UTC (UK) Pension Scheme
Report prepared in line with the recommendations of the Taskforce on Climate-related Financial Disclosures
Year to 31 December 2025
Introduction
This statement describes the approach taken by the UTC (UK) Pension Scheme (‘the Scheme’) with regard to climate-related risk. It is intended to be consistent with:
(i) relevant legislation (as an occupational defined benefit pension scheme with relevant assets under management); (ii) the format of reporting proposed by the Taskforce on Climate-related Financial Disclosures (‘TCFD’).
The Trustee’s investment and actuarial advisers (Barnett Waddingham) have assisted in the production of this report. It covers the Scheme’s arrangements in respect of the following four areas:
• Governance – the Scheme’s governance arrangements around climate-related risks and opportunities • Strategy – the potential impact of climate-related risks and opportunities on the Scheme’s strategy and financial planning • Risk management – the processes used by the Trustee to identify, assess and manage climate- related risks • Metrics and targets – the metrics and targets used to assess and manage relevant climate- change related risks and opportunities It is important to recognise that climate science continues to evolve and disclosures relating to climate change continue to be criticised. In particular, the quality and reliability of data on carbon emissions and scenario analysis remain works in progress. With this in mind, the Trustee continues to challenge their advisers and asset managers on these specific points and expects these disclosures to develop and improve over time. Due to the difficulties around obtaining reliable data on carbon emissions, this disclosure focuses on the assets of the Scheme where better quality data is available and material climate-related risks can therefore potentially be managed. These assets are also expected to include the majority of the Scheme’s potential exposure to fossil fuel companies and other heavy emitting sectors.
The disclosure covers:
Listed equities;
•
Target return funds;
•
Corporate bonds (public markets);
•
Liability Driven Investment (‘LDI’) holdings.
•
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This is the second year of reporting on the LDI portfolio, whereas reporting in respect of the other assets has been undertaken for a longer period. Consequently, figures have been shown separately for the LDI holdings in the metrics section below, so that the Trustee can continue to track changes in emissions attributable to the other assets on a consistent basis from one year to the next. The assets excluded from reporting this year are the Scheme’s secure income holdings, asset-backed contribution arrangements and AVCs. These assets have not been included due to practical issues around the availability and quality of relevant data. The Trustee will continue to review whether data in respect of these assets should be published in future reporting.
Governance
Documentation of the Trustee’s policies and their implementation
The Trustee maintains a Statement of Investment Principles (‘SIP’), which sets out the Scheme’s policies on financial risks, including those related to climate change and responsible ownership. The Trustee manages climate risk according to financial materiality in the context of the Scheme’s expected lifetime and also against the other risks and opportunities with which it is presented.
The Trustee also publishes an annual Implementation Statement used to review its approach to responsible ownership and engagement with investee companies.
As part of the process of preparing the Implementation Statement, the Trustee considers the asset managers’ approaches to stewardship, including data on voting and engagement, as well as engagement case studies over a 12-month period. In particular, the statement includes examples of significant votes and engagements related to climate issues over the reporting period.
Delegation
The management of climate-related risk with respect to specific securities is delegated to the Scheme’s investment managers, who are all third-party firms independent of the Trustee and its sponsoring employers.
Monitoring the Scheme’s investment managers and consultant
The Investment Sub-Committee (‘ISC’) of the Trustee meets at least quarterly and receives performance monitoring reports from its investment consultant that include ratings providing a view on the ability of the Scheme’s investment managers to integrate climate risk management and other factors associated with environmental, social or governance (‘ESG’) issues into investment processes.
The ratings also consider how active ownership activities undertaken by asset managers, including voting and engagement on climate-related issues, are used as part of investment processes.
In monitoring the Scheme’s managers, the ISC takes account of the fact that ESG issues are more relevant for some parts of the portfolio. For example, ESG considerations do not currently play a significant role in the selection of gilts within the LDI portfolio but may have a greater influence on the selection of equities within actively managed target return holdings. On an annual basis, the ISC also evaluates the performance of its appointed investment consultant in line with agreed objectives. The ISC is comfortable with the consultant’s ability to advise on climate- related risks and opportunities, having considered the approach the consultant takes to determine ESG ratings for the investment managers, as well as knowing that the consultant is a signatory to the UNPRI and the UK Stewardship Code.
