RSM UK is highlighting further pressures on pension trustees following the Department for Work and Pensions’ (DWP) recent announcement that new ESG regulations aligned with the Paris Agreement will be introduced from 1 October 2022, to support global climate goals. As such, trustees will be required to measure and publish how their investments will limit global warming to 1.5 degrees Celsius above pre-industrial levels.
These latest requirements from the DWP will impact more than 80 per cent of UK pension scheme members, in addition to significant regulatory changes made already this year, including:
- The defined benefit funding framework
- New notifiable events regime
- TCFD (Taskforce on Climate-related Disclosures) and ESG (Environment, Social, Governance)
- Changes to normal pension age
- Simpler annual benefits statements
- Stronger nudge guidance
- New transfer regulations
- GMP (Guaranteed Minimum Pension) equalisation
- Preparation for the new pensions dashboard, proposed to launch in 2023
Ian Bell, head of pensions at RSM UK, said: ‘The Paris-aligned requirements from the Department for Work and Pensions (DWP) is the latest in a growing number of regulations exacerbating workloads for pension trustees, as they work to implement regulatory changes set out earlier this year.
‘Although well-intentioned to support the Paris Agreement’s climate goals, the incoming measures from the DWP have been introduced with little warning, and have seemingly ignored industry concerns regarding the availability of data and will add further ESG challenges for trustees in implementing the correct policies and procedures. A particular concern is that trustees will need to publish information on the carbon intensity of their investments, something which is hard to measure due to a lack of data for Scope 3 reporting.'
‘With authorities looking to stamp down on greenwashing, as seen in the $1.5 million fine issued to BNY Mellon for its misleading ESG statements, trustees face new requirements in terms of disclosure and ensuring they receive the right information in the first instance.’
He added: ‘Trustees are already under significant pressure – juggling new and increasing regulation, undertaking the relevant training to support these changes, and, in many cases, balancing these growing demands alongside their day jobs. It isn’t going to be a straightforward process, however there are some actions which trustees can implement to help alleviate some of the challenges ahead and reduce the risk of deficient reporting; having awareness of what is needed, asking investment managers the right questions early, assessing any likely gaps to be filled and putting the checks and balances in place to challenge the information received.’