to be established, which would be targeted at schemes unattractive to commercial providers (for example those schemes with assets less than £10 million.

OPS DC Scheme Universe

6. The OPS non-micro DC market was made up of 920 schemes (down from 3,660 schemes at 1 January 2012) with total assets of £205 billion as at 31 December 2024 (up from £22.1 billion at 1 January 2012). In addition, £62 billion of DC assets were held in DB/DC hybrid schemes. The number of schemes in the OPS DC market has consistently been reducing as smaller, single employer trust (SET) schemes have been consolidating into DC master trusts. Currently there are 33 DC master trusts, with combined assets of around £165.8 billion, in the market though a number of master trusts are already in the process of consolidating into other master trusts.
7. Assets in the OPS non-micro DC scheme universe are heavily concentrated in a few DC master trusts and large single employer trusts. Currently five master trust providers hold over 70% of all the assets held by all 33 master trusts, ten SETs hold over 60% of the assets held by all of the non micro single employer trust DC schemes and 20 schemes hold over 50% of all the assets held by the DC non-micro hybrid schemes. As in the OPS DB universe, there is a long tail of small schemes – nearly 50% of the schemes in the OPS non-micro DC universe have between 12 and 99 members.
8. Micro schemes are defined as schemes with between two and 11 members. At 31 December 2024, there were 24,680 micro schemes (down from 32,880 at 31 December 2015). These schemes were made up of 20,720 (84%) Relevant Small Schemes (RSS) – formerly referred to as Small Self-Administered Schemes (SSAS), 1,050 (4%) Non-RSS schemes and 2,910 (12%) schemes where the status was not known. The micro schemes held 70,000 members, which is less than 0.25% of all DC scheme memberships. RSS schemes are not in scope for micro scheme asset statistics. However, the total assets held by the DC and DC hybrid micro schemes that did report their asset values was £1.1 billion.
9. Unlike in the OPS DB universe, the asset allocation of most DC schemes is heavily biased towards growth assets and the average equity allocation for younger members is typically in the region of 80%.
10. The asset scale of the OPS DC Market is expected to develop rapidly. Projections prepared by the DWP set out in their November 2023 publication 'Trends in the defined contribution trust based pension market' indicate that the asset scale of the DC market in 2030, deflated to 2021 terms, is expected to range between £360 billion and £480 billion of assets, with a central asset scale assumption of £420 billion. That analysis also indicated that the largest five and largest 10 master trusts were expected to hold over 70% and over 85% of the total DC OPS assets respectively by 2030.
11. There are also a number of current market developments which are relevant to how the OPS DC universe might evolve and how the risk landscape might develop.
12. The proposed Pension Schemes Bill in 2025 is expected to include measures which will introduce new duties for trustees to offer a DC retirement income solution or range of solutions to members. This will have the impact on industry of extending DC scheme investment horizons beyond retirement and has the potential to enable a different investment strategy to be implemented, in the longer term/as members near retirement, to that currently.
13. In November 2024, as part of the Mansion House proposals, the government launched a series of consultations including one on the DC market entitled 'Pensions investment review: unlocking the UK pensions market for growth'. The consultation closed on 16 January 2025 and includes two key themes based around (1) accelerating consolidation in the OPS DC market and (2) unlocking some of the current barriers to consolidation in the FCA regulated Group Personal Pension (GPP) market which could potentially lead to increase transfers to the OPS DC market and increased scale.

Reporting and disclosure requirements

14. The current reporting and disclosure requirements that apply to OPS schemes of different types and scales are summarised in the tables below.

DB and DB/DC Hybrid and DB Superfunds – Total assets [£1,120 billion]

	< 100 members	> 100 members	> £1 billion assets*
Number of schemes (4,868)	1,794	3,074	199
Aggregate assets	£11.9 billion	£1,108.3 billion	£781.1 billion
Proportion of memberships	1%	99%	59%
Statement of Investment Principles	N	Y	Y
Implementation Statement	N	Y	Y
Climate Change Report (TCFD)	N	N (if assets* < £1 billion)	Y

* Relevant assets = Scheme assets less the value of any bulk annuities held by the scheme

DC – Single Employer Trusts – Total assets £39 billion at 31 December 2024

	< 100 members	> 100 members	> £1 billion assets*
Number of schemes (480)	350	130	N/A
Aggregate assets	£0.4 billion	£38.5 billion	N/A
Proportion of memberships	1%	99%	N/A
Statement of Investment Principles	N	Y	Y
Implementation Statement	N	Y	Y
Climate Change Report (TCFD)	N	N (if assets* < £1 billion)	Y

* Relevant assets = Scheme assets less the value of any bulk annuities held by the scheme

DC – Master Trusts – Total assets £165.8 billion at 31 December 2024

	< 100 members	> 100 members	> £1 billion assets*
Number of schemes (33)	Nil	33	N/A
Aggregate assets	Nil	£165.8 billion	N/A
Proportion of memberships	Nil	100%	N/A
Statement of Investment Principles	Y	Y	Y
Implementation Statement	Y	Y	Y
Climate Change Report (TCFD)	Y	Y	Y

* Relevant assets = Scheme assets less the value of any bulk annuities held by the scheme

Implications for the OPS risk landscape

15. The nature of OPS benefit provision is changing, we are moving to fewer, bigger and better run schemes and an environment where OPS DC benefit provision is the norm.  The current shape of the DB and DC OPS pension landscape and the dynamics within the landscape has a significant influence on the climate risk profile, the perspective on climate risk and the investment actions that might be taken. However, with a number of current consultations and initiatives 'live' it is difficult to accurately define how the market might develop.

OPS DB Pension Market

16. The key dynamics currently are:
    • A drive to reduce volatility in scheme funding levels, with a large allocation to UK Government Bonds (c45%) and insured annuities (c10%).
    • A short to medium term focus for many schemes with a focus on transferring pension liabilities to the insurance bulk annuity sector and preparing schemes for a future transfer. The consequences of this are many DB schemes are focusing more on investments better aligned with annuity provider requirements, with greater liquidity and with a shorter-term investment horizon.
    • A stable but material pattern of reduction in asset scale, with around £50 to £60 billion expected to transfer to the insurance market each year and as scheme memberships mature (and move to almost 100% pensioners) an increased reduction in scale as member benefits are paid out.
    • A limited number of open schemes and schemes that might decide to run on longer and pay out the benefits from their scheme (instead of transferring to an insurer).
    • Many schemes holding limited assets over which they can have a significant climate impact (currently around 55% of scheme assets are held in UK government bonds and insured annuities). 
17. The key climate risks controls on the OPS DB market currently are the requirement for trustees of schemes:
    • with at least 100 members to produce a Statement of Investment (SIP) principles and publish an annual Implementation Statement alongside the SIP which sets out how they gave effect to certain policies set out in the SIP,
    • with at least 100 members to include in their SIP their policies, including in relation to financially material considerations over the appropriate time horizon of the investments, including how those considerations are taken into account in the selection, retention and realisation of investments, and
    • with relevant assets of at least £1billion, in scope of the Climate Change (Governance and Reporting) Regulations 2021 to produce and publish a climate change (TCFD) report on an annual basis.

