Environmental Outcomes Reports (UK)

Part 5 (clauses 116 to 130) of the Levelling-Up and Regeneration Bill provides for regulations – termed Environmental Outcomes Reports Regulations (EOR Regulations) to be enacted by the Secretary of State to specify outcomes in relation to environmental protection in the UK or a relevant offshore area that are to be “specified environmental outcomes”. The Bill is here, and it is in Committee (House of Commons).

The Bill Explanatory Notes state the EOR Regulations will be subject to public consultation and also the affirmative parliamentary procedure (which requires a positive vote of the UK Parliament) and would (by its own provisions) uphold the non-regression provisions set out in Part 5 (clause 120).

The effect of the EOR Regulations will be not only to specify outcomes relating to environmental protection, but also against these specified environmental outcomes to assess the relevant plans and relevant projects through an Environmental Outcomes Report. As well as assessing against outcomes, an Environmental Outcomes Report must additionally set out and assess the impact of any proposed mitigation or compensation as well as considering reasonable alternatives to the consent or plan, or any element of them. Where an Environmental Outcomes Report is required, this would (by law) be taken into account when considering whether to grant consent or bring a plan into effect.

Essentially the EOR Regulations will take over from the EIA Regulations (for those projects and plans where environmental outcomes reports are mandated).

Bill clause 116 defines environmental protection to be –

(a) protection of the natural environment, cultural heritage and the landscape from the effects of human activity;

(b) protection of people from the effects of human activity on the natural environment, cultural heritage and the landscape;

(c) maintenance, restoration or enhancement of the natural environment, cultural heritage or the landscape;

(d) monitoring, assessing, considering, advising or reporting on anything
in paragraphs (a) to (c).

Before making specified environmental outcomes, Bill clause 116 states the Secretary of State must have regard to the current environmental improvement plan made under Part 1 of the Environment Act 2021 (presently the 25 Year Environment Plan, as none is yet made under the EA 21 Part 1), including the legally binding long-term targets and interim targets that are set under it.

Bill clause 117 provides for an environmental outcomes report to be made for certain consents and certain plans. An environmental outcomes report is a written report.

Further clauses set out powers to be ascribed to these EOR Regulations in relation to consents and plans. Note: the new terms “category 1 consent” and “category 2 consent”.

Bill clause 120 sets out safeguards for non-regression, international obligations and public engagement.

Bill clause 121 deals with interactions with the devolved administrations.

Bill clause 122 addresses exemptions for national defence and civil emergency.

Bill clause 123 sets out sanctions, notably the EOR Regulations may create criminal offences, but not the penalty of imprisonment.

Bill clause 127 addresses the interaction with existing environmental assessment regulations (this is a list of law, including the various existing EIA Regulations) and the existing Habitats Regulations. In particular, the EOR Regulations may disapply aspects of the environmental assessment Regulations or the existing Habitats Regulations where an environmental outcomes report is required.

The existing Habitats Regulations are the source of European Protected Species (and their additional protection from disturbance (animals), and cutting and collecting (plants)) and also European Protected Sites (habitat).

The EOR Regulations may also amend, or revoke the existing environmental assessment regulations.

Pension Scheme Climate Focus (UK)

Yesterday (1st September 2022) the UK government commenced a consultation on obliging trustees of the £342bn Local Government Pension Scheme (LGPS) in England and Wales to report and address climate risks in the assets they manage. The consultation document is here.

This continues the climate focus commenced in 2021 across the UK for larger private sector occupational pension scheme trustees. The resulting Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (and similar in Northern Ireland) are in your systems (in ENV Energy), and there is an Audit Checklist question also. October will add an amendment to the Regulations in Britain. The statutory guidance for these obligations is here.

[you will note that certain larger UK private companies also have climate reporting obligations, which were enhanced this year, these instruments are in your Registers, as are the Audit Checklist questions]

After the phasing-in, in respect of the private (Occupational Pension) funds, the climate focus will extend to trustees of money purchase and non-money purchase schemes with £1bn or more in “relevant assets”. It will also include trustees of all authorised master trusts and authorised schemes (once established) providing collective money purchase benefits, in both the accumulation and decumulation phases. You are advised to re-check if the climate focus applies to the pension scheme in your organisation.

The (Occupational Pension) statutory guidance states – “To meet the requirements imposed by the Climate Change Governance and Reporting Regulations 2021, trustees should have a good understanding of the climate-related risks and opportunities that are relevant to their scheme. Trustees should understand that as a systemic risk, climate change risk could include risks outside of the obvious sectors, including those which are both directly and indirectly affected.”

And “Trustees have a legal duty to consider matters which are financially material to their investment decision-making. Trustees must not only consider the kinds of financial risks which might affect investments (and in the case of DB schemes, their liabilities and sponsoring employers’ covenant), they should consider where climate change, and action to address climate change, might contribute positively to anticipated returns or to reduced risk.”

And “Climate-related risk and opportunity is one of the major categories of financial factors of which trustees need to take account. Trustees also need to take account of other risks affecting the pension scheme, in line with their fiduciary duty. As such, trustees are expected to take a proportionate approach to managing climate-related risks and opportunities. The time spent by trustees on considering climate-related risks and opportunities, should not come at the expense of considering other major risks, including financially material social and governance factors.”

The government proposal for the LGPS scheme takes as it’s starting point the above Occupational Pension trustee obligations, but hints at extending it with more specificity on fund investment.

For example, the consultation document points to the UK Energy Security Strategy published in April 2022 (which highlighted energy investment opportunities for the private sector to improve energy security and support the transition to clean energy). The consultation document states the LGPS has an important role to play as a major investor with a commitment to stewardship and engagement.

The consultation document states “These proposals seek to support that approach to addressing high carbon emissions and discourage any pursuit of lower emissions through withdrawing investment from energy companies.”

Another difference with the private sector scheme is the proposed requirements will apply to all LGPS AAs (fund managers) from 2023/24 regardless of fund size. Currently the assets held by LGPS funds range from around £0.5 billion to £25 billion with 65 funds holding less than £5 billion and 8 funds holding less than £1 billion.

It is also proposed that data quality is a mandatory metric (for reporting). The consultation states this is in order to help the LGPS use its scale and market power to drive improvements in the quality of emissions data, which will be a critical factor in raising the quality of climate risk management.

Statutory guidance will be produced. Consultation closes on 24th November 2022.