Tegs Harding is a director at Independent Trustee Services
Tegs Harding says larger schemes will be effectively setting the standards on TCFD targets and have both an opportunity and a responsibility to ‘blaze a trail’ on disclosures.
The Task Force on Climate Related Disclosures (TCFD) has now been in force since October 2021 for the largest pension schemes. This means that alongside climate disclosures, schemes with £5bn or more in assets are currently obliged to set at least one target to manage climate risk in relation to a chosen metric, such as emissions or implied temperature rise or data quality.
Improving climate disclosures is important and trustees should be using their influence over market behaviour to push pensions managers and sponsor companies for better data - especially as data quality remains such a challenge, with coverage limited to public markets, scope 1 and 2 emissions and with mixed reliability.
However, limiting the ambition of schemes to just achieving better data disclosure is not enough. Data on climate exposure will never be perfect and as trustees, we cannot afford to wait for perfect data before taking meaningful action to green our schemes investments.
Climate data is evolving all the time, we have seen an increasing number of companies making climate disclosures and those are now being audited. We know developments in both scope 3 emissions and temperature alignment are coming down the track. If you set a net zero target today, you are more than likely to see your scheme's exposure go up before it goes back down. All of this means that we are unlikely to ever get to a position where Trustees are able to do a cost benefit analysis based on truly static data.
Trustees make decisions based on assumptions all the time - and climate data should be no different. We will of course never know how long our members will live, but we do have estimates in place to inform our decision making, and we know how to respond when those estimates change. Ultimately, it is our job to manage the risk as best we can based on the best estimates we have available at the time.
As an industry, we need to be more ambitious on climate action and push for impactful change at a faster pace - whether that's through targeting net zero commitments, temperature alignment or simply increasing the number of companies with their own stated climate ambition. Only then will we fulfil our role of being true stewards of our members' capital.
The overarching goal must be alignment with the Paris Agreement by ensuring that the pension scheme assets we invest, and the sponsoring companies that support our schemes, reflect an ambition to limit global warming to 1.5C.
If all we ask for as an industry is minimum standards of disclosure, that is all we will get. Now is not the time to stifle our ambition but to aim high.
The largest schemes who will be setting industry standards on TCFD targets over the coming months have both an opportunity and a responsibility to blaze a trail to help the industry achieve more than just minimum disclosure.
Tegs Harding is a director at Independent Trustee Services
