Climate reporting rules for UK local authority pension funds have been delayed, parliamentary under-secretary of state for local government and building safety Lee Rowley confirmed.
In a letter to councillor Roger Phillips, chair of the Scheme Advisory Board (SAB), Rowley said that while he recognises that “clarity on the timetable for implementation will be helpful to funds as they make plans and secure appropriate advice”, the government would not be “implementing any requirements related to the governance or disclosure of climate-related risks for the financial year 2023/2024”.
The government has consulted on introducing rules on climate reporting for Local Government Pension Schemes (LGPS) in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) between 1 September and 24 November 2022.
The consultation proposed that LGPS administering authorities would calculate the ‘carbon footprint’ of their 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°C set out in the Paris Agreement.
It also proposed that administering authorities should report on this annually, and that these reports will be summarised in an LGPS-wide report, including the overall carbon emissions of the scheme.
In his letter, Rowley said thatthe government received 109 responses to the consultation.
He added: “I value dialogue with the SAB and people throughout the scheme highly and will be considering very carefully the points raised.”
Joanne Donnelly, head of pensions and secretary to the LGPS SAB, welcomed the clarity Rowley’s letter provided however she expressed regret in the delay in setting up a climate risk reporting scheme for LGPS funds.
She said: “The absence of a reporting regime only adds to the already considerable pressure placed on funds from lobby groups.
“When it was told of this further delay, the board agreed to explore what could meaningfully be done on a voluntary basis until the regulations are eventually made. Through its Responsible Investment Advisory Group, the board is also looking at what might be done to standardise the development of LGPS climate reporting approaches at the pool level.”
Despite the delay in the regulation, Tony English, head of LGPS at Mercer, said he anticipates that many funds will voluntarily produce a climate report for the financial year 2023/2024.
He said: “We have been working with a number of LGPS funds to support their ambitions to be leaders in tackling climate change while providing security of members’ benefits in a cost effective manner.
“Pre-emptive completion of TCFD reporting has been one strand to this and we do not expect the [Department for Levelling Up, Housing & Communities, DLUHC] announcement to change the ambitions or plans for these funds.”
He added: “Given the significant resources needed for funds to plan and prepare for TCFD reporting, we look forward to receiving timely advance notice of the new regulations, once DLUHC has completed its review of the consultation responses.”
PLSA publishes additional resource for LGPS to help understand sector’s regulatory complexity
The Pensions and Lifetime Savings Association (PLSA) has published a new guide for employers participating in the LGPS, and an additional resource to help LGPS professionals and external stakeholders understand the sector’s regulatory complexity.
The guide – Best practice: A guide for employers participating in the LGPS – has been launched to coincide with the PLSA’s annual Local Authority Conference, which is taking place this week in Gloucestershire.
Through a combination of public sector reforms that led to the outsourcing of local authority services, LGPS employers’ understanding of how the scheme operates and of their responsibilities within it, have become somewhat disjointed in recent years, the association said.
The guide seeks to counter this and addresses recommendations in the PLSA’s 2022 report – The LGPS: Today’s challenges, tomorrow’s opportunities – for funds to be proactive in providing information and assistance to existing and prospective employers, and to communicate the benefits of staying within the LGPS.
The guide includes chapters dedicated to engaging with administering authorities, how to manage data, as well as practical information about actuarial valuations, risk management, internal dispute resolution procedures and automatic enrolment.
Regulatory map
LGPS has 7.1 million members, over 15,500 employers, and assets totalling more than £425bn. However, there is no regulatory entity with responsibility for the whole of LGPS, and many arms of government and regulatory bodies have a say in how the LGPS should be run.
In a recent PLSA survey of LGPS professionals, two-thirds said they believe the main legislative or regulatory requirements that govern their work are overlapping between different organisations/regulators (66%), with a similar proportion saying this causes them confusion (63%).
As a result, the association also published a strategic ‘regulatory map’ to help external stakeholders understand and navigate the complexities in which the LGPS operates.
The PLSA said the map is aimed at helping ensure the existing framework works in a more joined-up and coherent way; and that it helps highlight why an examination of the benefits of a more centralised approach, which could involve creating a new oversight body or giving an existing body greater powers, would be helpful.
The map is divided into three sections, according to the geographic distribution of the LGPS – England and Wales, Scotland, and Northern Ireland – and also contains a heat map of some of the most pertinent issues funds are facing, matching these topics with the entities responsible for these areas, showcasing the complexity of the development of consistent, coherent and clear LGPS policy and regulation.
This map also aims to help ensure that the LGPS voice is represented and weighted accordingly in central government decisions, which affects the sustainability of the LGPS and its day-to-day running directly, PLSA said.
Tiffany Tsang, head of defined benefit, investment and the LGPS at the PLSA, said: “For more than a decade, the LGPS has undergone continuous, rapid change. Against a backdrop of the economic uncertainty, austerity and pay freezes for local authorities – and, more recently, the global pandemic – it has had to contend with a rolling series of reforms that add to its administrative burden.”
She added that the regulatory map was designed to “help external stakeholders understand the complexity of the overlapping bodies that have influence in the LGPS universe, and hopefully start a conversation on how entities could work together in a more joined up way”.
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