Key finding from the analysis were as follows:
(i) The Scheme’s funding position demonstrated a good amount of r esilience with respect to the potential impact of climate change, based on the modelled impact on expected returns under a 1.5°C-2.0°C warming scenario.
(ii) The u ncertainty 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 action is taken early) 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 most influenced by the impact on asset returns under scenarios where limited or no immediate action is taken to address climate change, so that future risks become priced into current market values more quickly. - 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, leading to greater disruption to companies and other institutions that issue investments. However, 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 policy action is taken, driven by emerging physical impacts of climate change.
An illustration of the potential impact, in terms of lost investment returns (relative to a scenario where climate change is less severe as a result of early policy intervention), is provided via the table and key below – a higher score implies a greater impact on returns.
The Scheme is invested in a relatively low-risk investment strategy with a material allocation to 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 moderate. Based on projections of the Scheme’s funding position under different climate warming scenarios, the current investment strategy is expected to provide a good amount of resilience over the medium to long term.
UTC UK Pension Scheme | TCFD Report | 31 December 2023
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