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The Department for Levelling Up, Housing and Communities is consulting on how local government pension funds in England and Wales should assess and manage climate risks and opportunities, proposing to disclose this in line with the Taskforce on Climate-related Financial Disclosures. The 12-week consultation ends at 11:45pm on 24 November.
The proposed requirements would extend climate risk assessment and TCFD reporting to the Local Government Pension Scheme, with large and authorised private sector schemes already having to do so under the Pension Schemes Act 2021.
DLUHC proposes that the 86 LGPS administering authorities should calculate the carbon footprint of their £342bn assets and assess how the value of each fund’s assets or liabilities would be affected by different temperature rise scenarios, including the ambition to limit the global average temperature rise to below 2 degrees set out in the Paris Agreement.
Under the proposals, funds would have to report on this annually, with the reports also summarised in an LGPS-wide report, including the overall carbon emissions of the scheme. The first reporting year will be the financial year 2023-24, with the regulations expected to be in force by April 2023. The first reports will be required by December 2024.
Similarities and differences to private sector schemes
Similar requirements for private trust-based schemes with assets of more than £5bn, or those that require authorisation, came into force in October last year and will be extended to schemes with £1bn in assets this October.
DLUHC said the government’s view is that the requirements for the LGPS should set as high a standard as for private schemes. “We have therefore made the requirements for private schemes the starting point for our proposals but have aimed to take account of the unique features of the LGPS including its local administration and democratic accountability through the AAs,” it said. A key difference is that DLUHC wants schemes to report data quality as a mandatory metric. “This aims to help the LGPS use its scale and market power to drive improvements in the quality of emissions data, which will be a critical factor in raising the quality of climate risk management,” it said.
Unlike in the private sector, the requirements should apply regardless of fund size, which range from around £500m to £25bn, it said, noting that asset pools can play an important role in climate reporting.
Disclosures form part of broader agenda
The government intends to make TCFD-aligned disclosures mandatory in the UK across the economy by 2025.
Last year, it announced a new, economy-wide sustainability disclosure requirements regime. This will make it mandatory to report on environmental impact and, it is expected, eventually also social considerations. In October 2021, the government published details of the regime in Greening Finance: A Roadmap to Sustainable Investing and said it plans to set up an endorsement and adoption function in the UK for standards issued by the International Sustainability Standards Board.
ISSB standards will only have legal force in the UK once they have been endorsed and adopted; a consultation on proposals for a framework to introduce reporting against IFRS Sustainability Disclosure Standards in the UK will be published “in due course”, according to DLUHC. While SDR for the LGPS is not covered in this consultation, DLUHC said it will work with the Scheme Advisory Board to develop proposals.
What are your thoughts on the consultation?Karen ShackletonJo HoldenMike ClarkNick SpencerAmanda Latham
