Agenda item

A report of the Director of Finance was presented to provide Members of the Board with details of an ongoing consultation exercise on managing and reporting climate-related risks in the Local Government Pension Scheme (LGPS), and to advise that a consultation response would be provided.

On 1 September 2022 the Government issued a long-anticipated consultation document on managing and reporting climate-related risks in the Local Government Pension Scheme (LGPS).  The proposals in the consultation were mainly aimed at Administering Authorities (AAs) of LGPS Funds and were summarised in the submitted report.   A copy of the consultation document was attached at Appendix A to the submitted report.  The following points were highlighted:

The proposed requirements were similar to those that already applied to trustees of larger private sector pension schemes – those with ‘relevant assets’ of £5 billion or more had been in scope of similar requirements since 1 October 2021 and those with assets of £1 billion or more since 1 October 2022.  There was no proposed phasing in introducing these requirements to the LGPS, they would come in force from the year starting 1 April 2023 with the first report due to be published by 1 December 2024.

The consultation made explicit reference to not wanting to encourage schemes to divest from energy companies, but instead to encourage a (more gradual) transition to cleaner energy: “The UK Energy Security Strategy was published in April 2022 and emphasises the importance of investment in energy by the private sector to improve energy security and support the transition to clean energy. The LGPS has an important role to play as a major investor with a commitment to stewardship and engagement. These proposals seek to support that approach to addressing high carbon emissions and discourage any pursuit of lower emissions through withdrawing investment from energy companies.”  This pragmatic approach was unlikely to placate pressure groups.

There was acknowledgement in the document that data quality would be an issue, and administering authorities would be required to report on their assessment of the quality of the data available to them. The methods for analysing the data were also less than perfect, and the document acknowledged this, for example stating: “We would expect AAs to aim to do the best scenario analysis that they can, and to aim to improve their scenario analysis over time”.

The document considered the increasingly important role the LGPS pool companies would play in providing data and analysis in relation to climate risks and recommended close working between funds and pools to ensure consistency: “Pool operators are required to report on climate risks in relation to pooled assets by the Financial Conduct Authority.  If AAs’ strategies significantly differ it will be resource intensive for their pool to produce analysis for them. We expect to see this issue reduce in importance over time as more assets transition into the pools.  AAs could also minimise this issue by aligning their strategies and targets within their pool and ensuring as shareholders that the pool’s strategy also aligns with that of the partner AAs. This would enable AAs to commission their pool to conduct analyses for both pooled and non-pooled assets on a consistent basis with the pool’s own reporting.”

Administering authorities would be required to take “proper” advice on the issues set out in the consultation.  No clear definition was given of this, but it appeared further guidance would be provided in due course:  “The scheme manager will need to appoint properly qualified advisers, fully consider their advice, and take appropriate action in order to address these risks.  The committee’s officers and advisers and the pool, where appropriate, will need to provide advice which is accessible for non-specialists and adequately addresses climate risks to the fund, bringing in additional expertise where needed. We propose to provide statutory guidance to assist AAs”.

The consultation period would end on 24 November 2022.  The Teesside Pension Fund Committee had agreed that the Head of Pensions Governance and Investments would provide a response to the consultation taking into account views and information from Border to Coast and the other Partner Funds, where available.  Further information on the final regulations and guidance would be provided to the Board as it became available.

AGREED that the information provided was received and noted.