The Pensions Regulator has just closed a consultation on its draft guidance for Task Force on Climate-related Financial Disclosures (TCFD)-aligned reporting. The investment industry says that this will create reporting challenges regarding the climate impact of their investments. Starting 1 October, pensions with over £5 billion in assets must begin reporting on the climate impact of their investments.

The draft guidance is intended to guide schemes on matters including governance, strategy and scenario analysis, risk management, and metrics and target setting, and publishing TCFD-aligned reports.

Joe Dabrowski, deputy policy director at industry body The Pensions and Lifetime Savings Association (PLSA), said the draft “strikes the right balance between encouraging ambitious governance standards and acknowledging the many challenges schemes face.” Challenges include how to report across different asset classes, where data availability concerns play a role.

Another big challenge is in creating a carbon emissions figure for a pension scheme.

“To give an example,” said Jos Vermeulen, solution design head at Insight Investment, “if you think about it just from a UK perspective, we have the UK’s total greenhouse gas emissions. Now, that will include the corporates that operate within that country’s emissions as well. So if you want to calculate your share of the total greenhouse gases, as an investor, there is a bit of double counting. And then, how can we add these things up, I think that’s probably the biggest challenge – how do we add up these different metrics or different measures to come up with our equity absolute emissions figure, our credit absolute emissions, etc.”

Yet, Vermeulen said, “Fortunately the regulator has recognised that this is very much work in progress. So I think it’s more about creating awareness and starting on this direction as opposed to everything’s going to be set in stone and you’re never allowed to change anything. So the industry is working hard to come up with sensible measures that the trustee board can then monitor.”