Sixty second summary
Climate considerations for actuarial valuations
04 Jun 2019 - Estimated reading time: 1 minute
- LGPS funds are under growing pressure from oversight bodies and lobbyists to explain how they are managing climate risks.
- Climate change is not just a risk for asset values, but could also affect liability values.
- The 2019 valuation is the ideal time to consider how climate risks may affect your funding and investment strategies and discuss the actions your Fund could take.
A hot topic
As institutional investors with a combined capital base of £300bn, LGPS funds face increasing pressure to explain how they are responding to climate risk. Oversight bodies are taking more interest in what funds are up to: the forthcoming guidance on responsible investment is likely to require funds to explain how they are managing climate change risk. NGOs and divestment campaigners continue to subject funds to scrutiny whilst Fund actuaries must take account of professional guidance to consider climate risk in the development of advice on long-term funding strategies.
Most LGPS funds now have ESG policies in place. This has led to improvements in the understanding of climate change and other ESG risks and greater challenge of investment managers. Few, however, have considered the broader impact that climate change could have on funding and investment strategies and the actions that it could be sensible to take to reduce risk. With 2019 valuations in England and Wales in full swing, now is the time to begin asking and trying to answer some questions.
How could climate change affect LGPS funds?
Questions of “what if” are generally addressed by modelling although the uncertainties of climate change pose some challenges. Investors must consider not just their assets, but the broader factors that will be directly affected by climate change.