The consultation on the PCRIG Guide for trustees to align schemes with TCFD recommendations: Dalriada’s response

The consultation has recently closed on the Pension Climate Risk Industry Group’s (PCRIG) Guide for professional trustees to align schemes with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The Guide is aimed at scheme trustees and sets out steps to take to integrate climate-related risk assessment into decision making and reporting.

We welcome the Guide as a great step forward on the ESG journey for pension scheme trustees. Dalriada’s main observations and recommendations are summarised below.

• Handbook of requirements: The Guide sets out the various requirements for trustees. These include legislative and non-legislative requirements such as fiduciary duties. There is also a useful educational section that gives a high-level background on the issue of climate change. It covers areas such as the Paris Agreement and different types of climate risks. Having this all in one place could help trustee boards get up to speed on this issue.
• Nuances of pension scheme management:
  • Reliance on advisers: This is key to understanding how schemes are managed in practice and the Guide does pick up on it in parts. Perhaps it would be a useful addition to the Guide to set out how advisers could be challenged. Trustees are in a position where they are completely responsible for decision making but have a significant lack of information or knowledge to challenge advice. This creates a displacement of power and exposes trustees to scenarios such as Greenwashing.
  • Pooled funds: The Guide allows for the fact that a lot of schemes buy off-the-shelf pooled funds rather than creating their own mandates. This is extremely relevant in the context of climate change and ESG since trustees may have less control over underlying holdings or targets.
  • Scenario Modelling: It is difficult to see a way for trustees to undertake effective scenario analysis in practice. Firstly, there seems to be a ‘finger in the air’ approach to creating the models. Secondly, most schemes are unlikely to have information on their investments at a granular level. While the Guide may be useful to larger schemes with substantial internal resources, some practicalities of how smaller schemes are managed in practice seem to have been lost when drafting this guidance.
• Value for money: Trustees would need to commit a significant amount of time, and likely fees, to follow the Guide. Smaller schemes will likely rely on their consultants and advisers for support on integrating climate risk. There must be value added for any additional fees. We need to make sure TCFD disclosures don’t become just another tick-box exercise, but something that will truly add value.
• More like a guide for advisers? Parts of the guidance read very much like a guide for advisers rather than trustees. Indeed, the acknowledgements show that the group were light on trustees. Further, the trustees that were involved tended to manage large schemes and have experience in this area. While we can surely learn a lot from such trustees, it does not reflect the make up of the trustee population. Most schemes are small-to-medium in size and are in the early stages of their ESG journey. Hopefully, these voices will be picked up in the consultation.

Overall, allowing for climate risks and disclosing, PCRIG Guide for trustees suggests there will be a lot of work for trustees. By itself, the Guide is a great start. Trustees will need to be able to rely on their advisers to provide quality input and to explain the methods and data they have used.