Russia/Ukraine War

Ms Miriam Adams, Interim Head of Pensions and Treasury stated that an email had been sent to members of the Committee outlining the status of investments in Russia and Ukraine. She said they had no direct investments exposed through LGIM. The London CIV had also confirmed they had written down values to zero. She said both managers were now working on any estimating indirect impact.

The Committee then heard from Mr Colin Robertson, the independent adviser to the committee. Mr Robertson said the direct investments in Russian companies had been reduced but in any case were financially not important. There was a lot of talk about divestment but this was rather academic as the stocks could not actually be sold. He said the indirect investments, such as European banks holding stakes in Russian banks were important owing to their earnings and to investors’ attitudes to the principles and morals of the companies concerned. However the biggest impact was on the global economy and inflation. He said this would have a knock-on effect on commodity prices and growth. Otherwise, the focus should be on multi-national companies and their holdings and sales in Russia/Ukraine.

Mr Turner agreed with Mr Robertson and said the big risks were the macro risks that were not Russia specific. He said the risk of escalation was something to bear in mind. Mr Turner said the Committee had reviewed its risks as part of the investment strategy review and therefore it would be good to remind the new committee of the risks the Fund is exposed to.

He said progress to net zero would slow in the near term, because of the rise in energy and commodity prices, however medium to long term, with less dependency on gas and Russia, the progress would recover. He said this needed to be taken into consideration. Mr Turner said it was important to stay focussed on long term strategy and not to make kneejerk reactions. Mr Turner also said the Fund had Equity Protection and therefore it was important to consider if this needed to be renewed.

In answer to comments and questions from members the following was noted:

• Councillor Blake asked if the oil and gas situation in Europe had accelerated investments in renewables? Mr Robertson said there had been no big change in the behaviour of fund managers who continued to be enthusiastic about investing in renewables.
• Mr Robertson was asked to explain the impact of the war on the German economy. He said the Germany economy was exposed as 40% of its gas came from Russia, potentially through two pipelines, one of which was now not going ahead. He said the German government had to review its energy policy, but this was not having a big impact on a macro-economic level at this time.
• Ms Miriam Adams said the situation was changing rapidly day by day. The Pensions Scheme Advisory Board had issued a statement making clear their stand on this. She said LGPS’s were advised to keep up with the list of sanctions which would continue to grow. She said the Advisory Board acknowledged that some local authorities had decided to disinvest in Russia, but it was for individual funds to decide how best to manage their investments.
• Ms Adams informed the Committee a tentative date of 6^th April had been identified as a possible date for a further meeting, should this be required by the Committee. Following discussion, it was agreed the Committee should keep a watching brief on the situation in Russia and Ukraine and only call for an extraordinary meeting should it be required.
• Mr Steve Turner from Mercer said he would advise the Committee and the Fund to update their website with a statement condemning the war and stating clearly what exposure the fund had at the end of February. He also recommended that the Fund check to see if it had any pensioners in Russia or Ukraine.

• ACTION: Ms Adams confirmed the Fund had no pensioners in Russia and Ukraine and said she’d be happy to add a statement to the Pensions website outlining the position regarding investments in Russia.

• Ms Ngozi Adedeji, legal adviser suggested that any statement for the website be approved by the Council’s Communications Team before being added to the website.

The Pensions Committee RESOLVED to:

1. Note the update provided and keep a watching brief on the changing situation in Russia and Ukraine war, with the next meeting of the Pensions Committee discussing this further, as required.
2. The Pensions website to be updated with a statement condemning the war and providing information on the investments as at the end of February 2022.

Equity Protection Strategy

Mr Steve Turner from Mercer provided an update regarding the Equity Protection Strategy. He said members may recall that of the £1.1bn in equities, £400m was protected overall. He said £200m of the protection was coming to an end as at the 31^st March 2022, with the remaining £200m ceasing in September 2022.

Regarding the protection that was ending in March, as of 3^rd March, the fund may benefit from the protection, with a small pay-out, if equity markets fell. Mr Turner said it would be useful for the Committee members to receive weekly updates from now until the end of March about this. He said the remaining £200m would run until September and suggested the Committee may wish to revisit Equity Protection in the new municipal year, given the current situation and impact of the Russia/Ukraine war.

Mr Colin Robertson advised that it would be appropriate to extend the Equity Protection until September, due to the present situation. He said a decision was required within the next two to three weeks.

Discussion ensued regarding whether a decision could be made outside the meeting, however the legal advisor, Ms Ngozi Adedeji made clear that any decision would need to be made by the Committee reconvening at a later date.

The Pensions Committee RESOLVED:

1. That it would receive a weekly update on the Equity Protection Strategy ceasing at the end of March 2022, to see if it qualified for a pay-out;
2. That Mercer should provide a report outlining the impact of the previous protection, provide an update in relation to the current protection and the costs involved in renewing the protection;
3. That it would monitor the impact of the geo-political situation, particularly Russia and Ukraine, on the global economy and would designate any decision for an additional meeting before the end of March 2022 to the Chair and Vice-Chair of the Committee.
4. Should a meeting be required regarding Equity Protection it should be held in week commencing the 21^st March 2022.

Record of Thanks

The Chair, Councillor Kyrsten Perry thanked Members and Officers for their hard work, over the last four years. She said tough decisions had to be made in relation to the work of the Committee and thanked everyone for their support and hard work. She said members had worked well together and she was thankful for this.

Councillor Rachel Blake expressed her thanks on behalf of the Pensions Committee members and officers to Councillor Kyrsten Perry and Councillor David Edgar who were stepping down as councillors at the end of the municipal year. Councillor Blake asked that the committee record the vote of thanks of members of the committee.