- 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.
UTC UK Pension Scheme | TCFD Report | 31 December 2025
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