Nearly half of the UK’s Local Government Pension Scheme (LGPS) funds have set a net zero target or ambition, with the majority aiming for net zero by 2050 in line with the Paris Agreement, according to new research conducted by pensions consultancy XPS Group.

The research, which investigated the net zero commitments of 97 LGPS funds and the eight asset pools, also found that five out of eight funds that have set targets are aiming to achieve net zero by 2030.

However, just over half have not yet set a net zero strategy or ambition, according to the analysis which was published yesterday.

Reporting against the Task Force on Climate Related Financial Disclosures (TCFD) came into force for LGPS on 1 April 2024, with first reports due by late 2025. However, pre-empting the reporting requirement, many LGPS funds have taken steps to address climate change within their portfolios, including setting net-zero targets.

“LGPS funds have a responsibility to manage key investment risks associated with climate change, and that could include setting a net zero target,” said Alex Quant, head of ESG at XPS.

XPS Group LGPS net zero targets

“LGPS funds, with their scale, long-term investment horizon and readiness to explore illiquid assets, have a clear opportunity to take advantage of the long-term opportunities that will come with the climate transition,” he added.

Additionally, the research found that 74% of funds have switched some of their investments into strategies that have sustainable objectives built in, while 26% indicated that they had directly invested in climate solutions, XPS stated.

Global emergency

Climate change issues have been a preeminent topic within global news and financial markets. This year the US experienced a major heatwave, while emergency services in Europe and Canada have been dealing with a summer of wildfires, which have become increasingly frequent and intense in recent years.

“This increase in natural disasters brings to life the emergency we are facing right now, making it all the more important that countries and companies around the world deliver on their commitments to limit global warming in order to support targets under the Paris Agreement,” said Quant.

Dan Carpenter, LGPS investment lead at XPS, said: “LGPS funds have made good progress around setting net zero targets, but it’s clear there is scope for more LGPS funds to develop a clear net zero strategy and make changes within their portfolios to support that objective.”

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