LGPS funds face new responsible investment milestones

Keeping up with future responsible investment (RI) regulatory milestones will require LGPS funds to develop a deep understanding of impact and natural capital, says Hymans Robertson. With the government sharing its desire for change and ongoing regulatory updates such as TCFD and the newer TNFD framework, increased work and reporting in these areas will be needed.

The leading pensions and financial services consultancy says that data will be central to funds achieving the depth of knowledge they need to understand their environmental and social impacts and make strategic decisions. As more work is undertaken to understand the impacts of investing, they will have more data at their disposal for this reporting. As a result of the increased data and greater insights, it is likely that funds will have to adjust their existing net zero plans to ensure they can comply with any future developments from the government or regulators.

Commenting on the future responsible investment milestones that LGPS funds will need to achieve, Iain Cambell, Head of LGPS Investment, Hymans Robertson says: “The long-term nature of the LGPS has meant that maintaining a clear view of their climate risks has been a top priority of funds for several years. With the need to meet more and more regulatory requirements in this area, funds will find that data and its proper analysis will be a linchpin in achieving newer milestones as they emerge in the near future.

“Compared to other investors, because of their long-term nature, LGPS funds had to be very ambitious when setting their net zero goals. However, although net zero is not a new milestone, they will still need to keep their plans at the forefront of their minds and understand how they may need to change in the context of any new thinking, data and solutions. Funds can stay on the front foot here by using carbon footprint reports to see how their plans fit with their overall strategy.

“The introduction of the TNFD framework in 2023, compliments the existing TCFD regulation and sets out how organisations should identify, assess and disclose their nature-related issues. Funds need, and want, to have the same kind of understanding about their natural capital risks, impacts and opportunities as they do about their climate risks.

“There is also added desire, partly driven by government, for funds to understand how they can have a positive social impact locally. For many funds this will require some work, starting with developing an understanding of impact investing. Many funds still need to go through steps such as defining what local means for them, and how it can be used to help meet any goals here. Often misunderstood or viewed as a bit too tricky to implement successfully, funds will find that there is a wealth of data and information available to them that could help make this strategic approach clearer and more accessible.”