First pension scheme fined after breach of TCFD-aligned reporting obligations

The ExxonMobil Pension Plan has become the first pension scheme to be fined by The Pensions Regulator for failing to meet reporting obligations, in-line with the Taskforce on Climate-related Financial Disclosures framework, which came into force in October 2021.

Here, Allana Edwards breaks down what this decision means for pension schemes in the future.

The first penalty of its kind

The Pensions Regulator (TPR) issued the ExxonMobil Pension Plan (the Scheme) with what is the first fine of its kind. The fine comes after ExxonMobil was unable to locate its online climate change report, which was due to be published by 31 July 2022. This investigation was a part of TPR’s broader investigation into Taskforce on Climate-related Financial Disclosures (TCFD) and environmental, social and governance (ESG) compliance.

After the deadline passed, TPR contacted the Scheme’s trustees, who stated that they believed they had uploaded the report onto their website before the deadline. However, it transpired that a faulty URL meant the report wasn’t publicly accessible. The fault was subsequently rectified and the report was published on 10 August 2022 — ten days after the required date.

TPR notified the trustees that it was considering issuing the mandatory penalty. In response, the trustees assured TPR that they took their reporting obligations seriously and that the non-compliance was inadvertent. However, TPR took a strict approach and stressed that climate reports must be published within the given deadline on publicly available websites.

Resultantly, TPR fined the Scheme £5,000 in May 2023. This was double the minimum fine of £2,500 to reflect the nature of the breach and the fact ExxonMobil is a large corporate body with market value assets of more than £7 billion. The matter was concluded in July 2023 when the penalty was paid.

In publicising the matter, TPR has reminded trustees about taking their disclosure obligations seriously and that it’s prepared to ‘name and shame’ those who don’t comply.

TCFD recommendations

The Financial Stability Board set up the TCFD in 2015. In 2017, the TCFD published recommendations designed to help organisations by providing a consistent approach to climate change reporting. These recommendations are increasingly promoted as the standard framework for climate governance and corporate disclosure.

The four pillars of recommended disclosure under the TCFD are:

• Governance — around climate-related risks and opportunities.
• Strategy — the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning.
• Risk management — how the organisation identifies, assesses and manages climate-related risks.
• Metrics and targets — those used to assess and manage relevant climate-related risks and opportunities.

Publicly quoted companies, large private companies and large LLPs are required to include disclosures on material climate change-related risks and opportunities in-line with the TCFD’s recommendations within its annual reports.

The impact on pension schemes

The Occupational Pension Scheme (Climate Change Governance and Reporting) Regulations 2021 require trustees of certain large pension schemes to report in-line with the TCFD’s recommendations.

Since 1 October 2022, the requirements have applied to trustees of occupational pension schemes with £1 billion or more in relevant assets at the end of the first scheme year ending on or after 1 March 2021. The goal is to improve pension scheme governance and reporting of climate-related risks and opportunities and to ensure transparency so that savers know trustees are making informed climate-related decisions.

Trustees of affected schemes need to identify, assess and manage climate-related risks and opportunities and set these out in climate reports. The deadline to publish these reports is within seven months of the scheme’s most recent scheme year-end date. Failure to comply with the publishing requirement within the deadline carries a mandatory penalty of at least £2,500. The maximum penalty is £5,000 where the trustee is an individual or £50,000 in all other circumstances.

Currently, these duties only apply to larger schemes but the government is expected to review the requirements in 2024 with a view to extending the requirements to schemes with relevant assets of less than £1 billion.

A warning for the future

It’s clear that TPR is closely monitoring compliance with disclosure requirements and that failing to meet publishing deadlines will lead to financial penalties. The robust treatment of ExxonMobil serves as a warning to other pension schemes that TPR takes TCFD reporting extremely seriously and is adopting a zero-tolerance approach to non-compliance.

The case of ExxonMobil also highlights how trustees are ultimately responsible for ensuring that climate reporting requirements are met and that they can’t use scheme administrators’ mistakes as a way to avoid penalties. As stated by TPR’s Executive Director for Frontline Regulation, Nicola Parish: “the case serves as a warning to trustees about the important of having proper governance and oversight where third parties are carrying out tasks on their behalf.’’

Smaller pension schemes must also bear these lessons in mind as they may become future targets for enforcement if the scope of the requirements is expanded. The main takeaway here is that all pension schemes need to start taking ESG and climate reporting seriously if they aren’t doing so already.

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