Pension schemes: climate-related risks and opportunities

All pension schemes, regardless of size, are exposed to climate change risks and opportunities. Trustees shouldn’t wait for legislation to act. In managing risks effectively, all pension trustees should explore how climate change might affect long-term investment goals, their employer covenant and the opportunities that will come from a global pivot towards low carbon economies.

Sponsors might want to engage their pension trustees or pension provider to understand what action they are taking to address climate-related risks and opportunities, with a view to working together on the most important climate issues.

Key considerations

Employers/ scheme sponsors may want to:

1. Consider the possible short, medium and long-term effects of climate change on the employer’s own ability to fund the scheme and pay contributions.

2. Share their own business plans with the scheme on how they will seek to address climate-related risks and opportunities, within the business sector they operate.

3. Support the trustees/provider to carry out a climate scenario analysis and assess potential impacts on employer covenant (in the case of DB pension schemes).

Further guidance

The guidance below sets out the new requirements and schemes in scope. However, as a first step, sponsors should discuss with trustees or their providers on whether the new duties apply to their scheme, seeking advice where required.

Nevertheless, schemes not currently in scope may wish to follow the guidance to improve the governance and resilience of their schemes in relation to climate change.

Occupational pension schemes

New trustee duties will apply to schemes with £1 billion or more assets. See DWP statutory guidance: ‘Governance and reporting of climate change risk: guidance for trustees of occupational schemes’.

The Pensions Regulators' own guidance: Governance and reporting of climate-related risks and opportunities.

Contract based schemes

Climate-related reporting requirements | FCA

DC consolidation

While the impact on smaller schemes is not so immediate, sponsors might want to consider whether there is value in consolidating smaller DC pension schemes, recognising that larger pension schemes (due to their scale) may provide a more robust governance solution.



1. Introduction from Richard Sagar, CFG

2. It's time to get real about ESG

3. Building a net zero strategy

4. Funding on a finite planet

5. Understanding energy consumption

6. Net zero and procurement part 1

Part 2: Steps to becoming verified carbon neutral

Part 3: What are scope 3 emissions? Why account for them?

7. Pensions and net zero part 1

Part 2: Risks and opportunities