3 in 5 pension schemes fail to consider climate change

Too few pension schemes take climate-related risks and opportunities into account when devising investment strategies, according to a new report by The Pensions Regulator (TPR), which could potentially harm investment performance and leave savers worse off in retirement.

The report explains that, while the number of defined contribution schemes that consider climate change has almost doubled since 2019, less than half (43%) took climate change into account when creating their investment strategies.

Meanwhile, a survey of defined benefit schemes showed 51% had not allocated time or resources to assess the financial risks and opportunities associated with climate change.

The report explains how there are physical risks to assets and supply chains caused by extreme weather events, as well as risks to capital if a long-term strategy is not in place to account for a transition to net zero.

But, as new markets and technologies related to a low-carbon economy arise, savers do stand to gain if their pension scheme leans into this.

Charles Counsell, chief executive of TPR's, said:

"The pension industry still has much work to do to build resilience and assess climate-related risks and opportunities.

"Unless properly managed, these risks have the potential to impact scheme funding and employer covenant, and leave some savers facing a poorer retirement."

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