The new government’s plans to require pension schemes to produce climate transition plans will be a “subtle but potentially transformative shift” in regulatory emphasis, LCP has argued.

Labour’s pre-election manifesto committed to the introduction of mandatory transition plans, with pension schemes to be required to have a credible plan in place for reducing carbon emissions to mitigate global warming in line with the Paris Agreement.

LCP head of responsible investment, Claire Jones, said that this would shift the current emphasis of schemes’ existing climate requirements from an ‘outside-in’ to and ‘inside-out’ perspective.

While the current requirements focus on schemes identifying, assessing and managing climate-related risks, and have mostly led to reporting, the new plans would shift this focus to reducing the impact a scheme has on climate change by decreasing greenhouse gas emissions through its investment decisions and stewardship.

Jones argued that trustee focus would therefore move to reducing climate-related risks, rather than just navigating them.

She stated there would be three things to look out for when it came to the detail of the new plans and assessing how significant they would be.

The first was which schemes will be required to produce transition plans, with LCP recommending that it should be larger schemes only, with eligibility based on risk exposure.

Secondly, the Jones called for the consideration of how prescriptive the requirements will be, and recommended that the rules should be principles based, with focus on action not disclosure.

Finally, Jones said to look out for how this will fit with trustees’ fiduciary duties, and called on trustees to review the real-world actions they are taking to reduce climate risk and consider what else they can do now.

“Transition plans will potentially be a transformative shift of the regulatory emphasis when it comes to climate monitoring and reporting, encouraging trustees to consider the real-world impact of their decisions,” Jones commented.

“The devil will of course be in the detail and we wait to see what the requirements will be. Ideally, the plans will be principles-based with a focus on actions.”

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