UK Pensions: Is nature next on the governance agenda for pension schemes?

As many trustees begin to finally get to grips with the requirement to align their management and reporting of climate-related risks and opportunities with the Taskforce on Climate-Related Financial Disclosures (TCFD) framework, they may have to find a little bit more room on the governance agenda.

Speaking at the PLSA ESG Conference 2022, the Co-Chair of the Taskforce on Nature-related Financial Disclosures (TNFD), David Craig, urged pension schemes to start taking action now in considering nature and biodiversity in parallel with climate in conversations with their investment managers.

Shortly after his speech, the TNFD released the first prototype of its risk management and disclosure framework for nature-related risks, which is proposed for final publication in September 2023. The TNFD aims to do for nature what the TCFD is doing for climate and envisages governance and reporting frameworks which are consistent with, and complementary to, the TCFD framework.

Many trustees may feel somewhat over-whelmed by the recent raft of new climate-related governance requirements however, Pensions Minister Guy Opperman, in a joint article with Lord Goldsmith recently highlighted the interconnected nature between the work which pension schemes are already doing on climate-change and the actions which still need to be taken in relation to habitat and biodiversity.

Although the TNFD beta framework is no doubt an important step in assisting pension schemes to play their part in mitigating climate change, some trustees still getting used to the TCFD framework may nonetheless be relieved to note that there is currently no indication that formal compliance with the TNFD framework will be mandatory for pension schemes.

However, the PLSA speech as well as the backing of the G7 Finance Ministers which has been provided to the TNFD, signifies that there is already an industry push for trustees to start seriously considering nature-related risks and opportunities within their investment portfolio.

Given the very real potential for this to develop into obligatory disclosures in the future once the framework has been finalised, trustees should therefore watch this space carefully for a potential further climate-related item to add to the governance agenda. For now, industry feedback is currently being sought on the first iteration of the framework via the TNFD’s online portal.