OPS DC Pension Market

18. The key dynamics currently are:
    • A drive to accelerate consolidation into fewer, bigger and better run schemes.
    • A rapid increase in DC asset scale and memberships.
    • Immature scheme memberships, with large allocations to the growth assets including around 80% in equities for younger members.
    • An increasing concentration of asset scale in a limited number of large schemes with 12 schemes holding nearly 75% of the DC, non-hybrid, assets and 80% of the DC, non-hybrid, memberships.
    • Long investment horizons, with current and future members expected to retire and continue to draw benefits from the scheme beyond 2050.
19. The key climate risks controls on the OPS DC market currently are the requirement for trustees:
    • of schemes with at least 100 members to produce a Statement of Investment (SIP) principles and publish an annual Implementation Statement alongside the SIP which sets out how they gave effect to certain policies set out in the SIP
    • of schemes with at least 100 members to include in their SIP their policies, including in relation to financially material considerations over the appropriate time horizon of the investments, including how those considerations are taken into account in the selection, retention and realisation of investments
    • of SET schemes with relevant assets of £1 billion or more, in scope of the Climate Change (Governance and Reporting) Regulations 2021 to produce and publish a climate change (TCFD) report on an annual basis
    • of all authorised money purchase schemes (ie master trusts and CDC schemes) to produce and publish a climate change (TCFD) report on an annual basis

Public Service Pension Schemes (PSPS)

20. Public service schemes cover eight main workforces of government employees. However, within this group only the Local Government Pension Scheme (LGPS) is funded. The other schemes are unfunded and have no investments.
21. The remit that TPR has in relation to PSPS schemes is also different to other schemes. For PSPS schemes, TPR has no remit over funding or investment. TPR has oversight only in relation to whether the schemes have internal controls in place which are adequate for ensuring that the scheme is administered and managed in accordance with the scheme rules, and requirements of the law.There are also a number of current market developments which are relevant to how the LGPS universe might evolve and how the risk landscape might develop.
22. In November 2024, as part of the Mansion House proposals, the government launched a series of consultation including one on the LGPS 'Local Government Pension Schemes (England and Wales): Fit for the Future'. The consultation closed on 16 January 2025 and a key theme is around accelerating consolidation of the investments held by the 86 LGPS funds into the eight super pools to achieve greater asset scale and investment efficiencies.

Survey insights on our regulated landscape

23. We use the results of the survey to identify, inform and prioritise the actions we need to take to improve standards across our industry. The summary insights below have been taken from the Defined Contribution (DC) Schemes and Defined Benefit (DB) Schemes surveys which were conducted in the second half of 2024. Further details of the survey methodology and the detailed results for DC and DB are set out in our press notice of 25 March 2025.
24. For the purposes of the survey, we classified schemes by membership numbers, with micro schemes having two to 11 members, small schemes 12 to 99 members, medium schemes 100 to 999 members and large schemes having more than 1,000 members. Note – percentage numbers may not sum to 100% due to rounding.
25. We use the results of the survey to identify, inform and prioritise the actions we need to take to improve standards across our industry.

DC pension schemes survey

26. The survey questions were answered by 215 trustees of DC schemes with 18 interviews conducted with master trusts and 197 with other schemes. Over half (58%) of respondents were trustees (36% were the chair to the board of trustees compared to 23% other trustee, with 19% professional trustees) and 42% were in other roles (19% in-house administrator, 11% scheme manager, 8% scheme secretary, 4% external advisor). Relevant Small Schemes, executive pension plans and schemes that were winding up or wound-up were excluded. Three-fifths (60%) of schemes surveyed have assets held by trustees less than £100 million, 9% between £100 million to £250 million, 8% for £250 million to £500 million, 6% for £500 million to £900 million, and 18% for those more than £900 million.
27. Note – percentage numbers in this section might not always add up to 100%. This is due to rounding to the nearest whole number.

Summary of DC scheme survey findings

28. For the purposes of the survey, we classified schemes by membership numbers, with micro schemes having 2 to 11 members, small 12 to 99 members, medium  100 to 999 members and large more than 1,000. 
    
    The survey found:  
    
    Allocation of time or resources: in general, larger schemes performed better than smaller schemes on governance of climate change risks. A minority of DC schemes (17%) had allocated time or resources to assessing financial risks and opportunities associated with climate change. There was a very significant difference by scheme size with large schemes very likely to have allocated time or resource (92%), compared to micro (4%) and small (25%) schemes at the other end of the size spectrum. All master trusts (100%) had allocated time or resources.
29. Understanding of climate-related financial risks: A relatively small proportion of DC schemes (28%) said they understood well the scale of the financial risks to their scheme posed by climate change. The figure was much higher for medium (63%) and large (90%) schemes and for master trusts the figure stood at 100%.
30. Barriers for improving understanding: Three-quarters (74%) of all DC schemes said that there were no barriers towards improving their understanding of climate change. For those schemes who stated that barriers existed, no single barrier emerged as the dominant reason. This view was largely similar across all scheme sizes.
31. Stewardship actions: The most frequently undertaken stewardship action amongst medium and large sized schemes involved schemes having spoken to advisers and asset managers about how climate-related risks and opportunities are built into their engagement and voting policies by 36% and 88% of schemes respectively. Amongst master trusts the most often undertaken action was to ask the prospective managers how they include climate factors in engagement and voting behaviour when appointing new asset managers or pooled-fund providers having been undertaken by all (100%) of master trusts involved in the research.
32. Consideration of ESG issues: Across all DC schemes, environmental, social and governance (ESG) factors, including those specifically related to climate risk, were of lesser concern compared to other matters to trustee boards when making investment decisions. Differences were evident based on scheme size, with medium and large schemes having given ESG matters comparatively (although still low compared to non-ESG factors) greater consideration than their smaller counterparts. Master trusts had the highest levels of trustee consideration of these factors.
33. Most large (93%) and medium (70%) schemes held their investments in pooled funds with -26% of micros and 39% of small schemes doing so. Most master trusts (94%) held their investments in pooled funds.

DB pension schemes survey

34. The survey questions were answered by 200 trustees of DB schemes. 56% were the chair of the board of trustees, with 44% being other trustees. A fifth (20%) were professional trustees. Relevant Small Schemes, Executive Pension Plans and schemes that were winding up/wound up were excluded. 70% of schemes surveyed held assets less than £100 million, 11% held assets between £100 million to £250 million, 5% between £250 million to £500 million, 6% between £500 million to £900million, and 9% over £900 million. 
    
    Note – percentage numbers in this section might not always add up to 100%. This is due to rounding to the nearest whole number.

Summary of DB scheme survey findings

35. The survey showed: In general, larger schemes performed better than smaller schemes on governance of climate change risks.
36. Allocation of time or resources: Over half of DB schemes (54%) had dedicated time or resources to assessing any financial risks and opportunities associated with climate change. Large schemes were the most likely to have allocated time or resources (87%), compared to medium (52%) and micro/small (41%).
37. Micro/small schemes generally allocated more time and resource toward assessing climate change risk and opportunities in 2024 increasing by 15% from 2021.
38. Understanding of climate-related financial risks: Two-thirds (65%) of all DB schemes felt that they had a good understanding of the financial risks posed by climate change across all scheme sizes. This figure was much higher for large schemes, with 89% stating they understood these risks either 'very well' or 'fairly well'.
39. Barriers to improving understanding: Three quarters (73%) of all DB schemes said that no barriers to improving their understanding of climate change existed. For those schemes who stated that barriers existed:
    • no single barrier emerged as the key reason
    • large schemes (41%) were more likely to agree they existed and highlighted particular concerns about the quality of the available data.
40. Stewardship actions: The most frequently undertaken stewardship action amongst micro/small and medium schemes was to require newly appointed asset managers or pooled-fund providers to set out how they include climate factors in engagement and voting behaviour (26% and 45% respectively). Amongst large schemes the most common action was to talk to advisers and asset managers about how climate-related risks and opportunities are built into their engagement and voting policies at 83%.
41. There was an increase in certain stewardship actions undertaken amongst DB schemes between 2021 and 2024 including:
    • Requiring newly appointed asset managers or pooled-fund providers to set out how they include climate factors in engagement and voting behaviour.
    • Trustees setting out their expectations on climate stewardship and approaches in legal documents.
    • Schemes signing up to the UK Stewardship Code.
    • Schemes joining collaborative engagement efforts on climate.
42. Consideration of ESG issues: Across all DB schemes climate and environmental issues were of limited concern compared to the other factors that trustee boards consider as part of their investment decisions. Most DB schemes (of all sizes) held their investments in pooled funds (70%), with large schemes (83%) being more likely to do so.

