U.K. local government pension schemes will have to start reporting their climate-related risks by December 2024, under a government proposal released Thursday.
Standards for those annual reports should be “as high as” those already required of private pension funds, the Department for Levelling Up, Housing and Communities said in its proposal.
With £342 billion ($394.7 billion) in assets among the LGPS managed and funded by 86 administering authorities, they represent “one of the largest pension schemes in the U.K.,” the proposal noted. While their primary investment purpose is meeting long-term pension liabilities, “the LGPS’s scale and market power give it an opportunity to drive change through the investment chain through asset managers to investee companies,” it said.
“Investment in more sustainable projects and activities is essential in order to reduce climate change and to mitigate its impacts. Investors will also need to understand and manage the financial risks and opportunities arising from climate change in order to protect and grow their assets and cashflow,” the proposal said.
LGPS administrators already have to factor in financially material ESG considerations in their investment strategies. The aim of the new proposal “is to build on that position by ensuring that the financial risks and opportunities arising specifically from climate change are properly understood and effectively managed by (administering authorities), and that they report transparently on their approach in line with broader U.K. policy,” the proposal said.
It also calls for pension funds in the same investment pool to align their strategies for dealing with climate risk.
