Task Force releases recommendations on Climate-related Financial Disclosures

The Task Force on Climate-related Financial Disclosures (TCFD) has released its final recommendations regarding voluntary disclosures to be included in mainstream financial filings by all types of organisation, including pension schemes and their investment managers.

The TCFD was established by the Financial Stability Board in 2015 in response to a request by G20 Finance Ministers and Central Bank Governors.  It is chaired by Michael Bloomberg and consists of 32 individuals in a wide range of senior roles across the globe.  It was asked to develop voluntary, consistent climate-related financial disclosures that would be useful to investors, lenders, and insurance underwriters in understanding the serious risks that climate change poses to the global economy and organisations within it.

The recommended disclosures cover four areas:

• Governance – the organisation’s governance around climate-related risks and opportunities.
• Strategy – the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
• Risk management – the processes used by the organisation to identify, assess, and manage climate-related risks
• Metrics and targets – the metrics and targets used to assess and manage relevant climate-related risks and opportunities

The report includes background information on climate-related risks and opportunities and their potential financial impacts.  It distinguishes two types of risk:

• Transition risks – policy, legal, technology and market changes may pose financial and reputational risks to organisations as we transition to a lower carbon economy
• Physical risks – acute risks from weather events and chronic risks from longer-term shifts in climate patterns may affect organisations’ financial performance, both directly and indirectly through their supply chains

It identifies five sources of opportunity – resource efficiency, alternative energy sources, new products and services, new markets, and developing resilience to climate change.

In addition to over-arching guidance for all organisations, an implementation guide provides supplementary guidance for four types of financial organisation (banks, insurance companies, asset owners, asset managers) and non-financial organisations in sectors that are judged to be more likely to be financially impacted (energy, transportation, materials and buildings, agriculture, food and forest products).  There is also a technical supplement about the use of scenario analysis in disclosure of climate-related risks and opportunities.

Comment

Lack of consistent, financially-relevant climate change information is often cited as a barrier to investors taking account of climate-related risks.  The TCFD is uniquely well-placed to drive meaningful improvements and harmonisation in disclosures across the globe, given its high profile members and supporters.  We therefore expect these recommendations to be influential despite their voluntary nature.

Whilst we expect few UK pension schemes will adopt the recommendations in the short term, schemes would benefit from improved information about how their investment managers are taking account of climate-related risks and opportunities on their behalf.  Their managers would, in turn, benefit from better disclosures by the companies they invest in.  We therefore welcome these recommendations.

New DWP boss speaks

David Gauke, the Secretary of State for Work and Pensions, has given us his first thoughts on Government pensions policy since his recent appointment (see Pensions Bulletin 2017/25).

In a speech at an Association of British Insurers conference Mr Gauke made a number of statements worth sampling for DWP priorities.

On DB pensions regulation he said “My Department will continue to work closely with industry to develop sensible policy proposals in this space for the long term which will work for both Government and industry to protect members and business”.

On auto-enrolment, as well as acknowledging the success of the roll out of this policy to date, he said “[the Conservative] … manifesto commits us to expanding pensions entitlements to include workers who are self-employed”.

And on increasing the State Pension age (see Pensions Bulletin 2017/19) he said “… I welcome the contributions of John Cridland, and the Government’s Actuary Department, to our thinking on the future State Pension age. It represents exactly the sort of longer-term approach I want to cultivate within my department, and across wider government”.

Comment

The new Secretary of State is clearly playing his hand close to his chest.  His room for fundamental reform is limited by the fact that the Queen’s Speech had no room for a Pensions Bill in an exceptionally long, two year, parliamentary session.  But there are some nuggets here.

We may still see some of the DB Green Paper suggestions (see our News Alert) come to fruition, where these can be achieved without primary legislation.  We may see auto-enrolment extended to the self-employed.  And there is a strong hint that the Cridland review recommendations for accelerating the increase to State Pension age will go ahead.

We now live under minority, perhaps time-limited, government though, so it is hard to tell what concrete policy initiatives will happen.

Pension schemes newsletter 88

HMRC’s latest pension schemes newsletter focusses on the mechanisms and tools that will shortly be available to enable pension scheme administrators to establish whether or not a member is a Scottish resident – of particular relevance for those schemes where member contributions are processed under the relief at source method.  It builds on the Scottish rate of income tax newsletter published in May – in particular, asking administrators to enrol onto the Secure Data Exchange service if they don’t currently use Secure Electronic Transfer.  The information required to enrol is set out in an appendix, whilst a further appendix provides more information about using the service.  HMRC asks to receive the enrolment information by 31 July 2017.

In January 2018, HMRC will tell those using the service what the residency status is of individual scheme members, in order that the correct rate of relief at source can be applied to members in the 2018/19 tax year.  HMRC will then provide this notification in January each year, but is also developing a residency tax status look-up service for pension scheme administrators that will be made available online or via an application programme interface.

The newsletter also contains the following reminders:

• The need for schemes operating relief at source to submit their annual return of individual information for 2016/17 by 5 July 2017
• In relation to pension transfers, that any request for confirmation of a receiving scheme’s registration status should only be submitted once – ie either by post or email; and
• That HMRC continues to work on both its lifetime allowance look-up service for pension scheme administrators and the additional functionality for members

EU presses ahead with pan-European personal pension schemes

Following quite a long process (see for example Pensions Bulletin 2016/28) the European Commission has announced that it is pressing ahead with its plan to establish a framework for a Pan-European Personal Pension Product (PEPP) under which EU citizens may voluntarily save for their retirement.

To this end the Commission has adopted a proposal (in the form of an EU Regulation) to start the EU legislative process for this together with a recommendation about how EU member states might adapt their tax systems to accommodate this new savings vehicle.

Some of the key features proposed are that there will be up to five investment options (including a default investment fund ensuring capital protection), transparent fees and charges and portability within the EU.  Savers will also have the right to switch providers – both domestically and cross-border – at a capped cost every five years.

It is envisaged that PEPPs will be authorised by EIOPA, whilst ongoing supervision will remain largely with the competent authorities in the member states (like the FCA for the UK).

Comment

The EU is breaking new ground with the aim of facilitating the development of a pan-European retirement savings product.  The hope is that providers will be queuing up to obtain a ‘personal pension passport’, but right now we have our doubts as to whether this initiative will ever achieve much and even if the proposed Regulation is adopted before the UK leaves the EU we anticipate little, if any, impact on the UK pensions market.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.a