TPR PSPS Survey – January to March 2022 to 2023

43. TPR’s Public Service Pension Scheme (PSPS) Governance and Administration Survey 2022 to 2023 was undertaken by OMB Research between January and March 2023. It was completed by 191 representatives of the 204 public service pension schemes, which accounted for 99% of the total memberships. Further details of the survey methodology and the detailed results are available in the report.

Summary of PSPS scheme survey findings

44. Overall, 90% of schemes had allocated time or resources to assessing any of the financial risks and opportunities associated with climate change, a figure which remained consistent with the 2020 to 2021 survey findings (91%). The uptake of the processes used to manage climate-related risks and opportunities increased over this period, with 77% having added climate related risks to their risk register, an increase from 68% in 2020 to 2021.
45. Three-fifths (61%) undertook the monitoring of and reviewing of targets in the scheme’s climate policy (an increase from 37% in 2020 to 2021), while a similar proportion (58%) included climate-related issues as a regular agenda item at pension board meetings (also an increase from 42% in 2020 to 2021). Half of schemes (50%) had assigned responsibility for climate-related issues to a specified individual or sub-committee, an increase from 37% in 2020 to2021. Almost three-quarters (72%) of schemes included climate related topics in their pension board training plan (this option was not asked in the 2020 to 2021 survey).

Climate change considerations within the wider DB and DC landscape

46. Since the amendment of the Investment Regulations from October 2019, ESG has played an increasing role within DB, DC and DB/DB hybrid investment strategies. The amended regulations require that trustees, in their statements of investment principles, include policies on financially material considerations. This includes how financially material ESG considerations, including in those in relation to climate change, factor into their investment decisions. In addition, there has been increased demand from savers for more sustainable and responsible investments, together with a growing appreciation that consideration of material ESG could assist in delivering better saver outcomes.
47. Industry research has also indicated increased interest in and commitment to climate, ESG and wider sustainability related issues. For example:
    • The Pension and Lifetime Savings Association (PLSA) member survey  2023¹ indicates that:
      • Overall, 68% of pension funds now have a commitment to net zero alignment in place, an increase of 11% from 2022.
      • 90% are aiming to be net zero compliant by 2050, with many targeting earlier compliance (14% by 2035, 18% by 2035 to 2040).
      • Of those funds that are yet to implement a net zero scheme, 10% are aiming to have one in place in the next one to two years and 20% hope to achieve this in two or more years.
    • The 2024 ESG in DC Pensions Report² has highlighted that:
      • four-fifths of pension providers have deployed ESG screens and tilts on at least 90% of their default fund assets. This compares to five master trusts using these types of ESG strategies five years ago
      • seven out of 20 providers have, for at least some asset classes within portfolios, already reduced the carbon footprint of their DC portfolios by 50% or more without a reduction in investment returns
    • Research conducted by Wealth at Work in 2024³ highlighted that 40% of savers would increase their contributions if their pension was investing in funds that aligned with their values and beliefs. This is further supported by research from Cushon⁴ which found that three-fifths (63%) of savers would increase their engagement with their pensions if they knew it was making a positive impact on climate change (mitigating or adapting to).
    • A survey by Legal & General Investment Management (LGIM)⁵ has shown a continuing trend towards ESG inclusion despite the macro financial pressures and the cost-of-living crisis. The survey, undertaken in November 2023 of over 4000 members, revealed that:
      • while 90% had felt the financial strain, the desire to invest in ESG through their pension had not diminished.
      • 65% believed that the inflationary pressures had generated an increased desire to invest in renewable energy and sustainable food sources.
48. However, there have also been some challenges:
    • Concerns around greenwashing have impacted the implementation and adoption of ESG based investment strategies. However, anti-greenwashing measures and sustainability labelling initiatives such as those introduced by the Financial Conduct Authority (FCA) should help to address these industry implementation concerns.
    • A review undertaken by TPR⁶ of trustee compliance with environmental, social and governance duties illustrated that:
      • whilst most trustees are meeting their ESG-related disclosure requirements, many are only delivering minimum compliance
      • trustees often failed to demonstrate ownership of their policies or key activities in respect of ESG and oversight of ESG activities when delegated to investment managers
      • for schemes with pooled fund investments trustees highlighted a limited ability to influence underlying managers on ESG related decisions
    • The Pension and Lifetime Savings Association (PLSA)⁷ member survey (2023) highlighted a slowdown in the implementation of ESG policies due to:
      • other factors being considered more significant, in particular, the cost-of-living crisis and market volatility
      • concerns about the inevitability of climate change and the ability to reduce global temperature rises
      • a drop in confidence that the UK will meet its climate targets, and
      • a lack of engagement by the UK Government in removing obstacles that are viewed as inhibiting pension funds from addressing climate risk
    • Further evidence of a gradual slowdown in ESG adoption rates amongst schemes was highlighted by:
      • The Willis Towers Watson’s 2023 DC Pensions and Savings Survey[8] which cited maturation of ESG consideration as the likely cause.
      • The Go Pensions annual survey of DC master trusts (2023)[9] which noted that ‘Administration Service’ overtook ‘ESG’ as a top three client consideration. The first time this has occurred since reporting began in 2021.  

Footnotes for this section

_^[1] PLSA (2023) Number of Pension Funds with Net Zero Commitment Continues to Rise, Source: Number of pension funds with net zero commitment continues to rise | PLSA

^[2] Corporate Adviser Intelligence (2024) ESG in DC Pensions Report, Source: ESG in DC Pensions Report

^[3] Wealth at Work (2024) Pensions Engagement Research Survey Results 2024, Source: Pensions Engagement Research - Wealth at work

^[4] Cushon (2021) Pension Funds and the Climate Crisis, Source: Pension Funds and the Climate Crisis

^[5] LGIM (2023) ESG Investing Remains a Top Priority for DC Members, Despite Cost-of-Living Crisis, Source: press-release-esg-investing-remains-a-top-priority-for-dc-members-despite-cost-of-living-crisis-13-november-2023.pdf 

^[6] TPR (2024) Market Oversight: Review of Trustee Compliance with Environmental, Social, and Governance Duties, Source: Market oversight: Review of trustee compliance with environmental, social and governance duties | The Pensions Regulator

^[7] PLSA (2023) Number of Pension Funds with Net Zero Commitment Continues to Rise, Source: Number of pension funds with net zero commitment continues to rise | PLSA

^[8] WTW (2023) 2023 Defined Contribution Pension and Savings Report, Source: 2023 Defined Contribution Pension and Savings Report - WTW

^[9] Go Pensions (2024) DC Master Trusts Report 2023, Source: Go Pensions The DC master trust: A year in review

4. Regulation and guidance

1. Trustees have a number of key duties, including the need to act in accordance with pensions legislation and to have regard to codes of practice and guidance issued by DWP, TPR and other regulatory bodies. Requirements and responsibilities on trustees in regulation and guidance in relation to climate, ESG and wider sustainability issues are outlined in the sections below:
   • trustees' investment duties
   • statements of investment principles
   • implementation statements
   • climate change governance and reporting
   • TPR's defined benefit funding code of practice
   • TPR's general code of practice
   • DWP's TCFD statutory guidance
   • TPR's TCFD guidance
   • TPR's covenant guidance
2. Some of the key provisions relating to climate, ESG and wider sustainability issues are summarised below.

Trustee investment duties

3. Trustees have a duty to make investment decisions that protect savers and are designed to bring good member outcomes. This means they have a fiduciary duty to consider financially material risks and opportunities, including in relation to climate change. Through ESG publication and disclosure requirements, trustees must demonstrate they are taking appropriate action to address these risks and opportunities.
4. Under the 2013 regulations, trustees of schemes in scope must publish a Statement of Investment Principles (SIP) and implementation statement (IS) on a website accessible to the public and available free of charge. They also need to provide a link to the website in the scheme return they submit to us. on a website accessible to the public and available free of charge. They also need to provide a link to the website in the scheme return they submit to us.

