The Director of Pensions, Peter Wallach, presented a report that provided Board members with information on the Fund’s current arrangements in relation to Taskforce on Climate-related Financial Disclosure (TCFD) requirements. The appendix to the report provided an extract from the Fund’s annual report in relation to TCFD reporting.  It was anticipated that mandatory reporting requirements would be more stringent.

The report informed that the Fund had been actively developing its approach to the management of climate risk and a number of actions had been taken and implemented over the past five years. 

Members were informed that one of the provisions in the recently enacted UK Pensions Schemes Act 2021 was the requirement for trustees to ensure there was effective governance of schemes with respect to the effects of climate change, and to publish information relating to the effects of climate change on the scheme.  This provided the legal framework for requiring trustees to make disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). This applied only to pension funds in the private sector.  It was expected that MHCLG would consult on TCFD for the LGPS in the summer of 2021 with reporting required in annual reports from March 2023.

Addressing the systemic challenges of climate risk had been at the forefront of the Fund’s responsible investment work.  The Financial Stability Board’s (FSB) Taskforce on Climate-related Financial Disclosure (TCFD) provided a global framework to translate non-financial information into financial metrics.  The Fund had included a TCFD statement in its previous two annual reports.

The Director highlighted that the TCFD had structured its recommendations around four pillars: Governance, Strategy, Risk Management and Metrics and targets. Members were informed that some of the priority actions suggested for asset owners in the near term included:

Governance: review governance arrangements to ensure there was effective board level oversight and internal management processes were in place to effectively manage the climate-related risks and opportunities.

Strategy: begin the process of analysing portfolio resilience to climate-related scenarios, including 2 degree of less outcome.

Risk management: assess the potential financial materiality of climate-related risks on the investment portfolio and evaluate the actions that needed to be taken to mitigate these risks, as well as capturing new opportunities.

Metrics: measure GHG emissions where data was available or could be reasonably estimated, for each fund or investment strategy.

Engagement: engage with companies and external fund managers, to encourage greater transparency and alignment with the TCFD recommendations.

Disclose: publicly disclose all of the above actions and outcomes in annual reports and the climate risk in PRI’s reporting framework.

The Chair of the Pensions Board commended the Fund and the Pension Committee for taking this issue forward and it was;

Resolved – That the report be noted.