Govt consults on TCFD requirements for LGPS

The government has launched a consultation on plans to require Local Government Pension Scheme (LGPS) administering authorities (AA) to assess and report on climate-related risks, in line with the Taskforce on Climate-related Financial Disclosures (TCFD).

The consultation from the Department for Levelling Up, Housing & Communities (DLUHC) suggested that the LGPS' scale and market power as one of the largest pension schemes in the UK give it "an opportunity to drive change through the investment chain through asset managers to investee companies".

AAs are already required to consider factors that are financially material to the performance of their investments, including environmental, social, and corporate governance (ESG) considerations.

In addition to this, they must have a policy stating how such considerations will be considered in setting their investment strategy.

However, the proposals aim to build on this further by ensuring that the financial risks and opportunities arising specifically from climate change are properly understood and effectively managed, and that AAs report transparently on their approach.

The government also emphasised that requirements for the LGPS should be set as high a standard as for private schemes, with the existing requirements for private schemes therefore used as the starting point for the LGPS proposals.

However, the DLUHC clarified that it has aimed to take account of the unique features of the LGPS including its local administration and democratic accountability through the AAs.

Sustainability Disclosure Requirements, announced by the government in July 2021, are not covered in the consultation, although the DLUHC confirmed that it will work with the LGPS Scheme Advisory Board to develop proposals.

The DLUHC also confirmed that the government will consult on proposals for a framework to introduce reporting against IFRS Sustainability Disclosure Standards in the UK "in due course".

Commenting on the consultation, Aegon head of pensions, Kate Smith, stated: “It’s only right that the LGPS, as one of the UK’s largest pension schemes, is bought in line with the private pension sector with reporting on climate related risks and opportunities.

“The largest occupational pension schemes, and all master trusts, are already reporting, publishing or about to publish their TCFD reports with more to follow next year.

"As the LGPS will have over a year to plan for this new regulatory requirement, they will be able to take learnings from these private sector reports which are expected to evolve over time.”

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