Statement of investment principles

5. Trustees are required to disclose their ESG policies their SIP in relation to three broad areas.
   • Trustees' approach to financially material considerations and non-financial matters (if the trustees choose to take those into account). This includes how financially material ESG considerations, including in respect of climate change, factor into their investment decisions.
   • Trustees' approach to their stewardship of the investments including in relation to undertaking engagement activities and the exercise of voting rights in respect of the scheme's investments.
   • Trustees' arrangements with their asset managers, including how the arrangements incentivise them to align their investment strategy and decisions with the trustees' policies (including those in respect of ESG related financially material considerations and non-financial matters), as well as monitoring and evaluating their asset managers' performance.

Implementation statements

6. In ISs, trustees of schemes in scope are required to explain how, and the extent to which, they have followed the scheme's policies on stewardship, including in relation to the exercise of rights, including voting rights and in undertaking engagement activities, set out in their SIP over the scheme year.
7. This must include:
   • the most significant votes casted by the trustees, or on their behalf, during the scheme year
   • a statement on the use of proxy voters (if any) during that year
8. There are additional requirements for trustees of schemes in scope which provide money purchase benefits. They include:
   • a description of any review of the SIP undertaken during the year
   • an explanation of any change made to the SIP during the year and the reason for the change, stating the date of the last review

Climate change governance and reporting

9. The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 and the Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021 are the relevant regulations. They apply to trustees of authorised schemes and trustees of trust schemes with relevant assets of at least £1 billion. Trustees of schemes in scope must identify, assess and manage climate-related risks and opportunities in a proportionate way and report on what they have done. These reporting requirements align with the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD).
10. The trustees must also publish the report on a publicly available website accessible free of charge within seven months of the end of the relevant scheme year.

Defined Benefit funding code of practice

11. The new DB funding code came into force in November 2024 for all DB schemes. It sets out to trustees, sponsoring employers and advisors our guidance and expectations on how to comply with the Funding and Investment Strategy requirements.
12. As part of the code, when reviewing the employer covenant, schemes are required to consider:
    • whether the employer's business model is resilient to a transition to a low carbon economy
    • other ESG-related risks and opportunities facing the employer and how these may impact on the employer's prospects

TPR’s general code of practice

13. The TPR general code of practice sets out TPR's expectations of the conduct and practice that governing bodies should meet to comply with their duties in pensions legislation.

Effective system of governance

14. The code makes it clear that governing bodies of schemes in scope must put in place and operate an effective system of governance which should ensure that consideration of environmental factors and how those factors might impact the balance of risks/returns over the longer term is part of the governing body's investment decision-making (see modules on Stewardship and Climate change).

Investments

15. The code emphasises that effective stewardship includes the consideration of environmental, social, and governance factors (ESG) and how those factors might impact the balance of risks/returns over the longer term in investment decision-making.
16. Under the code, governing bodies of pension schemes in scope should:
    • talk to their advisers and asset managers about how short and long-term climate change risks and opportunities are built into their recommendations
    • understand what measures are being taken to reflect climate change risk within investment portfolios

Internal controls

17. Governing bodies that are required to establish and operate internal controls for their scheme should, as part of their risk assessment, assess the risks and opportunities associated with climate change. Governing bodies which are required to establish and operate an effective system of governance including internal controls should:
    • consider the possible short, medium and long-term effects of climate change on the scheme's objectives and its operations
    • maintain and document processes for identifying and assessing climate-related risks and opportunities
    • integrate these processes into their risk management and governance arrangements
    • ensure they oversee, assess, and manage climate-related risks and opportunities relating to the scheme

DWP Climate Change Reporting (TCFD) statutory guidance

18. In June 2021, the Department for Work and Pensions (DWP) published statutory guidance entitled 'Governance and reporting of climate change risk: guidance for trustees of occupational schemes'. The guidance aimed to improve the quality of governance, and the level of action trustees must take in identifying, assessing, and managing material climate related financial risks.  This guidance was later updated in 2022 to reflect changes in the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021. 
19. Since 2022, trust schemes with £1 billion or more of  'relevant assets' and authorised collective money purchase schemes have been required to publish climate disclosure reports aligned with the TCFD recommendations.
20. The DWP's guidance states trustees must carry out the following activities as far as they are able:
    • undertake scenario analysis
    • obtain Scope 1, 2 and 3 greenhouse gas emissions and other data relevant to their metrics
    • use that data to calculate their metrics
    • use these metrics to identify and assess climate-related risks and opportunities
    • measure the performance of their scheme against the target they set
21. The primary purpose of the requirements to carry out certain activities 'as far as you are able', is to recognise that all the information you need to carry out these activities may not be available immediately.

TPR’s climate change reporting TCFD guidance

22. Also, in June 2021 TPR published guidance to assist trustees in complying with their duties on governance and reporting of climate-related risks and opportunities.  Updated in September 2022 to allow for the requirement for calculation of an additional portfolio alignment metric, the guidance is principally aimed at trustees who are in scope of the regulations.  However, the guidance also included in an appendix, a step-by-step example which was intended to: which has drawn praise from trustees and their advisors. This:
    • illustrated the types of steps that trustees and their advisers could consider taking as they worked through their TCFD report
    • helped develop trustees' understanding of how they might approach implementing the climate change regulations at a practical level
    • provided help to trustees of schemes that were not currently in scope of the regulations but who wanted to do more to manage your scheme's climate-related risks and opportunities

TPR's covenant guidance

23. Our updated covenant guidance, published in 2024, includes guidance on how trustees could consider ESG-related risks and opportunities as part of the assessment of their employer covenant. Trustees are expected to engage with management’s plans to address climate related risks and opportunities, and/or the expected impact of not addressing them. This includes discussing ESG risks and opportunities with the employer, in addition to any climate adaption and corporate social responsibility reporting, carbon management plans, and TCFD reporting analysis that management may have prepared.

5. Engagement and influence

1. TPR recognises that regulation is more effective, more comprehensive and more consistent when regulatory partners and stakeholders work together. This is especially important in such a complex and interrelated area as climate change, where action needs to be coordinated across sectors. We also recognise the critical role advisers and third-party providers play in supporting trustee decision making and the direct bearing this has on retirement outcomes for savers.
2. To set out expectations and shape better practice, this has involved the use of:
   • blogs, articles
   • working with other stakeholders on projects
   • industry and regulator forums
   • speaking events, workshops, roundtables
   • reviews of climate related disclosures (TCFD reports, SIPs and ISs) in order to provide feedback through industry statements trustees and their advisers
   • collaborating with other regulators

Blogs and articles

3. TPR has and will continue to publish ESG and climate related blogs and articles covering a range of issues, such as: climate scenario analysis, the need to challenge the advice received from advisors, nature related risks and transition plans.  This will be done to raise awareness, help shape and drive better practice, and encourage trustees to develop their knowledge and become familiar with emerging practice and guidance. All of which have a direct bearing on trustee decision making and how they adapt their investment and where appropriate funding strategies to increase the resilience of their portfolios. Examples of published blogs include:
   • June 2022: Reporting on climate: a challenge but an opportunity
   • April 2023: Great expectations: why trustees must be ready to step up on ESG and climate reporting
   • May 2023: Ignoring ESG factors is no longer an option for pension trustees
   • August 2023: How trustees can help make climate scenario analysis ‘decision-useful’
   • February 2024: Trustees, take stock and plan for wider ESG risks and opportunities
   • March 2024: Challenge and disclosure must be the norm if savers are to get value from their pensions

