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.

Building Safety Regulator (England)

Clause 2 of the Building Safety Bill (not yet enacted), appoints the Health and Safety Executive (HSE) as the Building Safety Regulator in England.

The Building Safety Regulator will be an independent regulator with its own powers, strategic plan, and programme of work. It will give expert advice to local regulators, landlords and building owners, the construction and building design industry, and to residents.

The Bill proposes that the Building Safety Regulator will have two objectives:

(1) securing the safety of people in and around buildings in relation to risks from buildings

(2) improving building standards.

The Building Safety Regulator will:

* implement a new, more stringent regulatory regime for high-rise buildings in England (high-rise buildings are residential buildings of 7 storeys or more or 18 metres or more in height and in the design and construction phase only, including care homes and hospitals that meet the same height threshold)

* be the building control authority in England for building work on high-rise buildings

* oversee and enforce a new regime for occupation of high-rise buildings

* oversee the safety and performance of all buildings. This has two aspects:

(1) overseeing the performance of other building control bodies (local authorities and registered building control approvers (currently known as approved inspectors))

(2) understanding and advising on existing and emerging building standards and safety risks

* promote competence among industry professionals and regulators to raise standards in the design, construction, and management of buildings.

The HSE published on 14 October 2021 a fact sheet on its proposed enforcement approach – here.

This fact sheet states the HSE intends that –

* the Building Safety Regulator will deliver evidence-based, proportionate, and targeted engagement and interventions with dutyholders,

* the Building Safety Regulator’s programme of work will include communication activities to advise and support dutyholders and residents,

* enforcement activities and sanctions will be targeted to improve the safety and performance of buildings.

The Building Safety Bill provides for greater regulatory scrutiny and the HSE expects a series of hard stops at key stages during design and construction to be introduced by separate regulation (enacted under the Bill when it is an Act and commenced).

During occupation of the buildings in scope, the Bill requires dutyholders to demonstrate ongoing management of building safety risk through a safety case report. The HSE fact sheet states this will give the Building Safety Regulator a wide range of tools to achieve improved building safety performance and to deliver the culture change identified in Dame Judith Hackitt’s review Building a Safer Future.

The Building Safety Regulator will be responsible for the regulatory decisions during the design, construction, occupation and refurbishment of high-rise buildings.

Per the HSE fact sheet – the Building Safety Regulator’s activities to achieve building safety and performance outcomes will include:

* granting permission to proceed with construction work and issuing completion certificates at appropriate points in the construction and occupation phases

* a process of providing certification following assessment of the in-occupation safety case

as well as formal enforcement and sanctions.

There will be a published Enforcement Policy Statement (EPS). But it may be the HSE arrives at a position that it’s existing HSE EPS is sufficiently flexible to accommodate its new responsibilities as the Building Safety Regulator or it requires some amendment but is still the right vehicle.

Re the building safety report – the bill requires a building specific safety case report to be produced (high rise buildings in the design and construction phase). This safety case report will identify the fire and structural hazards associated with the building. It will set out how the risks they present are being managed to prevent the risks materialising and reduce the severity of any incident resulting if the risks do materialise. The adequacy of the safety case will be assessed by the Building Safety Regulator, working with multi-disciplinary teams, as part of the building assessment certification process.

Re oversight of existing building control inspection – the Building Safety Regulator will monitor the performance of local authority building control bodies and private sector building control approvers. The fact sheet states the HSE will also oversee and regulate all individuals working as building inspectors. Building inspectors and building control approvers will be subject to a registration requirement and the Building Safety Regulator may suspend or remove inspectors from the register and address performance and professional misconduct. The fact sheet states there will be improved competence and accountability through the creation of a unified professional and regulatory structure.

Building Safety (England)

The Secretary of State for Housing, Communities and Local Government made a statement in the House of Commons this morning – this is the video of the statement – here.

Accompanying this are the following announcements –

(1) sprinkler review for high rise homes – here

(2) consultation on sprinklers and fire safety measures in new high rise blocks of flats – here

(3) consultation outcome of the Technical Review (call for evidence) of Approved Document B of the Building Regulations – here

Please read these announcements carefully.