The majority of Local Government Pension Scheme (LGPS) funds are acting against the law by failing to address climate risk in their investment strategies, according to two charities.
Analysis by ClientEarth and ShareAction found only 12 out of 76 LGPS funds specifically mentioned climate risk in their recently published Investment Strategy Statements (ISSs) – and only three mentioned reducing fossil fuel investment.
The finding comes after the two activist charities requested LGPS funds to share their ISSs and explain how they would incorporate climate risk in their investment strategies, as well as ensure adequate protection against the risks posed by climate change to their portfolios.
Regulations introduced last year require the UK’s LGPS funds to have published an ISS by 1 April this year detailing their approach to investment and risk.
According to accompanying guidance published by the Department for Communities and Local Government, the ISS must include: “The authority’s policy on how social, environmental or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments.”
But ClientEarth and ShareAction said its findings show LGPS funds are failing to take this into account, despite prior warning from industry, savers, and civil society over the significant impact climate change on pension fund portfolios.
The charities attributed the apathy to a number of fundamental misconceptions held by numerous administering authorities about what the law requires of them.
They said trustees and asset managers are duty-bound to act in members’ “best interests” – and by ignoring the financial risks associated with climate change they are potentially placing members’ future savings in jeopardy – and acting in a way contrary to the law.
They added there is no reasonable excuse for those making investment decisions on behalf of savers – whether in public or private sector schemes – to neglect climate change in investment strategies.
ClientEarth chief executive James Thornton said: “The physical and regulatory risks of climate change to investments are irrefutable. It is troubling that just 12 LGPS funds have addressed climate-related financial risk in their investment strategies.”
ShareAction chief executive Catherine Howarth added: “While some LGPS funds are leading on taking the financial risks associated with climate change into account in their investment processes, many are on the back foot, operating under a number of misconceptions, including legal ones.
“This is not fair on pension holders. Members’ savings should be protected across the board from the very real and emergent risks of climate change.”
