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The schemes’ 4^th annual Taskforce on Climate-related Financial Disclosures (TCFD) report has been released. It explains, in detail, how the Trustee of the railways pension schemes are managing the financial risks and opportunities relating to climate change.

We’ve included a short summary below.

You can also read the full 99-page report on the TCFD page. 

How climate change can impact pension schemes, and how we’re managing it

The effects of climate change could impact 3 key areas of a pension scheme like ours. The Trustee of the railways pension schemes treats climate risk with the seriousness it deserves, and is taking steps to help reduce its impact as outlined below.

1. Employer covenant: the pension fund depends on ongoing contributions from employers. We need to consider this as those employers navigate climate risks themselves.

On behalf of the Trustees, the schemes’ administrator and investment manager, Railpen, has assessed the ways in which climate risks affect, and are affected by:

• UK policy
• sectoral issues and opportunities in the rail industry, and
• particular contexts at individual employers

This is kept under review, and gives the Trustee a valuable assessment of climate risks to the schemes’ employers moving forward.

2. Scheme liabilities: the liabilities of the scheme – the amount of cash we need to pay out in pension benefits over a long period of time – might be affected by climate change if, for example, changes in climate affect life expectancy in the UK. This is very hard to predict, but is something pension funds need to monitor.

To improve our understanding of the sensitivity of the schemes’ liabilities to climate risks, we have undertaken ‘climate scenario analysis’. This means we made assumptions about the ways in which climate change might play out over the long term, then considered the potential impact on the schemes’ liabilities. In particular, we reviewed the impact that climate change might have on life expectancy and are able to make decisions on that basis.

3. Investment returns: a large part of our members’ pension is provided by investment returns which are generated when Railpen, the schemes’ investment manager, invests money on members’ behalf.

Railpen is well regarded for taking a leading approach to climate change issues, but the possibility remains that climate-related risks could affect the amount of investment return generated by investing the schemes’ assets.

Railpen aims to manage climate-related risks, and identify climate-related opportunities, because it is likely that doing so would support the Trustee’s mission to pay pensions securely, affordably, and sustainably. This includes the following:

• excluding companies we think might face higher risks of asset stranding (where assets lose their economic value prematurely due to various factors such as climate change), including those with significant revenues from thermal coal and tar sands.
• including assessments of climate risk and net-zero alignment into investment decisions
• engaging companies and voting at company AGMs around their management of climate risks and the transition to net zero
• overseeing external fund managers to make sure they meet our own high standards on climate change issues

What else we’re doing to manage the scheme’s environmental impact and what it means for you

The Trustee has adopted climate targets which, if achieved, should put the schemes on track to be net zero by 2050 or sooner. Net zero is a state in which the emissions financed by the schemes’ investments are very close to zero, and any residual emissions are removed from the atmosphere either by natural or technological means. The schemes aim to halve their carbon footprint by 2030, and are on track to have reduced it by 25-30% by 2025.

There is also a lot of work being done to engage with the individual investments within the schemes as those companies and assets adjust their own operations to be aligned to a net-zero pathway.

A significant amount of the schemes’ assets are already invested in renewable energy and other sectors that could benefit from the UK’s transition to a greener economy, and the schemes’ investment manager continues to find sustainable investments that match the needs of our members.

This all plays an important part in bringing benefits for our members, both financially, and in terms of the society they live in.

Where to find further information

You can read the TCFD report in full on the TCFD page. 

You can also find more information about the railway pension schemes’ approach to investing, and climate change, via the website for the schemes’ administrator, Railpen - railpen.com/investing

If you have any further questions, or comments about the schemes’ approach to climate change you can also email Railpen at: contactus@railpen.com