‘The client is king’ investors send warning message on stewardship alignment
Asset owners are on track to increasingly challenge their managers on stewardship alignment, UK investors warn
UK investors have sent a warning message to their external managers, reaffirming their continued interest in strong commitments to tackle climate change, as discussions at the Local Authority Pension Fund Forum (LAPFF) mid-year conference revealed. LAPFF is an umbrella body coordinating stewardship efforts across seven LGPS Pools, which collectively manage more than £300bn in assets.
The event, held just a stone’s throw from the House of Commons in Westminster under Chatham House rules, brought together investors from the UK’s Local Government Pension Scheme (LGPS) with other asset owners and managers from across the globe.
Underlying the discussions was a sharp awareness that LGPS investors remain highly exposed to events unfolding across US markets, with about half of the average LGPS portfolio invested in equities.
“I am very heartened by asset owners increasingly making statements on stewardship alignment. We need to see the money flowing. Asset managers may see a lot of these statements as greenwashing — they need to feel the pain from stepping back from rigorous stewardship,” said one speaker. Another added that a decision by UK master trust The People’s Pension to divest £28bn from US manager State Street had “sent ripples across the market”, with other managers now wondering if they could face similar divestments.
This follows a report by US manager JP Morgan Asset Management, which identified a significant opportunity for asset managers who stand firm on climate to tap into growing demand from European asset owners in particular. Having mapped views among the 100 largest asset owners, JP Morgan concluded that two-thirds continued to publicly acknowledge the importance of climate change.
And the trend is not limited to Europe. Among the asset owners flagging stewardship alignment is the New York City Comptroller, who has asked all third-party managers for listed market funds to enhance disclosure on climate stewardship.
However, LGPS investors at the event were also acutely aware that they could soon face challenges much closer to home, with the UK having seen a landslide by the Reform UK party in the May 2025 local elections.
Leading Reform UK politicians have described climate change as a “hoax” and the party aims to cut costs by “scrapping” net zero targets and renewable energy subsidies.
“Get ready for the debate that is going to happen around net zero in the LGPS,” one speaker warned. While it was no news that the LGPS was being turned into a political football, the new challenge would be the pressures coming from within, with newly elected Reform UK members now sitting on pension fund boards, the speaker added.
One way to navigate these pushbacks would be to increasingly make the financial case for investing in the energy transition, many speakers argued.
This should come with a system-wide approach to tackling climate change, one speaker added: “We need to shift away from notions of beating the benchmark towards systemic stewardship. The focus on alpha has been quite harmful, it has taken attention away from tackling climate change at a systemic level. In the absence of leadership from governments, LAPFF and other asset owners have a huge opportunity,” they concluded.
JP Morgan AM identifies $11.7trn opportunity
The People's Pension moves £28bn out of State Street citing stewardship misalignment