IMF Financial Sector Assessment Programme (FSAP) report

4. As part of IMF FSAP team's work on the quinquennial FSAP assessment for the UK in 2021, they wanted to include some climate risk analysis of some key financial sectors, including climate risk analysis of occupational pension schemes. This was the first time the IMF FSAP team considered climate risk as part of their FSAP analysis for any country. To assist the IMF FSAP team, TPR organised a survey across the large DB schemes (with relevant assets less than £1 billion) that were expected to be subject to the new climate change (TCFD) reporting requirements in from October 2021 (wave 1) or October 2022 (wave 2).
5. The IMF FSAP report and technical analysis were published in February and April 2022. On 20th June 2022 TPR hosted a webinar supported by the IMF FSAP team and the Bank of England (BoE) to present and discuss the findings and analysis of the survey results to the DB pension schemes that participated.
6. The assessment of the impact of climate change is a rapidly developing body of work. The IMF FSAP's team approach was based on assessing the implications of a Climate Minsky Moment, which as outlined by Mark Carney in 2016, can be seen as: "A wholesale reassessment of prospects, as climate-related risks are re-evaluated, [that] could destabilize markets, spark a pro-cyclical crystallization of losses and lead to a persistent tightening of financial conditions". In the IMF FSAP team’s work, the Climate Minsky Moment was operationalized as an initial shock following a change in expected global decarbonization policies, leading to a sharp steepening of the expected carbon price path being followed by market acknowledgement of the changed prospects with crystallization of market losses for asset owners.
7. This climate stress analysis work was an inaugural pilot project for the (UK) FSAP team and included areas where further development was needed, particularly in relation to the degree of assets held that could be analysed, transition environments and pathways. However, the output was insightful of an additional approach that can be used to complement longer-term analysis and to potentially inform actions.

Industry and regulator forums

8. TPR has recently participated as an observer on the UK Transition Plan Taskforce Delivery Group and the asset owner guidance working group, DWP convened Social Factors Taskforce, Climate Financial Risk Forum (CFRF) Steering Group and Financial Markets Law Committee (FLMC) Pension Fund Fiduciary Duty Working Group. Through these groups, TPR has sought to contribute to addressing uncertainty and developing key guidance including on climate change, nature-related financial risks, social factors and wider sustainability issues. for the benefit of trustees.

Speaking events and industry engagements

9. In addition, TPR has and continues to influence and drive the development and adoption of better practice in managing climate and wider ESG risks and opportunities through participating in roundtables, workshops. master classes and speaking events as well as working with industry groups and professional bodies such as the Investment Consultant Sustainability Working Group, Institute and Faculty of Actuaries and the Asset Owners Council.

Industry statements

10. In our Climate Change Strategy 2021 we set out our aim to influence debates around pensions and climate change. We also indicated that we would:
    • set clear expectations and work with those we regulate to ensure that the standards we set out are clear and easily adopted
    • seek to identify risk early
11. To deliver against these objectives we indicated that we would carry out a review and publish our findings on a:
    • review of TCFD reports published by occupational pension schemes (and share best practice examples with DWP to inform their review of the TCFD reporting regulations and requirements)
    • thematic review on scheme resilience to climate-related scenarios to help identify the extent of risk from climate change
    • selection of implementation statements published by occupational pension schemes to understand the extent to which stewardship and engagement activities were being used by trustees

TCFD statements

12. We analysed a selection of climate-related disclosure reports published by pension schemes in 2023 and 2024 and published statements based on our review findings on our website.  In these statements we set out our observations and feedback to industry to help raise standards.  We published our first statement in March 2023, based on a review of 71 of the 81 TCFD reports published in that reporting period. We published a further statement in April 2024 based on a smaller sample of the [290] TCFD reports published by schemes.

ESG Regulatory Initiative report

13. In July 2024, we published our Market Oversight: ESG report which set out the findings from our review of how pension trustees are complying with wider ESG duties.  As part of this review, we carried out an in-depth review of SIPs and IS published by 50 schemes.

Working with other regulators

14. TPR works closely with fellow financial and non-financial regulators to improve stewardship practice and the management of the risks and opportunities posed by climate change, nature loss and social factors in the interest of savers and consumers. This is achieved through bilateral co-operation and participation in the networks and working groups provided by organisations such as the UK Regulators Network Climate Network and Institute of Regulation. In addition, we participate in government wide groups such as the Stewardship Regulators Group (SRG) and Sustainable Finance Regulators Group (SFRG) which enable TPR to both co-ordinate ESG activity and share experience and best practice.
15. As a financial regulator, our functions are closely linked to those of the FCA, FRC and Prudential Regulation Authority (PRA), and we work together to improve our understanding of systemic risks and contribute to an assessment of whether the UK financial sector is resilient in the face of climate change.

6. Climate-related risks and opportunities for occupational pension schemes

1. As we set out in our previous ARP03 report, all the occupational schemes that we regulate are exposed to climate-related risks through their investment arrangements, hence the importance of adapting investment and funding strategies to enhance the resilience of investment portfolios. Unlike DC schemes, the prospects of DB schemes that rely on support from their employers or sponsors also depend on the resilience of those parties to the impacts of climate change, ESG and wider sustainability issues, such as nature and biodiversity.
2. The risks that arise from climate change can be categorised into physical risks, transition risks and litigation risks.
   • Physical risks relate to the impacts of a changing climate as a result of global average temperature rises and changing weather patterns. These can be divided into acute and chronic physical risks, both of which could impact asset values:
     • Acute physical risks – include storms and wildfires that cause immediate damage to physical infrastructure and assets together with real-time disruption to supply chains.
     • Chronic physical risks – these are associated with sustained changes such as increases in the severity and frequency of droughts and flooding. Such changes can cause permanent degradation of agricultural land and supply changes and lead to stranded assets.
   • Transition risks arise from structural changes in the economy as the UK and other jurisdictions shift towards a low-carbon economy in line with global climate policy goals. The magnitude of risk will be dependent on how quickly and effectively a scheme can adapt and the extent to which there is an orderly or disorderly transition.
   • Legal and litigation risks may also arise when businesses and investors fail to account for the physical or transition risks of climate change. Risks arise not just for pension schemes with sponsor companies that do not plan and adapt adequately, but also for the pension funds that hold companies’ equity and debt.
3. The significance of these types of risks for different types of scheme will vary. For example, a closed, very mature DB pension scheme might have a relatively short to medium term horizon compared to an open, immature, DC master trust where new members continue to join from age 18. How these risks might develop and the scale of their impacts will also be dependent on the type of transition pathway actually followed. The table below provides just one illustration of how the relative importance of those risks might develop. However, it is not unique and trustees need to take appropriate advice for their scheme’s arrangements and form their own view on how these risks might develop over different time periods.

Risk Type	Short 2025 – 2030	Medium 2031 – 2040	Long 2041 – 2050	Ultra-long 2050 – 2075
Physical	√	√√	√√	√√√
Transition	√	√√	√√√	√√
Re-Pricing	√	√√	√√√	√√
Litigation	√	√√	√√√	√√√

The opportunities arising from climate change

4. McKinsey estimates that the global market opportunity for UK companies supporting the transition to a low carbon economy could be worth more than £1 trillion by 2030. In addition, the government's Industrial Strategy 2035 green paper, published for consultation in October 2024, highlighted clean energy industries as one of eight growth-driving sectors and that an additional £50 to £60 billion of capital investment will be required each year through the late 2020s and 2030s to achieve the UK's net zero ambition. Developments in this space are likely to continue at pace and opportunities for investments, across the risk and return spectrum, are likely to emerge. Some of these investments are likely to fall within the investment implementation requirements that trustees have set for their scheme's investment strategy.
5. Additional 'new' opportunities are likely to emerge, for example. opportunities to invest in emerging technology and firms that are key to a successful transition and nature-based solutions. The latter provide ways of adapting to climate change, such as measures introducing natural flood attenuation and increasing carbon sequestration while enhancing biodiversity and reversing nature loss. Examples include:
   • reforestation – planting trees/creating woodland
   • woodland conservation – preventing deforestation
   • wetland restoration – restoring degraded wetlands including peatland

7. Practices: are schemes adapting to climate change?

1. Reviews carried out by TPR, and wider industry publications indicate that schemes have been adapting their practices to meet the risks and opportunities posed by climate change. However, progress has not been uniform across all schemes and there continue to be areas where further improvements and better practices could be delivered.
2. New regulatory requirements were introduced in:
   • 2018 in relation to Statements of Investment Principles and Implementation Statements
   • 2021 (with an update in 2022), in relation to Climate Change Governance and Reporting (TCFD reporting)
3. These requirements imposed additional duties in relation to financially material factors (including ESG) and stewardship for around 3,500 DB, DC and hybrid schemes and bespoke climate change reporting and disclosure for around 3,500 DB, DC and hybrid schemes. We have carried out a number of reviews to understand the extent to which trustees have been complying with these new duties and the results provide some insights on the extent to which schemes are adapting to climate change.

