USS responds to DWP's Climate Investment and Reporting consultation

Like many others in the industry, we are in the process of producing our first mandatory TCFD report (we’ve previously published two reports voluntarily). This clearly entails a significant amount of work – carbon footprinting, scenario analysis and setting metrics and targets as we take our first steps on the road to achieving our Net Zero ambition. The TCFD requirements already include three metrics, so we were concerned to see DWP consulting on an additional climate metric before publication of this first report.

In our response, we called on DWP to:

• enable pension funds to put processes and systems in place for the initial mandatory TCFD report (which requires significant internal resource) before adding additional requirements.
• consider delaying the implementation of these regulations for one year, so that funds can go through the reporting cycle once and have time to assess the outcomes before having to add additional KPIs.
• assess the implications for asset owners of publishing Implied Temperature Rise (ITR) metrics when their data and methodologies are still being developed, meaning their outputs at a fund level provide a spuriously precise value that acts against a low carbon transition rather than supports it.

The consultation also included guidance on the Implementation Statement. Whilst there has been some reduction in some of the requirements under the Implementation Statement as a result of this proposed guidance, it would appear that more reporting is required on ESG factors. This was not in line with the feedback that we and other schemes provided to DWP earlier in the year as it adds to the overall reporting burden that we would like to see reduced. The increasing time and resource spent on reporting will lead to a corresponding reduction in the resource allocated to activities such as engagement with investee companies on climate change risk and will also impact broader responsible investment and stewardship activities. It is clear that the additional reporting requirements in this consultation (both the additional climate metrics and the instructions on the Implementation Statement) will add to that burden, and therefore the costs to our members.