The Department for Levelling Up, Housing and Communities (DLUHC) is seeking views on proposals to require Local Government Pension Scheme (LGPS) administering authorities (AAs) in England and Wales to assess, manage and report on climate-related risks, in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

The proposed regulations will apply to all LGPS AAs regardless of fund size. The first reporting year will be the financial year 2023/24, and the regulations are expected to be in force by April 2023. The first reports will be required by December 2024.

The core elements of the proposed climate-related financial disclosures broadly follow the current requirements for private pension schemes (Governance, Strategy, Risk Management, and Metric & Targets) with a few key differences.

If the changes are implemented, there will be significant additional responsibilities for both AAs who will have to summarise their findings in an annual Climate Risk Report. LGPS Asset Pools are also expected to have a key role in supporting implementation.

We have submitted a response to the consultation and our key observations focussed on:

• The need for there to be a clear delineation of responsibility between the Pensions Regulator (tPR) and the Secretary of State in the context of ESG requirements.  In our view, this is a grey area given that the proposal is for tPR to have responsibility for overseeing the ESG governance arrangements of AAs but has no wider remit regarding investments of LGPS funds.
• There needs to be clarity around the definition of pooled assets.  Under the proposals, pools will be expected to provide date, calculate metrics and carry out scenario analysis on the assets where that data is available.  If obligations are to be placed on pools then the definition of pooled assets needs to be clearly scoped given that pools are structured differently.
• Recognition of different structures of LGPS funds. Where a single employer fund is in place, for example, is there any intention for them to be treated any differently?

The consultation is open until to 24 November 2022 and if you would like to contribute the link can be found here: Consultation

We will shortly be launching an update to our ESG Tool dealing with the upcoming TCFD guidance for the LGPS – keep an eye out for this soon. 

Post written by Hannah Taylor and Tom Wild