Referral to the Pensions Regulator: Local Government Pension Scheme and Climate Risk

The document argues that many LGPS funds are failing their fiduciary duties by ignoring climate risk or incorrectly delegating its management. It identifies five misconceptions: that climate change is not a financial risk, that delegation to managers is sufficient, that delegation to the LAPFF is sufficient, that pooling removes the need for fund-level consideration, and that taxpayers bear all the risk. The authors request that TPR investigate these issues, issue guidance, and engage with Defra for an Adaptation Report.

• Climate risk is categorized into physical risks, transition risks, and systemic risk. Physical risks involve "increasing temperatures, rising sea levels and an escalation in the frequency and severity of extreme weather events", while transition risks stem from "technological, policy and regulatory developments associated with the transition to a low-carbon economy". Systemic risk is described as financial impacts "felt across all asset classes and industrial sectors".
• The authors identify five fundamental misconceptions among LGPS administering authorities: 1) climate change is not a financial risk or is only an ethical issue; 2) delegating day-to-day decisions to external managers discharges legal duties; 3) delegating stewardship to the Local Authority Pension Fund Forum (LAPFF) is sufficient; 4) climate risk will be handled exclusively at the pool level; and 5) losses are borne by the taxpayer rather than scheme members.
• Administering authorities have a legal duty to act in the best interests of scheme members, which requires them to "turn their minds to the question of whether climate change poses a material financial risk to the fund's investments". If they conclude it is financially material, they are "required to take those risks into account when making that investment decision".
• Delegating to external investment managers is insufficient because climate risk must be managed at the portfolio level, and managers only see "part of the overall portfolio picture". Administering authorities retain responsibility for "setting the investment strategy, strategic asset allocation and managing overall portfolio risk".
• While the LAPFF provides valuable stewardship and engagement, this does not discharge an authority's other legal duties. Stewardship is only one part of the process; authorities must still consider climate risk when "setting the investment strategy/policy/principles, strategic asset allocation, managing portfolio risk, and selecting and mandating investment managers".
• The transition of LGPS funds into eight pools does not remove the responsibility of administering authorities to manage climate risk. Authorities retain responsibility for "Investment strategies, strategic asset allocation and a fund's responsible investment policy".
• The claim that taxpayers bear all the risk is rejected. Legal opinion suggests that if a fund performs poorly, "employer contributions rise" and legislative measures may be taken to "curtail benefits or raise employee contributions" before the fund is exhausted.
• Several LGPS funds are cited as demonstrating good practice in managing climate risk, including the Avon Pension Fund, Environment Agency Pension Fund, Merseyside Pension Fund, South Yorkshire Pension Fund, Strathclyde Pension Fund, and Teesside Pension Fund.

APA

ClientEarth (2017). Referral to the Pensions Regulator: Local Government Pension Scheme and Climate Risk. https://www.clientearth.org/media/zrsdsu1d/clientearth-referral-to-the-pensions-regulator-lgps-funds-coll-en.pdf

Chicago

ClientEarth. Referral to the Pensions Regulator: Local Government Pension Scheme and Climate Risk. 2017. https://www.clientearth.org/media/zrsdsu1d/clientearth-referral-to-the-pensions-regulator-lgps-funds-coll-en.pdf.

Wikipedia

{{cite press release |author=ClientEarth |title=Referral to the Pensions Regulator: Local Government Pension Scheme and Climate Risk |date=10 February 2017 |url=https://www.clientearth.org/media/zrsdsu1d/clientearth-referral-to-the-pensions-regulator-lgps-funds-coll-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{clientearth2017referral, author = {{ClientEarth}}, title = {{Referral to the Pensions Regulator: Local Government Pension Scheme and Climate Risk}}, publisher = {ClientEarth}, year = {2017}, month = feb, url = {https://www.clientearth.org/media/zrsdsu1d/clientearth-referral-to-the-pensions-regulator-lgps-funds-coll-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }