Governance and Stewardship

Scheme Governance

At the national level the governance regime for LGPS administering authorities in England and Wales is set by the Department for Levelling Up, Housing and Communities (DLUHC).

The role of the Scheme Advisory Board is to help and support DLUHC and administering authorities fulfil their statutory duties and obligations. The Board’s secretariat, hosted within the Local Government Association, assists the Board to discharge its functions.

The Board has also established a Compliance and Reporting Committee which has the functions of:

• Providing support and guidance to administering authorities in delivering compliance and reporting
• Engaging with regulators to clarify compliance requirements and encourage the integration and appropriate simplification of those requirements
• Seeking to promote the development of clear, appropriate, meaningful and transparent reporting to stakeholders.

The Committee also reports into CIPFA’s Public Finance Management Board (PFMB) to ensure that its work on governance is integrated into CIPFA’s policy and technical work.

The Committee has a plan of work that sets out how it intends to review and improve governance and administration standards across the scheme.

The LGPS also has to take account of guidance issued by the Pensions Regulator, in so far as it relates to their jurisdiction on governance, and of Pensions Ombudsman determinations.

The investment and management of LGPS assets, the collection of employer and employee contributions and payment of pension benefits is the responsibility of individual LGPS administering authorities. There are 86 LGPS administering authorities in England and Wales.

Regulation 55 of the LGPS Regulations 2013 requires all administering authorities to publish a governance compliance statement and explain any non-compliance. Each administering authority is subject to an annual external audit and must publish an audited financial statement and annual report by statutory deadlines.

As at the time this Scheme Annual Report is drafted, only 21 Administering Authorities had completed the audit of their 2022/23 accounts.

Asset management and stewardship

Stewardship and responsible investment

Collectively the £354bn (as at 31 March 2023) in net assets owned by LGPS funds are one of the largest 10 global sources of capital and can positively influence stewardship behaviour in the global asset management community and, by extension, the entities and places they invest in.

All LGPS administering authorities must publish an Investment Strategy Statement which sets out:

1. How they meet the requirement to invest money in a wide variety of investments
2. The authority’s assessment of the suitability of particular investments and types of investments
3. The authority’s approach to risk, including the ways in which risks are to be measured and managed
4. The authority’s approach to pooling investments, including the use of collective investment vehicles and shared services
5. The authority’s policy on how social, environmental or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments and
6. The authority’s policy on the exercise of rights (including voting rights) attaching to investments.

Many funds have also become signatories to the UK Stewardship Code 2020 or the global United Nations Principles of Responsible Investment (UNPRI) which set out key principles of effective stewardship for asset owners to help them better exercise and understand their stewardship responsibilities.

Compliance with these UK and global sets of principles is not mandatory for LGPS funds, but they have the support of the UK Government and Local Authority Pension Fund Forum (LAPFF).

Quoting from the Financial Reporting Council’s 2020 Stewardship Code, stewardship is “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society”. The update to the Code from 2020 set high stewardship standards for asset owners like the LGPS, with the Code comprising a set of ‘apply and explain’ principles for prospective signatories to meet in order to gain signatory status. That status needs to be renewed on an annual basis and obtaining signatory status takes considerable commitment and effort from LGPS funds and pools, so it is pleasing to see the number of funds and pools applying for and obtaining signatory status continues to grow. A number of funds and pools have also successfully applied to renew their status.

In total, 14 LGPS funds and three pools in England and Wales were newly awarded 2020 Code signatory status in the year from 1 April 2022 to 31 March 2023. Seven funds and five pool companies were signatories to the UNPRI. Lists of current signatories are below.

Signatories to UK Stewardship Code 2020

Source:  https://www.frc.org.uk/investors/uk-stewardship-code/uk-stewardship-code-signatories

Signatories to UNPRI (most recent first)

Source: https://www.unpri.org/directory/