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Training
The ISC maintains a training log and receives training on sustainable investment issues, including climate change, as required. The ISC decides on training topics through regular discussions of its training needs. Such topics are discussed within a stand-alone agenda item at meetings. Over 2025, training included specific sustainability items on meeting agendas and presentations from a number of the Scheme’s asset managers, including updates on how sustainability matters were incorporated into their strategies. Such sessions allow for an opportunity for the ISC to question and challenge its asset managers on sustainability matters. In addition, over the year, the Trustee had training from their investment consultant on climate scenario analysis, including the key climate risk and opportunities that the Scheme’s strategy is exposed to, the key limitations of the analysis, and the various climate scenarios that were used.
Reporting on carbon exposure and climate-related risks
The Trustee has now published four annual TCFD reports (including this document) and, to support these, the ISC has commissioned reports on carbon exposure analysis and scenario testing of the resilience of the investment strategy in different future climate and policy response scenarios. In preparing this year’s report, the Trustee collected and analysed updated emissions data and previous carbon exposure analysis (to consider the year-on-year change in the data). The Trustee also considered updated scenario testing undertaken during 2025. The Trustee, via the ISC and its advisers, reviews its strategy and engages with its investment managers based on the key findings from such analysis, as necessary.
Strategy
Climate-related risks and opportunities over the short, medium and long term The Trustee believes that sustainability issues, in particular climate change, present risks and opportunities that increasingly require explicit consideration and may materially affect the future financial performance of the Scheme’s investments.
The Trustee has considered the following short, medium and long term drivers of risk.
Short term (less than 7 years)
• Momentum-driven changes in markets as investor awareness changes, e.g. because of concerns about specific stocks that might be vulnerable to the transition to a lower carbon economy. • Market pricing changes caused by the likelihood of different climate scenarios emerging, e.g. if a higher warming scenario becomes more likely because of a failure of governments to agree necessary action to limit warming to 1.5°C-2.0°C. • Unexpected regulatory changes that cause rapid price movements, e.g. the introduction of high rates of carbon taxation. • Risks associated with the transition to a low carbon economy are likely to become increasingly important over the medium term, especially where delayed (i.e. not implemented over the short term). • Such risks/opportunities include development of new technologies, obsolescence of existing industries, and development of policy and regulation.
Medium term (7 to 20 years)
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Long term (beyond 20 years)
• Over the longer term the ‘in practice’ risks associated with climate change will come to the fore. • Such risks would include the potential physical impact of climate change, such as flooding, desertification, changes in weather patterns, change in migration patterns and conflict over natural resources.
The above timeframes should be set against the future lifetime of the Scheme which is expected to pay benefits for many decades into the future.
Strategic actions undertaken to manage climate-related risks The Trustee undertakes scenario analysis (see below) to consider the potential impact of climate-related risks and opportunities on the evolution of the Scheme’s funding position, and reviews approaches to manage climate-related risks and opportunities through the investment strategy on an ongoing basis. Climate change scenario analysis During 2025, the Trustee commissioned scenario analysis, to assess the potential implications of different climate change scenarios and associated policy responses on the development of the Scheme’s funding position. The scenarios used by the Trustee when undertaking scenario analysis can be found in the Appendix to this report. The scenarios were chosen to illustrate a range of different outcomes with varying levels of physical and transitional risk, and have been updated since the previous analysis undertaken in 2022.
These included:
• Sudden disorderly transition scenarios (“delayed action” and “late and inadequate action”) • Delayed and divergent transition scenario (“fragmented world”) • “Hot house world” scenarios (“current policies” and “late and inadequate action”)
A measured orderly transition scenario is no longer considered as part of the analysis due to a lower expectation of it occurring and the limited downside risk associated with such a scenario.
Key findings from the analysis were as follows:
(i) Despite the Scheme having a strategy that is not overly exposed to assets that are expected to be subject to significant climate-related risks, the development of the funding position could still be adversely impacted under adverse future scenarios that were modelled.
(ii) The uncertainty in the impact on the Scheme’s funding position is higher for scenarios under which increased levels of warming are assumed.
