Regulators and policymakers have been urged to address the systemic financial risks stemming from climate change through five key policy changes, outlined by LCP, which have already receive backing from 35 pension schemes with assets totalling £84bn.

LCP said that climate regulations for investors should aim for real-world impact, not just disclosures, arguing that pension trustees should be able to focus on managing their scheme’s assets in ways that reduce climate risks to those assets and contribute to a more sustainable financial system.

“We would like to see reporting used as a tool to facilitate that, rather than it being the main focus of regulatory requirements,” the firm stated.

LCP also said that it should be easier for both defined benefit (DB) and defined contribution (DC) pension schemes to invest in climate solutions, including growth and illiquid assets, suggesting that regulatory changes could help overcome the existing barriers, thereby increasing the funding available from pension schemes for climate solutions.

In addition to this, LCP said that climate action needs to match the scale of the risk, warning that policymakers must “urgently” acknowledge and act on the need for ambitious, consistent measures to meet climate goals without regressing, particularly given the existing disconnect between high-level climate commitments and real-world actions.

The consultancy also encouraged the government to set “clear, credible, consistent” net-zero plans that are nature-friendly and socially just so investors can invest in the net-zero transition with confidence.

Finally, LCP said that pension trustees’ fiduciary duty should be reinterpreted to have a longer time horizon and include macro (impact) as well as micro (risk) considerations, acknowledging that trustees often feel hesitant to take greater account of climate change in their investment decisions because they are unclear on how this aligns with their fiduciary duty.

LCP head of responsible investment, Claire Jones, said: “Climate change cannot be tackled by investors or companies acting in isolation; it demands extensive collective efforts. It requires the alignment of pension schemes, policymakers, businesses, and investors in concerted action.

“Policy change is essential for tackling climate change. We are reassured by the new government’s recognition that the 'climate and nature crisis is the greatest long-term global challenge that we face' and its mission to 'make Britain a clean energy superpower'.

“It’s great that many of our pension clients are already supporting our policy asks - we are keen to take their collective voice, to work with policymakers and regulators to deliver the changes that are needed to reduce systemic climate risk to the financial system and the pension scheme members that our clients serve.”

LCP senior investment consultant, Laasya Shekaran, also argued that these five policy asks are “critical”, warning that climate change poses a “significant financial risk that demands immediate action”.

“Today’s decisions will shape our future in 2030, 2050 and beyond, affecting everyone, including pension holders,” Shekaran continued.

“To combat the devastating effects of climate change, we must align global efforts to limit warming to 1.5°C above pre-industrial levels.

"Current policies worldwide fall short of this goal, risking increased natural disasters, habitat loss, and social upheaval. Continued inaction could lead to severe financial repercussions, potentially destabilising economies and global financial systems.”

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