Year 1 TCFD review – Industry Statement

4. In March 2023 we completed our first review of the TCFD disclosures prepared by occupational pension schemes. For the first year 83 schemes, made up of all 35 DC master trusts and 48 DB and hybrid schemes with relevant assets in excess of £5 billion were in in scope of the reporting requirements. The review was based on 71 of the reports published and these schemes represented around £450 billion of assets under management and more than 18 million memberships of schemes. Our findings were published with a view to sharing emerging good practice with schemes.
5. Overall, the review revealed several areas of improvement for schemes and some emerging good practice. Of the 71 reports analysed, 43 had set a formal net zero target. Several reports contained examples of trustees taking appropriate action, including:
   • planning climate and sustainability training for trustees and those involved in the governance of climate-related risks and opportunities
   • developing a trustee policy on investment beliefs in relation to climate change
   • working with investment managers to obtain better data.
   • allocating more funds to sustainable investments
   • using stewardship to manage climate-related risk
   • switching to climate-tilted pooled funds
6. While there were several areas of good practice, TPR’s review also found some areas where reports could be improved. In addition to feedback through the industry statement, we also provided some feedback directly to some schemes.

Year 2 TCFD Review – Industry Statement

7. In April 2024 we completed our second review of the TCFD disclosures prepared by occupational pension schemes and published our findings to help raise standards across industry. The review was based on 30 of the reports published, which represented around 10% of the total number of reports published by DC master trusts, DB, DC and DB/DC hybrid schemes with relevant assets in excess of £1 billion that were in in scope of the reporting requirements.
8. Overall, the review revealed several areas of improvement for schemes and some emerging good practice, including that:
   • more than 60% of reports in TPR's sample had some form of net zero goal with a target date of 2050 or earlier
   • there were specific examples of trustee action on climate risk including:
     • updating defined contribution default lifestyle strategies to include sustainable funds
     • increasing allocations to low carbon tracker funds or companies with 'high levels of green revenue'
     • exploring opportunities such as forestry, green bonds or committing funds to private market renewables
     • encouraging fund managers to engage with top carbon dioxide emitters
9. The review found some good practice on scenario analysis but also areas of concerns and included some suggestions for future improvements.

ESG Regulatory Initiative report

10. In July 2024, we published our Market Oversight: ESG report which set out the findings from our review of how pension trustees are complying with wider ESG duties.  As part of this review, we carried out an in-depth review of SIPs and IS published by 50 schemes.
11. The review found that while the vast majority of trustees were meeting their ESG-related disclosure requirements, deeper analysis showed that many were only delivering minimum compliance. In addition
    • trustees often failed to demonstrate ownership of their policies or key activities in respect of ESG
    • broadly, where trustees delegated activities to managers, trustees often failed to explain or demonstrate oversight of ESG activities
    • where schemes are invested in pooled funds, a number of trustees highlighted they had limited ability to influence underlying managers on decisions related to ESG
12. The review was designed to help trustees and their advisers understand what is expected of them when meeting their ESG duties, including when acting on the risks and opportunities of climate change. The report included key recommendations for trustees and their advisers to help improve industry practices.

Industry publications

13. As outlined in section 3, industry research has also indicated increased interest in and commitment to climate, ESG and wider sustainability related issues.

8. Progress and preparedness

1. The occupational pension scheme landscape is rapidly changing. Many DB schemes are well funded, rapidly maturing and looking to transfer their liabilities to a bulk annuity insurer. The DC master trust market has continued to consolidate, and current government initiatives are likely to accelerate consolidation. The industry is generally moving towards, fewer, bigger and better-run schemes but the timescale and pace of that change are uncertain pending the conclusion of a number of industry consultations.
2. The requirement to prepare TCFD reports has put climate change firmly on the trustee agenda and driven significant industry progress.  However, progress is not uniform across schemes and more work remains to be done, including in relation to:
   • Physical Risks: Many TCFD reports have previously focused on transition risks in the short to medium term and physical risks in the longer term but have done so in a combined and generic way. However, concerns that physical risks are underestimated have started to increase focus on physical risks, their likely impacts and their potential to arise in the short to medium term.
   • Stranded Assets: Generally, other than in the context of outline, generic, narratives for qualitative scenarios, the potential for assets to be stranded and the impacts that might have, would benefit from greater consideration.
   • Nature / Biodiversity: Currently there is no formal mandated requirement for trustees to report on nature related financial risks (TNFD aligned reporting). However, the potential for nature and biodiversity risks to be financially material, the interconnection between nature and climate and the potential for nature to be part of the solution is increasingly being recognised.
   • Climate Repricing Risk: Apart from some generic references in the context of scenario analysis very few schemes appear to consider the potential for market re-rating of climate risk. Further consideration needs to be given to what the triggers for re-pricing might be and what impacts that re-pricing might have across scheme assets.
   • Double materiality: The concept that climate-related impacts on a company can be material and requires disclosure is widely accepted. However, the impacts of a company on the climate or wider sustainability issues can also be material. The concept of double materiality has started to become embedded in some sustainable finance disclosure standards but hasn’t generally been reflected in disclosures to date.
   • Scenario Analysis: The limitations of the initial quantitative scenario analyses carried out by schemes have been recognised and debated within the sector. In response a more qualitative narrative based approach has evolved and is gaining traction. In parallel the approaches to quantitative scenario analysis continue to develop as does the science.
   • Transition Plans: Government intentions for transition plans for UK regulated financial institutions, including pension schemes are not yet known. However, transition plans, by their forward looking, strategic nature have the potential to catalyse change and help shape investment decisions. Although there is likely to be some lead time before implementation, raising trustee awareness of transition plans and their benefits is an area of ongoing focus for TPR.
   • Climate related systemic risks: The potential for climate-related systemic risks to build up is an area of interest to the Bank of England’s Financial Policy Committee. There is significant uncertainty around the magnitude of future climate-related financial loses and how and when they might crystallise. Raising trustee awareness of the potential for (climate-related) systemic risks and their potential impacts is also an area of ongoing focus.

9. Potential barriers and enablers of climate adaption

1. Since 2019 around 3,500 DB, DC and hybrid schemes have had to have a policy in their Statement of Investment Principles in relation to financially material factors, including ESG. Since 2022 around 300 DB, DC and hybrid schemes have had to prepare TCFD reports. Although the total universe of occupational DB, DC and hybrid schemes is made up of around 6,000 schemes, the bulk of aggregate scheme assets and scheme memberships are captured by those schemes.
2. For many trustees, climate, ESG and wider sustainability has been a substantial body of new work, with a steep learning curve in terms of knowledge, regulatory requirements and emerging and evolving market practices. For many schemes in scope of the additional (2018) SIP requirements good progress has been made on considering financially material factors, though action on climate and ESG has in instances been limited or constrained. For many schemes in scope of the TCFD reporting requirements good progress has been made but more remains to be done.

