Issue - meetings
Report update & Pensions Committee discussion on- Fund recommendations and update on ESG, Fossil Fuels and Low Carbon Approach
Meeting: 24/09/2019 - Pensions Committee (Item 6)
6 Increased Allocation to Low Carbon Equities
Additional documents:
Minutes:
The Committee received and noted a report on the increased allocation to low carbon equities. The main points of the discussion on the report may be summarised as follows:
The Committee:
· Noted it is important to understand the approach taken to date as well which is a decarbonisation investment strategy in comparison to a disinvestment strategy;
· Noted that a decarbonisation approach allocates to companies that are lower carbon emitting, whereas disinvestment is completely excluding certain ‘carbon heavy’ sectors from the investable universe (e.g. energy and mining stocks). The approach of the Legal & General Investment Management (LGIM) Global Low Carbon Equity fund is a decarbonisation strategy; it does not seek to fully divest from fossil fuel companies. The decarbonisation approach is more effective at reducing exposure to carbon intensity as it covers the full range of stocks and sectors.
· Was advised that at the November 2018 meeting officers had presented the results of a carbon footprint analysis of the Fund’s listed equity assets. The results had highlighted that the Fund’s equity assets were in aggregate approximately 38% less carbon intensive than the Fund benchmark. Although a further deduction in the Fund’s carbon exposure could be achieved given the interest in reducing the Fund’s carbon exposure;
· Was informed that Members had in 2017 decided to make an allocation to passive Global Low Carbon Equity. An initial allocation of 15% of Fund assets was made. Whilst recently, the Committee had decided to increase the Fund’s strategic asset allocation to passive Global low Carbon equities further from 15% to 20%. This it has been estimated would reduce the Fund’s equity carbon foot print by around 10% relative to the current position;
· Noted that there is increasing pressure being placed on Pension Funds by stakeholders to ensure that Environmental, Social and Corporate Governance (ESG) factors are considered when making investment decisions. This pressure is coming from (i) lobby groups, (ii) other stakeholders, (iii) the Bank of England and (iv) the Pensions Regulator who have warned that savers face long term financial risks because trustees are failing to take climate change, responsible business practices and corporate governance into account when making investments;
· Note that a number of lobby groups have been pressuring Local Government Pension Scheme (LGPS) funds including Tower Hamlets to divest or have a plan to divest from fossil fuels on the basis that coal, oil and gas consumption are contributing heavily to climate change and global warming to which some scientists have attributed responsibility for the increase in the incidence of natural disasters such as storms, floods heatwaves in recent times;
· Noted that the Tower Hamlets approach is to reduce the carbon intensity of the Fund over time as an exclusionary approach removes the potential to positively influence companies and the Fund Investment consultant prefers such a decarbonisation approach;
· Noted that the benefits of the decarbonisation approach include (a) the portfolio will be less susceptible to increasing carbon pricing, stranded assets and/or related regulation; (b) supporting the flow of capital to a ... view the full minutes text for item 6
Meeting: 16/03/2017 - Pensions Committee (Item 6)
Minutes:
Bola Tobun (Investment & Treasury Manager) presented the update. The purpose of the report was to give an update on meetings held in December 2016 and February 2017 to facilitate discussion on the formulation of a cost effective Fund Ethical, Social and Governance Policy. The Committee were reminded that at the meeting of the Committee in December 2016, the Committee were invited to consider the following recommendations:
A. To Commit to the UK Stewardship Code.
B. Develop a policy statement regarding the London Borough of Tower Hamlets’ approach to fossil fuel investment with a view to inclusion as a section within the new Investment Strategy Statement (ISS), which is the new name for the current Statement of Investment Principles.
C. To review options for switching some of the UK passive mandate into a low carbon target index fund.
D. To Consider options for an initial active investment of approximately 5% of the Fund in a sustainability/low carbon or clean energy fund(s). Given the right risk/return profile, investment in such a fund would demonstrate the Fund’s commitment to invest in clean and sustainable companies.
E. To Monitor carbon risk within the London Borough of Tower Hamlets Pension Fund and to appoint a specialist contractor to conduct a carbon footprint review of the Fund at an estimated cost of between of £5k to £20k.
F. To continue engagement activities with the Fund’s investment managers on their approach to fossil fuel and to promote consideration of climate change issues with managers when making investment decisions.
G To maintain an active approach to climate change issues with investee companies and look for further opportunities to work with others on issues of ESG importance.
The meeting received a presentation from Divest Tower Hamlets about the merits of divesting from Fossil Fuels. They also heard from Paul Spedding of Carbon Tracker Indicative about the valuation implications of climate change and Clifford Sims of Squire Patton Boggs on fiduciary duty.
At its meeting on the 14 February 2017 the Committee heard from RBC – Nuts and Bolts of Sustainable Equity and Low Carbon Global Equities and FTSE Future World ex CW Climate Balance Factor Index.
Ms Tobun provided an update on the above recommendations. In relation to the first recommendation, Officers had drafted a code for inclusion as part of the new Investment Strategy following the receipts of documents. In relation to the third recommendation, further consideration would need to be given to this following the appointment of the investment consultant to make an informed decision. In relation to recommendation E, it was noted that information on the true costs had now been received. This should help inform the pending review. Recommendations F and G and would be completed in accordance with the relevant requirements.
In response to questions, Members recalled that at the last meeting they requested that a scoping exercise be carried out and for the options to be looked at. No decision had been taken at that meeting.
Overall, Members welcomed the update and specifically ... view the full minutes text for item 6