The Department for Levelling Up, Housing and Communities is currently consulting on proposals which would require administering authorities of the Local Government Pension Scheme (LGPS) in England and Wales to assess and manage climate risks. The consultation – published on 1 September – seeks views on proposals to disclose climate-related risks in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

The proposals

The consultation concerns proposals which would require administering authorities to manage and report on climate risks using different metrics. Under the current proposals, they would be required to calculate the ‘carbon footprint’ of their assets and assess how the value of each fund’s assets or liabilities would be impacted by different temperature rise scenarios. One scenario would need to be aligned with the climate targets contained in the Paris Agreement, assuming a 1.5°C to 2°C temperature increase above pre-industrial levels, while the other scenario would be at the choice of the administering authority. The regulations are expected to come into force by April 2023 and the proposal envisions that LGPS funds would produce their first annual Climate Risk Report by December 2024.

Following in the footsteps of the private sector

The consultation follows the government's decision to implement mandatory climate disclosures across the UK economy by 2025. This builds on the existing requirements for private pension schemes which we discussed in a previous blog. As a reminder, private pension schemes with assets in excess of £5 billion are already in scope of the Department for Work and Pensions climate reporting requirements, which came into force in October 2021, while those with assets of at least £1 billion were brought within the ambit of the regime in October 2022. It is the government's view that the requirements for the LGPS should align with those already in place for private pension schemes, on the basis that the LGPS has 6.2 million members and £342 billion worth of assets, making it one of the largest pension schemes in the UK. While their primary investment purpose is meeting long-term pension liabilities, the government has indicated in the consultation document that the scale and market power of the LGPS "give it an opportunity to drive change through the investment chain through asset managers to investee companies".

Administering authorities already have a duty 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 are required to have a policy stating how such considerations will be taken into account when setting their investment strategy. However, the aim of the proposals in this consultation is to build on this further by ensuring that the financial risks and opportunities arising specifically from climate change are properly understood and managed effectively by administering authorities, and that they report transparently on their approach.

Next steps

The consultation - which is scheduled to close on 24 November - comes at a time when funds' administrative resources are already stretched as a result of McCloud remedy implementation and pension dashboards preparation. However, administering authorities have time to plan for the introduction of the new regime and should be able to learn from the approach adopted by the private sector schemes already acting in compliance with TCFD requirements.

If you would like to discuss anything raised in this blog, please get in touch with a member of the pensions team, or your usual Brodies contact.


Jennifer Crawford

Senior Associate

Angela Walker

Trainee Solicitor