The Wales Pension Partnership (WPP) has developed a new climate risk policy and acknowledged that climate change has the potential to disrupt economic, financial and social systems.

The WPP is the pooling arrangement for eight Welsh local government pension scheme funds and has its investment arrangements overseen by an officer working group (OWG) and a joint governance committee (JGC), and already has a responsible investment policy in place.

A report from the organisation said the new policy is intended to demonstrate how seriously WPP takes climate-related risks to its stakeholders, formally outline what WPP can be held accountable for by its stakeholders, and enable the constituent authorities to implement their own climate risk policy and climate related targets and ambitions.

The report added: “With regard to climate change, the WPP’s own objective is to progressively reduce the likelihood that climate-related risks impact on the value or performance of the assets held within the WPP.”

The WPP said it recognised that all assets had some level of exposure to climate-related risks, but that sector, geography, policy uncertainty and investment timeframes were key determinants of climate risk exposure.

The organisation added that its immediate focus would be on climate-related risk exposure in its equity holdings before moving on to other asset classes.

In pursuit of transparency, the WPP will prepare and publish an annual report detailing the actions undertaken in fulfilment of its climate risk policy and the results achieved.

Different sub-funds will be created to allow the constituent authorities to each meet their carbon reduction targets, with WPP seeking to ensure a high degree of transparency by making information from these funds readily available.

Factors such as exposure to fossil fuel producers and carbon reserves, overall carbon intensity, and alignment with future climate pathways will be monitored from these sub-funds on a quarterly basis, with investment managers required to include the information in regular reports.

In order to effectively implement this strategy, WPP said it was relying on its investment managers to ensure that all underlying active managers integrate consideration of climate-related risks into their investment process, challenge underlying managers to evidence their approach and use this as part of their manager selection process.

The policy announcement report said: “The WPP is aware that climate change may result in mis-priced assets and unique investment opportunities.

“The WPP believes that its adherence to responsible investment policies and climate risk mitigation strategies will mean that it is well placed to identify and benefit from these potential investment opportunities for the benefit of its constituent authorities.”

The organisation also committed to hosting at least one climate risk related training session for its stakeholders per year.

WPP committed to reporting on and reviewing the policy annually, with any changes being proposed and agreed to by the OWG and JGC.

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