Why nature-related risk is the next strategic priority for pension schemes

Climate-related risk is now firmly embedded in trustees’ responsibilities and consciousness. However, the broader environmental agenda, including biodiversity loss, natural capital depletion and ecosystem degradation, impacts pension schemes (through investment implications, economic stability generally and the long-term financial wellbeing of members) and now demands board-level attention. 

With the World Economic Forum ranking biodiversity loss among the most severe global risks, stakeholders are increasingly recognising that reporting frameworks should reflect its value. In 2024, 320 organisations from over 40 countries (accounting for US$14 trillion in assets under management) committed to making nature-related disclosures based on the Government-supported Taskforce on Nature-related Financial Disclosures (TNFD) recommendations.  

Pension scheme trustees must already understand and act on factors that are financially material to their scheme, including ESG and climate change considerations. Trustees of the largest schemes are also subject to disclosure and reporting requirements in line with Taskforce on Climate-Related Financial Disclosures (TCFD) recommendations. covering how they have taken climate change-related risks and opportunities into account. However, schemes are now also encouraged to look more widely, as the Pensions Regulator (TPR) writes: ‘the direction of travel is clear. The case for becoming familiar with TNFD... will only become stronger.’  

TNFD framework 

The TNFD’s framework is designed to enable organisations of all sizes and across all jurisdictions to consider the risks and opportunities arising in connection with nature to ‘identify, assess, manage and, where appropriate, disclose nature-related issues’. In the case of pension schemes, this means predominantly allowing trustees to understand the nature-related risks impacting the organisations they invest in, but also assessing the external impacts that they might have on nature.

TPR 

While current regulations focus primarily on climate-related risks, TPR's guidance on ESG factors encompasses nature-related considerations and the regulator advises schemes to consider nature-related risks as part of their broader ESG responsibilities. 

Although there is currently no legislative requirement to adopt the TNFD recommendations, TPR recommends trustees familiarise themselves with them, as they and their reach are expected to expand over time. In particular, TPR points trustees in the direction of TNFD’s template illustrative combined nature and climate-related disclosure report, which it suggests may be useful to them. 

On 7 July, TPR announced that it will be developing a voluntary net zero transition plan template for occupational pension schemes, designed to help them prepare for the Government’s ‘goal of transitioning the UK to a net zero nature-positive economy by 2050’. The template aims to integrate climate, nature and societal factors in a way that complements and supports the UK Sustainable Disclosure Requirement (and associated Standard). 

TPR states that it has joined the world’s largest sustainability initiative, the United Nations Global Compact, which looks to create a sustainable and inclusive global economy by encouraging business and organisations to adopt responsible practices. Membership means that TPR can ‘share emerging good practice and has the expertise to continue to support trustees in considering and mitigating climate and nature-related financial risks.’ 

Industry publications 

Pensions UK (formerly, the PLSA) in its guidance Nature’s Impact: Why biodiversity loss matters to pension schemes and what to do about it also emphasises the importance for schemes of considering nature-related risks as part of their broader stewardship responsibilities. Its 2024 Stewardship and Voting Guidelines highlight biodiversity loss as a significant issue and suggest that trustees consider voting to support resolutions addressing this, and to vote, for example, against directors of companies that have not demonstrated sufficient efforts to mitigate agricultural commodity-driven deforestation. 

The 'Pensions for Purpose' report, Integrating nature & biodiversity into investment – an asset owner perspective, found that UK pension schemes are only in the early stages of addressing nature-related issues, with most schemes yet to report formally on it – with data being the top challenge in their implementation. It is widely accepted that nature risk is harder to measure, and nature-related metrics therefore more complex, less developed and less tangible. 

The report goes on to present best practice steps for pension schemes to gradually integrate nature into their strategies, emphasising education, board-level buy-in, and increasing existing ESG efforts. 

Nature-related risks represent an evolution, not a revolution, in trustee responsibilities. Building on established climate-related processes, trustees can extend their governance to address these broader considerations while fulfilling their fiduciary duties.  

Now is the time to start thinking about how pension schemes might approach nature-related risk – and to start to take steps towards getting scheme governance up to speed. Speak to TLT’s Pensions Team to discuss the implications for you, practical steps to take, and training opportunities.  

At TLT more widely, we support clients across all sectors, addressing the challenges set by evolving regulatory requirements and changing expectations from investors, consumers and employees. The embedded nature of ESG at TLT means that we take a holistic approach to ESG, rather than giving isolated advice.. 

You can learn more about how we can help you with your ESG goals on our ESG services page.

To discover the other articles in our ESG in the boardroom series, covering topics including supply chains, reporting and regulation, and corporate governance, visit our ESG in the boardroom In Focus page.