Jill Davys, Head of LGPS at Redington, commented: We welcome this latest consultation and are broadly supportive of the proposals to require LGPS Administering Authorities (AAs) to assess, manage and report on climate-related risks in line with the established TCFD recommendations, recognising that a number of funds are already reporting voluntarily. We think, in particular, regarding the central elements of governance, strategy and risk management, this would provide AAs with a helpful framework under which to enhance existing processes for each area, and to formally entrench those climate-related risks and opportunities into their existing strategies and considerations.
“However, in our response, we have also highlighted areas where the proposals should be clarified or reconsidered.
“For example, we have some concerns with the proposed requirements on scenario analysis. In our experience working with corporate schemes, we have seen scenario analysis provide limited insight into risk identification at a strategic level, and for many it has now become a tick-box exercise. Requiring all AAs to undertake complex analysis with a limited track record of providing insight is potentially burdensome.
“Similarly, when it comes to reporting, we have urged that the proposed requirement to produce an annual report should not be so burdensome as to prevent effective action taking place by key decision makers. The report-writing process can require significant resources and expense to complete, and while this should reduce over time, it may be more appropriate for smaller AAs to report less frequently (e.g., in line with the valuation cycle), or be able to refer to Pool company, asset manager, or adviser reports for substantive content.
“Among other recommendations, we have also suggested that the proposed statutory guidance should be flexible, principles-driven, and updated over time to reflect the rapidly evolving landscape and to draw on established good practice within other asset owner sectors. It should also not focus solely on reporting, but on the proportionate and effective actions AAs can take.
“Ultimately, we believe that all these requirements should be underpinned by the principles of simplicity, flexibility, and proportionality. Climate risk management is a complex area – good practice is still nascent; some AAs are better resourced than others to respond; and UK asset owners are among the first to have to publish regulatory climate disclosures. As more agents in the global economy face similar requirements, the regulations should adapt to new standards and make use of new and improving disclosures – all the while ensuring that reporting obligations are a help, not a hindrance, to the AA actions that will make a difference.”
Redington’s full response to the consultation by clicking here.
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