DWP to review TCFD reporting requirements
As the DWP launches its consultation on Exposure draft of UK Sustainability Reporting Standards: UK SRS S1 and UK SRS S2, RSM UK says this is an ideal time for trustees to think about how they can help shape the TCFD reporting standards.
Andrew Aston, pensions audit director, RSM UK said: “This consultation demonstrates the government’s clear ambition for the UK to become a world leader in sustainable finance, and shows its commitment to developing a regulatory framework that will achieve this.
“This consultation document states that, in addition to the DWP considering corporate reporting, it will look again at the reporting requirements for pension schemes, and “build on evidence provided by the Pensions Regulator”.
“This is very welcome, as the TCFD (taskforce on climate-related financial disclosures) regulations that came in October 2021 were somewhat hurried, and led trustee boards to focus on the reporting of metrics, and the challenges of obtaining the appropriate information necessary to demonstrate progress against these. In a bid to ensure the regulations are fully met, this has often led to extensive reporting. While achieving compliance, this has led to the inclusion of voluminous, and sometimes confusing, information. This approach has often provided little insight into whether or how trustee boards are considering ESG matters at the point of debating investment strategies, or implementing investment changes.
“Based on recent Pensions Regulator blogs, it seems TPR wants ESG factors to be part of a trustee board’s ethos, central to investment decisions, rather than only being considered when it’s time to prepare the next annual TCFD report.
“I hope the DWP replaces the current rigid TCFD framework with a more flexible approach that places more emphasis on clearly demonstrating how trustees embed ESG in their governance processes, and what considerations they made in investment choices, rather than focusing on the best targets and metrics to represent their portfolio.
“The recent introduction of the FCA’s Sustainability Disclosure Requirement (SDR) investment labels should help trustees demonstrate their ESG considerations, but ultimately investment returns will always carry significant weight. If the government wants to see ESG funds become more prevalent in reporting, the sustainability of fund choices needs to be clear, but they also need to demonstrate that they can deliver a strong market return. Simplifying reporting will at least take one more challenge off the ever-increasing trustee board’s plate. It will be interesting to see if any reporting changes now push the reporting requirements to all occupational pension schemes, bringing those trustee boards that have been sat on the bench into the game.
“I would encourage trustee boards to make their voices heard through the upcoming consultation and help shape the reporting requirements on how their governance processes operate. If not, they may end up with another costly rigid annual report they are required to produce.”