(iii) The Scheme’s funding level is expected to be negatively impacted (relative to a scenario whereby climate risk that has not been priced in to the market is not explicitly considered) over all adverse climate warming scenarios considered. However, the level of impact varies across scenarios and time periods: - Over the short-term , the potential impact on funding is similar under all scenarios. Under all scenarios considered, limited or no immediate additional action is assumed to be taken to address climate change, so that future subsequent risks become priced into current market values more quickly.
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- Over the medium-term , the potential impact on funding is more heavily influenced by scenarios where policy action is taken by governments at a later stage (the delayed transition and late and inadequate action scenarios), leading to greater disruption to companies and other institutions that issue investments. However, with regards to the delayed transition scenario, these impacts are expected to be somewhat recovered over time, as a result of policies reducing longer-term global warming. - Over the long-term , the funding level impact is mostly impacted under scenarios where little or inadequate additional policy action is taken, driven by emerging physical impacts of climate change (the current policies and late and inadequate action scenarios). An illustration of the potential impact, in terms of lost investment returns (relative to a scenario with no climate-related risk change is less severe as a result of early policy intervention), is provided below. A higher score implies a greater impact on returns. For simplicity, this analysis excluded the LDI holdings. All else being equal, the inclusion of the LDI portfolio would be expected to reduce the impact of climate-related risk further.
The illustration below scores the Scheme’s assets on a scale from 0-9, in terms of its expected climate risk exposure (‘0’ being low risk, and ‘9’ being severe risk).
The Scheme is invested in a relatively low-risk investment strategy with a material allocation to high- quality fixed income assets. Although such assets have exposure to climate risks, they are expected to be less impacted than assets such as equities or commercial property. Consequently, the Scheme’s climate risk impact scores are relatively modest. Based on projections of the Scheme’s funding position under different climate warming scenarios, the current investment strategy is expected to provide a reasonable amount of resilience for the funding position over the medium to long term. In light of the scenario analysis, the Trustee raised additional queries with the Scheme’s investment managers, who were asked to provide an update on their climate risk assessment methodology and climate risk management processes, with relevant examples provided. In particular, the Trustee considered areas where there might be high exposure to physical risks (such as real assets) and indirect climate risks (such as risks associated with the balance sheets and stakeholders of financial institutions). Each of the managers were able to demonstrate reasonable awareness and management of climate risks, alongside other financially material risks.
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Resilience of the Scheme’s funding plan and the employer covenant The Trustee receives additional independent advice from its covenant and actuarial advisers on the resilience of the Scheme’s funding plan, taking account of the financial strength, operating markets and business plans of its sponsoring employers and group parent. The Trustee receives information on the group parent’s resilience to climate change. Information comes from the group parent itself, including disclosures such as the parent’s own TCFD reports and its voluntary reporting to the Carbon Disclosure Project (CDP).
Overall, the Trustee is comfortable that the funding and investment strategy is suitably resilient against a range of risks, including climate-related risks.
Risk management
Processes for identifying and assessing climate-related risks The Trustee seeks to identify and assess climate-related risks through a combination of:
• Top-down strategic analysis, e.g. through scenario analysis that considers both transition and physical risk • Annual monitoring of carbon exposure metrics • Bottom-up analysis of climate-related risk undertaken by the Scheme’s investment managers on behalf of the Trustee • Advice from covenant and actuarial advisers on the resilience of the Scheme’s funding plan, taking account of the financial strength, operating markets and business plans of its sponsoring employers and group parent Processes for managing climate-related risks The Trustee manages risk according to financial materiality in the context of the Scheme’s expected lifetime and plans to bring it into a position where it has a low-risk funding and investment strategy over the short to medium term. The Trustee’s approach to climate-related risk management is guided by strategic analysis, assessment and monitoring of carbon metrics, and the perceived ability of the investment managers to incorporate ESG-related risk management into their investment processes, inclusive of their stewardship and engagement approach on climate issues. The Trustee also includes consideration of climate-related and other risks as within its Effective System of Governance and subsequent Own Risk Assessment (a requirement of the UK Pensions Regulator’s General Code).
The Trustee’s policy for managing the broader range of investment-related risks is discussed in the SIP.
