Lib Dems ‘hint at regulatory action for poor climate risk management’ by pension funds

The Liberal Democrats’ manifesto for the UK’s upcoming national elections includes plans to force pension funds to disclose that their investments are consistent with the Paris climate accord.

The party described this as being part of a plan to regulate financial services to encourage “climate-friendly investments”. It also said it would create new powers for regulators to act if banks “and other investors” were not managing climate risks properly.

The Lib Dems’ manifesto is the first of the general election, which is scheduled for 4 July.

Matthew Downey, investment consultant at Broadstone, a pensions and investment consultancy, said the Liberal Democrats were “hinting at regulatory action for those failing to sufficiently manage climate risks of their portfolios”.

Trustees of larger occupational pension schemes and authorised master trusts already have to report the alignment of their schemes’ assets with the goal of limiting the increase in the global average temperature to 1.5°C above pre-industrial levels.

Downey said “the political direction of travel looks likely to introduce further reporting requirements to stimulate ever greater sustainability”.

“It is clear that pension fund trustees should be preparing for this eventuality over the coming years by taking early, proactive steps to ensure their processes are up to speed.”

NDCs

Other climate change-related pledges in the Liberal Democrats’ manifesto included expanding the market for climate-friendly products and services with “steadily higher criteria in public procurement policy”, implementing the Carbon Border Adjustment Mechanism for high-emission products, and reducing emissions from industrial processes by supporting carbon capture and storage and new low-carbon processes for cement and steel production.

The UK general election comes as countries should be developing new climate targets – called Nationally Determined Contributions (NDCs) under the Paris Agreement framework – for delivery in early 2025.

The Institutional Investors Group on Climate Change (IIGCC), a large investor body that voiced disgruntlement over the Conservative government’s “backtracking” of climate policy measures last year, has in recent days circulated a guide to help policymakers develop NDCs that would inspire investor confidence and help secure private finance for climate investment.

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