Potential barriers to adaption

3. More generally, climate adaption across the occupational pension scheme universe has been limited by a number of factors. For those schemes in scope of the TCFD reporting requirements barriers have included:
   • Lack of data: There has been significant progress on the availability, coverage and quality of scope 1 and 2 carbon emissions data for some listed asset classes, but challenges remain around scope 3 emissions data and around all data for some asset classes,for example some private market asset classes.
   • Climate scenario analysis: The scenario analysis initially carried out by many schemes often indicated limited impacts and didn’t capture the potential materiality of the range of climate impacts. The flaws in those initial models have now been well covered across a range of industry publications and improved modelling and alternative approaches are developing. However, the lack of material impacts in those initial outputs and the lack of confidence in climate scenario modelling has limited action been taken.
   • Compliance focus: Industry concerns include that TCFD reporting is currently too prescriptive, too compliance focussed and not sufficiently decision useful.
   • Cost: The cost of reporting and the opportunity cost (in terms of time, resources and bandwidth) have potentially been a barrier to further action being taken.
   • Limited DB and hybrid scheme horizons: Following the increase in yields and the improvement in DB funding levels many DB schemes are much closer to being able to transfer their liabilities to an insurer. For example, a recent industry publication indicates that the average time to buyout for DB schemes was 4.4 years at as of 28 February 2025. Only 4% of DB schemes remain fully open and most DB schemes are rapidly maturing. Trustees view climate risk as one risk amongst many that they need to manage for their schemes. For trustees that are expecting to transfer their liabilities to an insurer in the short term, the risk of being able to transfer to an insurer is a more dominant and short-term risk of concern.
   • DC scheme consolidation: The DC industry has been consolidating over many years and measures are being considered to accelerate that consolidation. Some DC, DB/DC hybrid schemes and master trust expect to consolidate in the short to medium term and can be reluctant to implement some changes, given the potential for further changes (and further transaction cost impacts) on consolidation.
   • (Global) Policy uncertainty: occupational pension schemes and the financial sector more generally cannot solve the challenges posed by climate change on their own. Policy interventions will be needed, the policy gaps need to be closed and there needs to be greater certainty about government targets and timelines. Investing for an increase of 1.5 degrees, when current projections suggest a 2.8 degrees increase by thend of the century is most likely, is an implementation and fiduciary challenge for trustees.
   • (Global) Adaptation goals and standards: The lack of clarity on: national and international adaptation goals, the definition of 'adapted assets' and uncertainty over the level of commitment and future pace of implementation of those goals presents an additional investment challenge for trustees.
   • Fiduciary duties: More generally, the responsibilities associated with fiduciary duties can be a limitation for some trustees in implementing some investment strategies.
   • Trustee knowledge and understanding: Climate investing and TCFD reporting have presented many trustees with a steep learning curve. The body of knowledge relating to climate, ESG and wider sustainability issues continues to emerge and develop at pace. In addition, greater insight on the interconnections between climate, nature, biodiversity and social factors continues to develop. This has increased the complexity of investment decision making for trustees and potentially limited some further actions being taken.
   • Industry knowledge and understanding: Some industry stakeholders continue to voice concerns around the depth of investment expertise in industry relating to climate scenario analysis and wider sustainability issues. Some stakeholders have gone further and called for more effective regulation of investment advisers. Potentially, the lack of access to sufficient and robust advice has limited some further action.
   • Out of scope schemes: Although they include the bulk of industry assets and scheme memberships, currently only around 300 pension schemes are in scope of the TCFD reporting requirements. Around 5,700 pension schemes do not have to produce TCFD reports and around 2,500 of those, do not have to prepare a Statement of Investment Principles. Although some of the 5,700 schemes will have taken material actions, many may have taken little action.

Potential enablers of adaption

4. Some of the potentially barriers can in turn become enablers of action. For example, increased focussed on improving the quality and availability of data and improving the quality and type of scenario analysis can lead to these issues becoming potentially enablers of action. Similarly greater certainty over future policy or industry regulations, consolidation of schemes and the application of fiduciary duties could also lead to increased action on adaption.
5. More generally greater climate adaption across the occupational pension scheme universe has the potential to be enabled by a range of factors including:
   • Increased and accelerated consolidation of schemes: A number of measures are currently being either consulted on or worked on in industry which have the potential to accelerate consolidation and lead to increased scale for some schemes. Once scheme assets are consolidated into schemes or arrangements with longer term horizons or with improved investment and governance arrangements, there would be the potential for further action to be taken.
   • Macro or systemic stewardship: The current climate policy and industry gaps will need to be addressed, collaboration, collective action and engagement by like-minded investors on systemic and policy issues has the potential to drive change and lead to increased confidence in taking actions to adapt.
   • Transition plans: Launched in April 2022 by HM Treasury, the Transition Plan Taskforce (TPT) developed the 'gold standard' for climate transition plans. The government has committed to mandating that UK regulated financial institutions, including pension funds, develop and implement credible transition plans that align with the 1.5 degrees Celsius goal of the Paris Agreement. Unlike TCFD reporting, which is backward looking and uses historic carbon data, transition plans are forward looking, strategic plans and have the potential to drive real change and action. These plans also have the potential to integrate nature and social factors alongside climate adaptation.
   • Harmonisation of reporting requirements: TCFD reporting is mandatory for schemes in scope of the regulations. Nature (TNFD) reporting is currently voluntary. Social Factor and wider sustainability reporting is yet to formally develop. The potential for the development of one, harmonised reporting framework, which is streamlined and decision useful and has the potential to better recognise the interconnections between climate, nature and social factors and to reflect the systemic risks posed has the potential to drive further action.
   • Data standards and availability: The establishment or alignment to recognised standards and the encouragement of greater use of open standards for data to enable interoperability across data sources and enriched insight.
   • Scenario analysis: The development of scenario analysis models and techniques, including the use of more qualitative, narrative based analysis combined with improved data sets and climate projections data.
   • Expertise and capacity building: The development and cascade of industry expertise, together with improved regulation of investment advice, as proposed by the FCA. could help stakeholders to make better informed decisions.
   • Measures to limit greenwashing: The requirements for ESG Ratings to be regulated and certain sustainability linked investment funds to be authorised has the potential to increase market confidence in investment implementation and encourage increased action on adaption.

10. The future of the industry’s adaptation response

1. The UK pension industry is currently undergoing significant structural change. Over the next three to five years, it is likely that there will be a much clearer delineation between the longer-term objectives and investment horizons for pensions schemes, for example, between:
   • those DC master trusts and DB schemes and a few other models, that are planning on continuing longer term in the market
   • those schemes that are planning on remaining in the market for the medium term, for example, until their DB membership matures or to generate surplus for distribution to members and the sponsor
   • those that are aiming to exit the market, for example, through transfer to an insurer in DB or consolidation with a superfund or other provider in DB or consolidation with a DC master trust
2. Further economic and societal change will happen as the world decarbonises and clean energy becomes the norm. However, the pace of change and the pathways of change are not certain. Policy interventions are needed across the globe to deliver the transition, but global influences, geopolitical risk and global headwinds will have a significant influence on the development the future economic, societal and investment landscape.
3. However, change will happen. The current government has set out a commitment to:
   • an economic strategy to support "investment...and borrowing, to deliver long-term growth and accelerate the transition to a climate resilient, nature positive and net zero economy''
   • mandating transition plans for all regulated UK financial institutions, including pension funds
   In addition:
   • the government's Industrial Strategy 2035 green paper published for consultation on 14 October 2024, outlined its belief that clean energy is the economic and industrial opportunity of the 21st century and that mobilising public and private finance will be critical
   • the Transition Finance Market Review (TFMR) report published ion 17 October 2024 highlighted McKinsey estimates that the global market opportunity for UK companies supporting the transition to a low carbon economy could be worth more than £1 trillion by 2030
4. These developments, and more, will create risks, opportunities and challenges for trustees across the global investment landscape for years to come. However, there are some significant implementation challenges for trustees including that:
   • There are significant policy gaps: The activities of occupational pension fund investors and other financial institutions cannot on their own solve all the challenges presented by climate change and wider sustainability issues. Policy interventions and coordinated action across the globe will be needed, however, when, how, in what sequence and to what extent these might happen all will significantly influence the outcome and the ability of trustees to take investment decisions.
   • Although pensions are long term, the nature of the risks and opportunities that trustees are faced with vary with the expected future lifetime of their schemes. For schemes that are targeting transferring to an insurer or DC master trust in the short to medium-term, shorter-term transaction risks can be more material.
   • Information is imperfect and the increasing impacts of climate change are not linear. The frequency and severity of climate events in increasing and while directionally the science is clear,  the incidence / event horizon and impact of tipping points and the inter-relationship of tipping points is not clear.  Similarly, the inter-relationships between climate, nature and social factors are becoming more obvious but complex and for trustees as fiduciaries the actions they can take are not clear.
   • The potential for Minsky Moments or a series of Minsky Moments and climate risk re-pricing is acknowledged but the triggers and timing for any events is hard to predict and harder to make investment decisions around.
5. The future of industry’s adaption response is hard to predict. Transition plans, when they are rolled out, will help to drive change. As occupational pensions benefit provision moves from DB to DC, the aggregate asset allocation across DB and DC will change materially as:
   • DB schemes run off or wind up and unwind their gilt holdings and lose asset scale
   • DC schemes, with their much more significant allocations to equity and growth assets, gain asset scale
6. In addition, as we move to fewer, bigger and better run schemes and as some DC master trusts gain significant scale, more and more schemes will move more towards becoming Universal Owners and being driven by owning representative slices of the global economy and holding undiversifiable systemic risk exposures. This will also drive change. Our approach to regulation is also changing as the pension scheme landscape changes. We are moving more towards a more prudential style of regulation where we will be addressing risks not just at an individual scheme level but also at the level of those risks which could impact the wider financial ecosystem. We are also changing our approach to market engagement and will be having more direct interactions with trustees, their advisers and scheme service providers around their schemes and their investment strategies. That too will drive change.

