Overall, we believe the TPR guidance is helpful for Trustees and complements that already laid out by the DWP. It should provide a helpful guide for each of the key elements of governance, strategy and scenario analysis, risk management, metrics and target setting, clarifying the steps trustees must take to put in place the relevant processes for each area. It also provides a separate list of things schemes need to describe in their TCFD report - a distinction which will be very helpful for many trustees.
However, there are some areas where we think greater clarity and examples would be helpful.
For example, schemes with fewer resources, either due to size or structure, will likely face considerable challenges in implementing all the relevant governance processes necessary to meet the requirements. As such, we think that a case study signalling the resources required, and the sequencing of actions including timelines, meeting cycles and lessons learned, would prove helpful to schemes at the beginning of their journey.
We would also welcome additional guidance with example steps schemes should take around strategy and scenario analysis, as this is currently more focussed on identifying and assessing climate-related risks than on processes for managing these.
In regards to risk management, we believe it’s vital that a scheme’s climate risk management process is not siloed from other risks a scheme faces. We would like focus in this area to be on encouraging schemes to take an integrated holistic view of all the risks faced (including climate change). The guidance highlights that including climate risk on the scheme's risk register is one way in which this can be done. Given the complexity and difference in nature of climate risks to other risks scheme face though, case studies showing how these can be mapped to existing risk types on a scheme's risk register, would go some way in helping trustees implement this.
It should also be stressed that risk mitigation following assessment of climate risk does not have to come in the form of divestment or portfolio changes. This may be short term and promote unintended consequences, such as limiting the ability of the real economy to make the required decarbonisation transition.
We would also like to see additional guidance for trustees on the considerations that should go into setting specific climate-related targets, to ensure this does not create a tick-box approach. As an exercise we are currently undertaking across our client base, we believe it’s vital that targets are well thought out and integrated into a decision-making framework in order to be truly decision-useful.