LONDON, December 8, 2021 - Defined benefit pension schemes with under £1bn in assets risk being left behind on climate change, according to Willis Towers Watson’s latest report, ‘Climate Change: Risks and Opportunities for Pension Schemes’.
According to recent research undertaken by Willis Towers Watson, schemes with £5bn or more in assets under management identify climate change as a top five priority over the next year, and their number one priority over the next three years. Whilst schemes with assets between £1bn and £5bn do not view climate change as a priority over the next 12 months, they do see it as a top five issue over the next three years. However, it was not a priority at all for schemes with under £1bn in assets under management.
Edwin Sheaf, Senior Director, Willis Towers Watson said: “Climate change poses material risks to all pension schemes, regardless of their size, but it also provides opportunities for all schemes if they look for them.
“Dealing with the impact of climate change shouldn’t just be a regulatory tick-box exercise.”
Edwin Sheaf | Senior Director
“The law already compels £5bn-plus pension schemes to address these risks by preparing disclosures in line with the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). From October 2022, schemes with assets of £1bn or more will also have to comply with these new regulations. So perhaps it’s not surprising that it is an issue of more pressing urgency for larger schemes. But dealing with the impact of climate change shouldn’t just be a regulatory tick-box exercise. It’s something that all schemes – and society in general – can benefit from.”
As well as the clear physical risks posed by climate change, the report highlights that the transition to net zero emissions also brings risks and opportunities. There is a danger that, whilst schemes subject to the TCFD requirements will look at these in detail, other schemes will continue to focus elsewhere and so may ‘miss the boat’ on taking advantage of the available opportunities.
Sheaf said: “No matter what size your scheme is, you can expect to hear more and more about climate change as an urgent issue for trustees and sponsors. Even if you are not yet required to comply with the TCFD regulations, the Pensions Regulator nonetheless expects you to build consideration of climate change into everything that you do.
“The arguments for taking action now go far beyond the need to comply with regulatory requirements. Thoroughly considering the risks and opportunities arising from climate change is the right thing to do for scheme members, for scheme sponsors and for society in general. It would be a real shame if it was only the largest schemes that benefitted.”
Willis Towers Watson has launched a guide for DB schemes which are seeking to address climate change. The guide is available to download here.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.
