Insight: most funds are using their investment consultant.
- Pension funds gather data for their report from three main sources:
- Low-cost solution – ask your investment manager.
- Data integrity option – ask a data specialist (for example, Trucost or MSCI).
- Data with interpretation – ask your investment consultant.
- Concern from funds about using TCFD report output to influence their investment strategy because:
- Data is still unreliable,
- Reporting is still in its infancy – need trend data.
- Does the fund want to green the world or the fund?
Insight: most funds are not yet using their reports to inform and drive strategy.
- Only a minority of pension funds mentioned offsets in their reports, with only one accounting for it.
- The credibility of carbon offsets was questioned.
Insight: most funds are not yet including carbon offsets in their TCFD reports.
- A valuable tool but some scepticism - main use was to identify biggest risks.
- 75% of funds interviewed referenced liabilities in their scenario analyses.
- Questions over the validity of assumptions.
Insight: most funds see scenario analysis as useful but with a limited application at present.
- Several funds mentioned concerns about the materiality of risks.
- Time spent analysing climate risk was disproportionate to mitigation efforts.
Insight: TCFD reporting fails if it becomes overly complicated.
Estimations or omissions
- Mixed views about whether it is better to estimate or omit data.
- Disagreement over whether to use scope 1, 2 and 3.
- Embarking on the journey, even if imperfect, is valuable.
Insight: data quality remains a key challenge for pension funds.
- Most schemes felt data was too inadequate to warrant independent assurance.
- A focus on data assurance of the provider may be necessary, however.
Insight: independent assurance is needed but unsuitable today given data limitations.
METRICS AND TARGETS
- Data lacks consistency.
- Conflicted views on scope 3.
- Concern over unintended results.
Insight: climate data remains a challenge for pension funds.
Science-based targets versus implied temperature rise
- Science-based targets (SBTs) – positives
- Focuses on the medium- and long-term outcomes.
- Validation by climate experts reassuring.
- Less time consuming to calculate. Climate data remains a challenge for pension funds.
- Science-based targets (SBTs) – negatives
- Speed of data dependent on SBTi’s resources.
- Implied temperature rise (ITR) – positives
- Allows for investment in opportunities as well as mitigation.
- Engaging and accessible for members.
- Implied temperature rise (ITR) – negatives
- No standardisation in methodology.
- More difficult to compare between pension funds.
- Mixed views.
- Some funds add a more accessible summary to the first two to three pages of their report to make it more
- member friendly.
- Unsure if members are downloading the report.
- Most funds use other forms of outreach; for example, taking output from the report and sending emails to fund members.
Insight: few funds use TCFD reports to improve their member engagement.
Learn more here
This Impact Lens research paper shares insights on how pension funds use the output from their Task Force on Climate-related Financial Disclosures (TCFD) reports, what challenges they face and which metrics they favour.