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The Local Government Pension Scheme should be under the Department for Work and Pensions, the pensions minister has said, asking for MPs’ views on this. Elsewhere, he said the City of London should become a global ESG investment hub, building on its ‘first mover’ advantage over places like New York and Frankfurt.
As part of the Work and Pensions Committee’s inquiry into stewardship and COP26, pensions minister Guy Opperman explained the role that the move to a net zero economy by 2050 and the UK’s hosting of the UN Climate Conference this year play in the government’s decision-making.
“I cannot overstate – this is missed by colleagues who aren’t ministers I’m afraid – the degree to which the COP and net zero commitment permeate every part of government. It is just overwhelming the way in which that is now the dominant force. You may not be feeling it as yet, but every department and minister is,” he said speaking at the committee’s evidence session on Wednesday.
One of the first parts of the implementation plan to get there was to legislate for pension funds to have to assess and manage climate risk and disclose this in line with the Task Force on Climate-related Financial Disclosures, a global framework that can be applied to different sectors, making the UK the first and so far only country in the world to do so.
LGPS behind trusts on TCFD implementation
Whilst TCFD requirements are coming into effect for large trust-based schemes this October and the Financial Conduct Authority is consulting on doing so for providers of contract-based schemes, the LGPS is yet to have a consultation on the matter, expected later this year; Opperman said the LGPS is a year or so behind trust-based schemes on TCFD.
He called the fact the LGPS is not under his department but the Ministry of Housing, Communities and Local Government “a slight anomaly”, saying: “I personally think that’s wrong. It would be my view that it would be better to have all such schemes under one house... and that the LGPS would be run by DWP.”
He added: “Were the committee to make a recommendation on that, I'd be interested to know about it.”
While he is keen to see TCFD implemented and climate taken into account, he said he did not support views that climate change should be part of trustees’ fiduciary duty. “Instead of forcing trustees to do X, Y or Z, we require them to consider these matters and then report back as to how that has been considered,” he said, adding that climate risk “is a risk to every single asset”.
‘Have your portfolio in the City of London’
In the quest to limit global warming - which some would say could also be achieved by regulating investee companies rather than via the longer route of regulating investors and managers - the UK is also pursuing other goals, Opperman hinted, namely that of maintaining the status of the City of London as a global investment centre after Brexit.
“It’s a massive advantage being first in the market,” he said. Admitting the new rules can be burdensome for investors and managers, he said that “the advantage for the UK over the next couple of years is absolutely clear, and others have already noticed it: if you want to invest in an ESG-friendly way, have your portfolio in the City of London. Whatever your view of Brexit, of the City of London, we want this metropolis to be the heart of ESG investing. They don’t have to invest in it through New York or Frankfurt or overseas, they can do so through London.”
UK managers and investors already have a head start partly because in the US, under four years of Donald Trump’s presidency, managers and investors have not prioritised climate change investing, he noted. Opperman also said he was “definitely satisfied” that the UK was ahead of the EU on ESG and TCFD implementation, while in terms of a green taxonomy, “they are doing other stuff”.
At this November's UN climate conference, “I see my role... as selling the expertise of the City of London, the asset managers, the pension scheme trustees," he said.