LGPS and the TCFD recommendations: are you ready?
In 2021 the UK said that pension schemes would report against international climate risk standards.
The measures announced will require schemes to assess and report on the financial risks of climate change within their portfolios. This commitment from the UK government sent a clear message to UK pension trustees that this is an area that needs to be taken seriously.
These requirements will be in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations — a framework for reporting how climate-related risks and opportunities are measured, monitored and managed by companies, asset managers and asset owners. The framework aims to:
- improve climate related data quality.
- increase focus on climate change.
- enable more informed decisions.
- provide a consistent framework for comparison.
LGPS funds should prepare now to adopt TCFD recommendations
It is widely believed that in the near future similar regulatory requirements will be implemented within the Local Government Pension Scheme (LGPS).
Mercer fully supports early adoption of the framework and believes that now is the time for LGPS funds to start planning for TCFD reporting. We have therefore prepared the following checklist against each of the TCFD recommendations to help support you.
This checklist is designed to give you a high-level understanding of what you will need to do to meet TCFD reporting requirements. It highlights key areas to focus on in what is likely to be a long and complex journey.
TCFD reporting checklist
| Check | |
|---|---|
| Our Investment Strategy Statement includes our beliefs and approach to climate change. | |
| Our committee meets regularly to consider climate change-related issues. | |
| Our fund has sufficient climate change monitoring arrangements in place. | |
| We have assigned climate change-related responsibility to officers and committees. | |
| We have considered and agreed upon the level of knowledge and frequency of training required. |
| Check | |
|---|---|
| Our fund has formed a view on short, medium, and long-term climate change-related issues that could have a material financial impact on our fund. |
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| Our fund has distinguished whether the climate-related risks are transition or physical risks. |
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| We have identified whether climate change-related risks and opportunities have impacted our investment strategy. For example, where the fund has made commitments to sustainable investments. |
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| Our fund has undertaken climate change scenario analysis (including 2⁰C, 3⁰C and 4⁰C scenarios) to understand climate change impacts at the total fund and asset class level. |
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| Check | |
|---|---|
Our fund has processes for identifying and managing climate change-related risks.For example:
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Climate change is integrated into our organisation’s overall risk management framework. For example:
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| Check | |
|---|---|
| Our fund employs metrics used to assess climate-related risks and opportunities in each fund or investment strategy. For example, carbon footprint metrics. |
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| Our fund has set targets. For example, emissions reduction targets and sustainable allocation targets. |
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LGPS funds should start planning now for reporting on TCFD recommendations — and we are already working with a number of LGPS clients. Our checklist highlights key areas to focus on in what is likely to be a long and complex journey.
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