Agenda item

To be presented by Matthew Passey from Mercer.

All LGPS Administering Authorities were required to issue an Investment Strategy Statement (ISS). The ISS was reviewed every three years following the triennial actuarial valuation, although ad hoc revisions could be made where required. The representative from Mercer reported that the current ISS needed to be updated for revisions in asset allocations (section 3) and the Fund’s social, environmental and corporate governance policy (section 7). In Section 3 Mercer had taken the opportunity to update the overview of the role each asset class played and changes were set out in the table at page 199 of the agenda pack including private debt, infrastructure and bonds. Members noted the additional information provided on rebalancing policy. Due to their illiquid nature, rebalancing ranges were not set for individual private market asset classes (specifically private equity, private debt and infrastructure). However, the Committee regularly conducted commitment planning exercises to seek to achieve and broadly maintain the strategic allocations to each asset class.

In relation to the social, environmental and corporate governance policy, Brunel had published its Responsible Investment Policy Statement and had identified seven priority themes as part of its integrated Responsible Investment process. These themes spanned a wide range of ESG issues and were informed by Brunel’s investment beliefs, its clients’ policies and priorities, together with stakeholder views, regulatory and statutory guidance and alignment with best practice. The themes were set out below:-

·         Climate change

·         UK policy framework

·         Diversity and Inclusion

·         Human capital

·         Cost and tax transparency

·         Cyber

·         Supply chain management

The Committee was supportive of Brunel’s Responsible Investment Policy, as well as their priority themes for Responsible Investment and stewardship activities. During 2021, Brunel engaged with a number of investee companies on a wide variety of ESG-related themes, including corporate conduct, culture and ethics, human capital measurement, respect of human rights, board effectiveness and executive remuneration.

Cllr Marland referred to the Notice of Motion which was passed at his Council declaring a Climate Emergency and its commitment to becoming carbon neutral by 2030 and carbon negative by 2050. He asked the Committee to note that the Investment Strategy was against the policy set by Milton Keynes Council who contributed to one third of the pension fund.

Members noted that Brunel’s intention was to align its investments with the targets set under the Paris Agreement in relation to greenhouse gas emissions and carbon neutrality. Brunel had committed to a 50% reduction in emissions by 2030 and to net zero by 2050 which the Committee supported. It was reported that there were not enough investment opportunities in renewables yet to have a diverse enough portfolio. The Committee would continue to develop its beliefs and approach to ESG integration and climate change, and its strategy for decarbonising the Fund’s investment portfolio.  The Climate Change Policy was being reviewed by Brunel in 2022, ahead of publishing an updated policy in 2023.

One area of Brunel’s focus would be on driving real and substantial change in how investment managers invest and if they were not able to robustly explain their investment strategies and how they had integrated climate risk, Brunel would look to replace them with investment managers that did. On an annual basis, Brunel produced carbon footprint analysis to monitor the Fund’s progress in reducing carbon emissions and key carbon metrics, such as the weighted average carbon intensity of the aggregate portfolio were measured and monitored against a custom benchmark. By 31 December 2021 the Fund was c.32% less carbon intensive than the benchmark.

The Committee did not consider a top-down approach to disinvestment to be an appropriate strategy for reducing climate and carbon risk and contributing towards reducing carbon emissions. The Committee believed that decarbonising the Fund’s portfolio over time by reducing its exposure to carbon intensive companies and assets, and seeking to influence the behaviour of companies through engagement, would have a more beneficial impact.

RESOLVED

That the updated Investment Strategy Statement be approved.