The government should ensure that any climate-related transition reporting requirements are made clear, concise and relevant for pension schemes, and that they encourage actions that are expected to translate into real-world reductions in climate risk, LCP has said.

In its response to the government consultation, LCP said that it welcomed the plans to introduce transition planning, suggesting that this has the potential to accelerate decarbonisation across the UK economy and better enable capital allocation that supports a net zero and climate-resilient economy.

LCP said that this will help especially pension schemes meet their long-term investment objectives by helping to protect financial markets from potential instability or significant loss of value due to the physical impacts of climate change.

However, the firm pointed out that pension schemes are heavily reliant on investment managers to be able to develop and implement their own climate transition plans.

Given this, it stressed the need for any transition plan requirements to cover UK-regulated investment managers, ensuring they produce transition plans that will help pension schemes understand whether and how the managers plan to align the assets they manage with the Paris Agreement goals.

Given that investment managers will also be reliant on company transition plans to support their investment decisions and engagement, LCP suggested that the government should also encourage global adoption of consistent requirements, given that pension schemes’ assets are invested globally.

If transition plan requirements are introduced for pension schemes, LCP argued that these should be targeted at schemes with the greatest exposure to climate risk and capacity to influence the transition, such as defined contribution (DC) master trusts, defined benefit (DB) consolidators, local government pension schemes, and larger own-trust schemes.

LCP also called on the government to make sure that any new requirements remain proportionate when combined with existing climate reporting, without increasing the overall reporting burden.

It also stressed the need to learn from the existing climate reporting requirements for pension schemes, taking more of a focus on the aspects more likely to be effective at delivering better outcomes for members.

The UK Sustainable Investment and Finance Association (UKSIF) agreed, stressing the need for the delivery of "workable and proportionate" climate transition plans across the wider economy in its response to the consultation.

In particular, UKSIF recommended taking a ‘pathway approach’ towards mandatory disclosure for in-scope companies in the UK, with an initial ‘comply or explain’ period applying at first, ahead of mandatory rules.

In addition to this, LCP highlighted the need for transition plans to be outward-looking, focusing not only on how an organisation can protect itself from climate risks but also how it’s contributing to the broader economy-wide transition and how well its actions align with a net zero pathway.

It also recommended principle-based requirements for pension schemes, supplemented by guidance developed by industry groups, to encourage meaningful action rather than box-ticking.

LCP responsible investment partner, Claire Jones, said: “We support the government mandating the publication of credible transition plans by significant UK entities, given the critical importance to investors of decarbonising the economy and managing systemic climate-related risks.

"At the moment, there isn’t enough being done to plan for the future when it comes to climate risk and these plans would be a step in the right direction.

"However, if implementation of transition plans is mandated, the focus should be on whether the entity is undertaking the actions set out in its plan rather than whether the entity is achieving its targets, since the outcomes of some targets will depend on factors outside the entity’s control.”

Adding to this, UKSIF head of policy and regulatory affairs, Oscar Warwick Thompson, said: “Our response to the government’s consultation sets out how well-implemented and high-quality transition plans can help underpin long-term sustainable growth across the UK.

“These strategic roadmaps can equip many companies with the insights they need to make key decisions about their future resilience and competitiveness as the world transitions.

“Transition plans, implemented on a mandatory basis over time, starting with larger companies, can also help cement the government’s ambition of making the UK a global sustainable finance leader.”

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