11. TPR as an organisation

1. In our Climate Change Strategy in April 2021, we set as one of our Aims that we would "as a business, take part in the transition to net zero". We also indicated that as well as working with our regulated community, we would take responsibility for the climate impacts of TPR as a business and that this would mean reducing our own environmental impact, managing climate risks and adapting to new conditions.
2. We have already started this work and have set out below details of the commitments we made, the Climate Change Adaption Strategy we developed and our Adaption Plan. However, there is more to do, and we have also highlighted the next steps we intend to take.

Our commitments

3. In our report under the third round of the climate change Adaptation Reporting Power (ARP03), published in October 2021, we set out our commitments as an organisation.
4. In our ARP03 report, we referred to our 2021 Climate Change Strategy, which sets out our strategic response to climate change and our commitment to reducing our environmental impact, manage climate risks and adapt to new conditions.
5. We also referred to our target of achieving net zero greenhouse gas emissions by 2030, and our commitment that we would set out our plans for achieving this over the next three years.
6. In March 2024, we published our Pathway to Net Zero report, which details how we will deliver on our net zero commitment. Having completed an extensive piece of work in 2023 to properly understand our greenhouse gas emissions, we found that our scope 3 supply chain emissions made up most of our carbon footprint.
7. Due to the limited control we have over these emissions, and the slow rates of supply chain decarbonisation, we split our net zero ambitions into two targets.
8. Our 2030 target is an operational one, which focuses on those emissions we have most control over: those arising from our offices in Brighton and the business travel we undertake.
9. However, we have also set a second, science-based target for a minimum 90% reduction of all emissions by 2050, which includes emissions from our supply chain, employee commuting, working from home and leased assets.
10. In our ARP03 report, we also committed to reporting in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. We have now undertaken this in line with guidance from HM Treasury.
11. The guidance sets out three phases of implementation, with reporting entities setting out their responses in their annual report and accounts. In our 2023-24 Annual Report and Accounts, we reported in line with the TCFD recommendations and disclosures around governance (all recommended disclosures) and metrics and targets.
12. Read our most recent sustainability performance reports in our Annual Report and Accounts.

The Greening Government Commitments

13. As per our ARP03 submission, we report annually on our performance against the Greening Government Commitments (GGCs). The GGCs set out the actions UK government departments and their partner organisations will take to reduce their impacts on the environment, and cover the key areas of:
    • working towards net zero by 2050
    • minimising waste and promoting resource efficiency
    • reducing water use
    • procuring sustainable products and services
    • nature recovery
    • adapting to climate change
    • reducing environmental impacts from information. communication technology and digital
14. The current round of GGCs covers the period between April 2021 to March 2025 and is measured against a 2017-18 baseline. Work is continuing within TPR to address these targets. We are reviewing our business travel behaviours and further diversifying our waste streams to include more recycling.

Climate Change Adaptation Strategy

15. Regarding category F 'Adapting to climate change', we have developed a Climate Change Adaptation Strategy which includes the two sub-elements of:
    • a climate change risk assessment across our estates and operations to better understand risk and to target areas that need greater resilience
    • a climate change adaptation action plan, including existing or planned actions in response to the risks identified
16. The focus of our Climate Change Adaptation Strategy is on the activities of TPR as an organisation, rather than as a regulator. TPR leases 1.5 floors in the shared occupancy Telecom House building in Brighton, and as such has limited control over the management of the building. The actions identified in our strategy are therefore mainly operational measures rather than those relating to the building fabric.
17. The Climate Change Adaptation Strategy is due to be published on our website in early 2025. The headline information from this strategy is as follows:

Risk assessment

18. The key risks identified for TPR relate to overheating, surface water flooding, and disruption to travel networks and supply chains arising from flood and storm impacts beyond the Telecom House site. 

Overheating

19. The likelihood of the occurrence of heatwaves is projected to increase. This poses risk to staff health, wellbeing and productivity. In addition, air conditioning is more likely to be required to maintain comfortable working temperatures.

Flood risk

20. TPR is located in an area at risk from surface water flooding. This risk is likely to rise in line with projected increases to the size and number of extreme rainfall events. The risk of flooding from rivers or the sea is limited, but there is a possibility that a rising water table could cause the lower floor of the car park at Telecom House to flood.

Travel disruption

21. The projected increased disruption to road and rail travel due to flooding, storms and heatwaves may in turn increase in the number of days that employees are required to work from home due to adverse weather.

Adaptation Plan

22. The climate change risk assessment show that TPR as an organisation is well-adapted to climate change risks. The building design adequately integrates storm resilience and coupled with air conditioning systems, helps to mitigate the risks associated with overheating. Water efficiency measures installed as part of our office fit-out in 2023 help to reduce water consumption levels. Our business continuity processes and ability to support home working provides resilience to both site and travel-related disruption, allowing operations to continue with minimal disruption.
23. However, there are areas where resilience could be improved, with surface water flooding the most pressing issue. Actions in the Climate Change Adaptation Plan are grouped according to three themes, which are:
    1. ensuring safe, climate-resilient working
    2. enhancing physical resilience
    3. a culture of climate resilience
24. Full details of these resilience measures will be set out in our Climate Change Adaptation Strategy. They include:
    • provision of specific guidance and reminders to staff in relation to hot weather working and storm hazards
    • periodic reviews of current home-working guidance and office attendance requirement
    • active monitoring of office temperatures and logging complaint
    • raising specific issues with the landlord relating to their demise, including key equipment siting and sustainable drainage options
    • reviewing whether specific groups have differing needs and requirements for climate adaptation
    • reviewing TPR’s service contracts to assess supplier resilience and vulnerability to extreme weather events
    • running a behavioural campaign on water use and striving for further water efficiency measures

Next steps

25. Impacts from climate change continue to present themselves in the news and close to home. The need to adapt to these impacts is more important than ever, both as an organisation and as a regulator. We will continue to support the UK government, the wider pensions sector and other players in responding to the challenge and building greater resilience to the impact of not just climate change but also nature loss. A particular focus moving forward will be transition planning and the adoption of credible transition plans across the sector. As an organisation, we will maintain a transparent approach to the work we are doing in this space and will provide further updates on our progress.

Back to top

Is this page useful?