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Metrics and targets
Key metrics for climate-related risks For listed equities, target return funds, corporate bonds and Liability Driven Investment (LDI) holdings, the Trustee uses the following key metrics:
Total carbon emissions*
• The estimated total annual greenhouse gas/carbon emissions associated with the Scheme’s assets • Expressed in tonnes of carbon dioxide (tCO 2 )
Carbon footprint
• The carbon emissions per £1 million invested
Paris alignment
• The ultimate aim for a Paris aligned investment is a goal of no more than 2.0°C global warming from pre-industrial levels • Expressed as percentage of holdings with approved science-based emission reduction targets • Percentage of holdings with carbon emission data available • Scope 1 emissions are the direct emissions by a company or other entity • Scope 2 emissions result from the energy used by a company or other entity • Scope 3 emissions are indirect and produced by suppliers to an entity or the users of an entity’s products.
Data coverage
The measurement of Scope 3 data is less accurate than for Scope 1 and 2, and lends itself to a significant proportion of estimated data.
*All of the Scheme’s investment managers calculate carbon emissions in line with the Kyoto protocol. The Trustee has used the DWP guidance when choosing their approach to calculating metrics.
The Trustee’s ability to determine appropriate and reliable climate-related risk metrics is limited by the availability of consistent and comparable data. Market practice, tools and data are being improved to obtain a better understanding of climate-related risks across different asset classes.
Where possible, the Trustee has incorporated Scope 3 emissions into this year’s metrics. The Trustee will review the suitability of other metrics on an ongoing basis.
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Summary of carbon risk metrics
Equities, target return and corporate bonds
The key metrics for the Scheme’s equity, target return and corporate bond holdings are summarised in the table below.
Data coverage (Scopes 1 & 2) (%)
Footprint (Scopes 1 & 2) (tCO 2 /£1m)
Total emissions (Scope 3) (tCO 2 )
Data coverage (Scope 3) (%)
Asset class (allocation at effective date %)
Total emissions (Scopes 1 & 2) (tCO 2 )
Footprint (Scope 3) (tCO 2 /£1m)
Alignment (%)
52 -
Equities (8%)
8,316
85
120,487
1,243
96
96
Target return (5%)
80 -
10,791
157
18,444
268
15
86
Corporate bonds (32%)
13,251
32
118,465
286
48
97
96
Total/aggregate
32,357
56
257,396
447
45
96
94
Source: Investment managers. Data as at 31 December 2025. Arrows depict change from last year, where previous data is available. The data provided by the investment managers and its interpretation are still developing and, consequently, it should not be assumed that the data used to calculate the metrics are consistent year-on-year. For those who could provide this information, the Scheme’s managers have used a degree of estimated data when calculating their carbon emission data. Due to data availability, the amount of data estimated for Scope 3 data (where provided) is significantly larger across all three asset classes versus Scopes 1 and 2 data.
Discussion
There was a decline in the overall carbon emissions associated with the assets considered, although this was based on a lower value of assets.
The carbon footprint (emissions per £m invested) rose slightly over the year. The rise in footprint was driven by the target return portfolio, with higher allocations made by the managers to the higher emitting utilities, energy and industrial sectors. There was, however, an offsetting fall in carbon footprint across equity indices, in particular the European and Asia Pacific exposures held in the Scheme’s equity portfolio.
Scope 3 emissions and footprint reduced for the assets considered over 2025.
Data coverage improved across all portfolios and scopes considered above (with the exception of the target return portfolio’s Scope 3 coverage, which remained at c.80%). Targets for data coverage are commented on further in the next section. There was a decline in the investee companies using science-based emissions reduction targets – this is the ‘Alignment’ column in the table. This was due to a general decline in companies within the Scheme’s target return portfolio of companies, and corporate bond issuers, that have adopted such targets, as well as a change in methodology.
