Pensions and ESG: Trustees expected to lead in addressing systemic risks

In a recent blog post, the Pensions Regulator (TPR) stated that managing systemic risk is no longer a “nice to have”. Rather, it is a core part of effective trusteeship. TPR explains that where climate change, nature loss, and other systemic risks are financially material, trustees have a duty to understand and manage them as part of their fiduciary responsibilities. The emphasis is on moving beyond compliance into strategic stewardship, where strong investment governance is essential.

TPR makes clear that trustees should ensure that decisions are long- term, well-evidenced and subject to appropriate challenge, stating “this is not just about compliance, it is about leadership”. Trustees are encouraged to use tools to support decision-making and embed sustainability into investment strategies.  Trustees can adopt frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) and use resources such as:

• Asking better questions on nature
• Identifying risks and opportunities from nature-related dependencies and impacts
• Evidence review on the financial effects of nature-related risks

It is useful in particular to note that TPR suggests that trustees should ask the following questions:

• Are we confident that our investment strategy is resilient to climate and nature-related risks?
• Do we have the right information to challenge our advisers and asset managers?
• Are we considering long-term risk in every investment decision, not just short-term returns?

Trustees should ask themselves these questions, with the help of their advisers as necessary. 

Trustee oversight

TPR has expressed that it is adopting a “more prudential style of regulation” (with a sharper focus on systemic risks and how trustees are embedding addressing those risks into their investment governance) and signalling a more hands-on approach to governance and accountability. TPR’s evolving view of trusteeship emphasises the importance of trustees being equipped to not only understand systemic risks but to act decisively in response to them in an effort to achieve good member outcomes. 

Open Government Consultation

In June 2025, the government launched a consultation on mandating UK-regulated financial institutions, including pension schemes, to develop credible transition plans. TPR urged trustees to engage with the consultation before it closed on 17 September 2025. The consultation sought views on how the Government should take forward the commitment to mandating the development and implementation of credible transition plans that align with the 1.5 °C goal of the Paris Agreement. 

TPR is also seeking views to develop practical guidance on transition planning for occupational schemes. Trustees can submit written evidence by engaging with the link attached to their blog post. 

Changing regulatory landscape

TPR has made it clear that trustees should not just comply but should also lead. This means moving from passive oversight to active engagement. Key actions include:

• Integrating ESG into investment governance: Trustees should ensure ESG factors are embedded in investment strategy and manager selection.
• Supporting credible transition plans: These plans should outline how schemes will adapt to climate-related risks and opportunities.
• Ensuring trustee boards have the appropriate knowledge: Trustees should seek to build their board’s ESG knowledge and confidence. TPR’s Trustee Toolkit includes ESG content. 
• Engaging with advisers and managers: Trustees must challenge assumptions and demand transparency on risk management. Trustees should ensure that they are confident in the resilience of their investment strategy. 

It is key that trustees understand that systemic risks such as climate change and nature loss are not abstract and they need to be confident that their investment strategy is resilient. Trustees who embrace this proactive stance will be better equipped to navigate the evolving landscape, protect member outcomes, and demonstrate robust governance in the face of global challenges. 

This article was written by Alex Bones, Trainee Solicitor and Kate Granville Smith, Director in our Pensions & Lifetime Savings team. 

At The Pensions Regulator (TPR), we are raising expectations around investment governance. Trustees should ensure that decisions are long-term, well-evidenced, and subject to appropriate challenge. This is not just about compliance, it is about leadership.

https://blog.thepensionsregulator.gov.uk/2025/07/31/why-managing-systemic-risk-is-core-to-trusteeship/