Investors deliver admonition on corporate governance harmony: 'The client comes first'
In the heart of Westminster, a gathering of investors from the UK's Local Government Pension Scheme (LGPS) and asset owners and managers from around the globe discussed the pressing issue of climate change stewardship. The event, held near the House of Commons, was a platform for sharing insights and strategies in navigating the complex landscape of ESG integration.
Amidst the discussions, a speaker expressed concern about asset managers not fully committing to climate change stewardship. This concern was echoed by the intensified regulatory and political pressures that have emerged in 2024-2025. The UK Pensions Regulator has emphasized climate change as a "major systemic financial risk" threatening pension sustainability, and pension schemes now face fines for non-compliance with ESG rules.
In response, pension trustees are increasingly embedding climate and nature-related risks into their fiduciary management and investment strategies. They are required to incorporate these risks and opportunities in decision-making, guided by frameworks like the Taskforce on Climate-Related Financial Disclosures (TCFD). Attention is also shifting towards nature-related risks such as biodiversity loss, with UK schemes encouraged to adopt disclosures aligned with the Taskforce on Nature-related Financial Disclosures (TNFD).
Despite most UK pension funds having net zero commitments (65%), challenges persist due to complexity in integrating climate and nature targets and inconsistent data and policy support. Industry bodies like PLSA are providing guidance to help navigate these challenges and implement practical stewardship actions.
Pension funds like USS are actively engaging with governments and regulators to advocate for policy frameworks that support real-world decarbonization and sustainability. This proactive approach recognizes that portfolio emissions reductions alone are insufficient without supportive domestic political and regulatory environments.
The Reform UK party, which had a landslide in the May 2025 local elections, could pose challenges for LGPS investors in the UK. The party aims to cut costs by scrapping net zero targets and renewable energy subsidies, which may conflict with the climate stewardship efforts of pension funds. A speaker warned about the upcoming debate on net zero in the LGPS, and the potential pressures coming from within with Reform UK members on pension fund boards.
Despite these challenges, JP Morgan Asset Management identified a significant opportunity for asset managers who stand firm on climate change to tap into growing demand from European asset owners. Navigating these pushbacks could involve increasingly making the financial case for investing in the energy transition.
One speaker warned against the harmful effects of an alpha focus, which has taken attention away from tackling climate change at a systemic level. A system-wide approach, shifting away from notions of beating the benchmark towards systemic stewardship, was suggested as a more effective strategy.
The Reform UK party's stance on climate change, with some politicians describing it as a "hoax", adds another layer of complexity to the climate stewardship landscape. In the absence of government leadership, LAPFF and other asset owners have a huge opportunity, as concluded by one speaker.
The event highlighted the ongoing efforts of UK pension funds to deepen their commitment to climate stewardship, amidst the pressures from domestic political parties and the need for systemic change. The event brought together investors from the UK's Local Government Pension Scheme (LGPS) and other asset owners and managers from around the world, underscoring the global nature of the climate change challenge and the need for collective action.
[1] UK Pensions Regulator, Climate change: Tackling the risks, seizing the opportunities, 2024. [2] HM Treasury, Green finance strategy: Building a greener financial system, 2023. [3] Pension and Lifetime Savings Association, Climate change: A guide for trustees, 2024. [4] USS, Climate change: Our approach, 2024.
- The Reform UK party's stance on climate change creates challenges for LGPS investors in the UK, particularly as some of its politicians view climate change as a "hoax."
- Asset managers who stand firm on climate change could tap into growing demand from European asset owners, according to JP Morgan Asset Management.
- A system-wide approach, shifting away from notions of beating the benchmark towards systemic stewardship, was suggested as a more effective strategy in addressing climate change at a systemic level, as warned against the harmful effects of an alpha focus.