LDI holdings
The key metrics for the Scheme’s LDI portfolio are summarised in the table below:
Asset class (allocation at effective date %) LDI portfolio (31%)
Total emissions (Scopes 1 & 2) (tCO 2 )
Total emissions (Scope 3) (tCO 2 )
Data coverage (Scope 3) (%)
Footprint (Scopes 1 & 2) (tCO 2 /£1m)
Footprint (Scope 3) (tCO 2 /£1m)
Data coverage (Scopes 1 & 2) (%)
Alignment (%)
100 -
N/A
N/A
N/A
N/A
51,039
125
Source: Investment manager. Data as at 31 December 2025. Absolute emissions have been provided on funded gilts only (i.e. excluding those on repo), using the Partnership for Carbon Accounting Financials (PCAF) approach. Emissions are defined as scope 1 and 2 in line with Department for Work and Pensions (DWP) guidance. The data provided by the investment manager and its interpretation is still developing and, consequently, it should not be assumed that the data used to calculate the metrics are consistent year-on-year.
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The emissions and footprint associated with the Scheme’s LDI portfolio fell over the period. This was driven by a fall in the estimated UK economy’s carbon footprint.
The Trustee understands that Scope 3 emissions data for gilts are only available with at least a three- year lag and have therefore not been reported by the investment manager.
The Trustee also understands that governments cannot verify their own emissions reductions targets with the Science Based Targets Initiative, given this is designed for use by companies. Independent Portfolio alignment assessment models such as Germanwatch and Climate Action Tracker suggest that the UK Government is no longer aligned with the goals of the Paris Agreement, however such assessment models remain under review. Target used to manage climate-related risks and opportunities The Trustee’s initial target was to work with its investment managers to improve data coverage for specific assets on Scope 1 and 2 emissions to 90% within the first three years of reporting, i.e. by 31 December 2025. This target has now been reached. Specifically, over the period, the data coverage on Scope 1 and 2 emissions improved to 96% on the assets considered. The Trustee’s new target is to work with its investment managers to improve data coverage for Scope 1, 2 and 3 emissions to 90% on all assets, except LDI, asset-backed contribution arrangements and AVCs, by 31 December 2030. The data quality metric for scopes 1, 2 and 3 on all assets, except LDI and asset- backed contribution arrangements (that is the assets invested in equities, target return, corporate bonds and secure income) was approximately 80% as at 31 December 2025 (approximately 10% below the target). Whilst secure income assets are included within the Trustee’s target, metrics on this asset class have not been included in the previous section due to practical issues around the continued availability and quality of relevant data.
Approved by UTC Pension Trust Ltd on 27 May 2026
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Appendix 1 – Climate scenarios
Effective carbon price 2050 (per tonne) 2
Assumed temperature rise 1 by 2100
Physical risk
Transition risk
Scenario
Brief description
The scenario does not seek to price in any physical or transition climate effects. The calibration of this scenario is aligned to Moody’s Best Views (Real World) calibration, which is based on current market data and historic trends. Additional policy implementation is delayed until 2030. Stronger policies are then required (versus a scenario whereby policy implementation is not delayed), in order to limit global temperature rises to below 2.0 o c. No new climate policies are introduced beyond those currently in place, resulting in a growing concentration of greenhouse gas emissions and a larger increase in global temperatures, relative to a transition scenario. Additional policy implementation is delayed and diverges globally. Those countries with net-zero targets are assumed to meet c.80% of their target, whilst those without follow current policies. This scenario has been created by Barnett Waddingham and takes the highest negative return impact, on an annual basis, across the other three scenarios. The scenario is assumed to exhibit a mixture of characteristics from the above scenarios (i.e. delayed transition and high temperature rises).
Base case (for CRI scoring)
--
--
None
None
Delayed transition
o
$500
Limited
High
<2.0
c
Current policies
o
<$50
High
Limited
3.0
c
Fragmented world
o
<$100
Medium
Medium
2.5
c
Late and inadequate action 3
o
$500
High
3.0
c
All figures are approximate. 1 Relative to pre-industrial levels. 2
Effective carbon price essentially bakes transition risk into one price. In reality, transition risk impacts would be felt wider than just through carbon pricing. Therefore, carbon pricing may be expected to be lower. This one price method aims to simplify the risk exposures. As at April 2025, carbon pricing in the largest markets was in the region of $60-80. 3 Whilst the ‘late and inadequate action’ scenario does not explicitly split out physical and transition risks, nor does it have specific assumptions around temperature rise and / or carbon pricing, it is assumed that the scenario denotes a combined level of temperature rise and effective carbon pricing that are both high and, therefore, physical and transition risks that are high.
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