But aren't pension schemes already going to be subject to new climate change governance and disclosure requirements from 1 October 2021?
Many pension schemes are, and it is not yet clear from the Chancellor's speech how these fast-approaching TCFD-aligned requirements will interact with the sustainability disclosure requirements he announced at Mansion House.
A press release issued by HM Treasury to accompany the speech provides some, albeit limited, additional detail of the Chancellor's plans. We are told to expect "new integrated Sustainability Disclosure Requirements ("SDR")", which will "streamline existing climate reporting requirements and go further to ensure consumers and investors have the information they need to make informed investment decisions and drive positive environmental impact."
The press release also confirms that businesses, financial services firms and their investment products will be subject to the SDR. No detail has been provided on what type and/ or size of companies will initially be in scope, but the intention appears to be to capture pension schemes as well. The Government intends to set out its approach to green finance regulation ahead of COP26 later this year.
The announcement came as a surprise to many and there has been some speculation that SDR will be a UK equivalent of the EU's Taxonomy Regulation. Although a UK equivalent of this is in the pipeline (the Green Technical Advisory Group has been established to advise the Government on implementing a UK taxonomy regime), our view at this very early stage is that SDR is more likely to be a UK response to the EU's Sustainable Finance Disclosure Regulation and Corporate Sustainability Reporting Directive. Of course, how closely the UK and EU regimes are going to mirror each other remains to be seen.
What does SDR mean for pension schemes?
There is clearly some commonality with the TCFD requirements for pension schemes which come into force from 1 October 2021 – both the press release and accompanying HM Treasury policy paper borrow from the language we have already seen used in the TCFD Regulations to refer to the need for businesses to disclose their impact on the environment and to assess the risks and opportunities climate change poses for their investments – but it seems likely that we will need to wait until full details of the SDR are published the autumn before we know what, if any, additional requirements will be imposed on pension scheme trustees and how these will interact with the existing law.
Although the prospect of additional climate reporting requirements raises the possibility of additional governance burdens for pension scheme trustees, many of whom are currently immersed in the complex world of climate change metrics, it is worth noting that pension schemes are at the vanguard of the UK's approach to tackling climate change, and the prospect of a more fully integrated legal regime covering sustainability across the whole economy may, if it can be delivered successfully, make it easier for trustees to meet their obligations in the long run.
We will continue to monitor any developments and provide further updates in due course.