Agenda item

(a)          The Committee expressed views on the Fund’s RI beliefs, to help develop the Fund’s policies; and

(b)          The Committee agreed the Wales Pension Partnership RI Policy.

Mr Buckland stated that the Fund had decided to review the current approaches in place relating to responsible investing to ensure they had the appropriate focus given recent developments. A survey was sent out to gather views from Committee members.

            Mr Buckland emphasised that the fiduciary duty is to get the best possible return for investment, however he noted that there are considerations regarding ESG risks (Environmental, Social and Governance) that the Fund can and does take account of. There are already policies in place within the ISS (Investment Strategy Statement) such as responsible investment and sustainability policy. Mr Buckland explained the Fund is therefore starting from a well formed policy and is looking to enhance and develop it into something more effective.

He explained that the potential responsible investment approaches are:

-           Integration – ESG factors are integrated – broader perspective and risk/opportunity

-           Stewardship – exercising active ownership (voting rights and engagement)

-           Investment – the aim is for long term growth within areas of positive responsible impact

-           Negative Screening – avoiding investment with a negative responsible impact i.e. tobacco/coal

            Mr Everett argued that blunt screening may well not be necessary if you applied integration well. He believed it would be good to see the process of thinking and challenge. Mr Buckland agreed.

            Mrs Fielder stated that the Fund already has a number of investments in renewable energy and she is looking to integrate this more across the WPP. Mr Everett said that they should welcome WPP's commitment to drive progress in this area and in particular would assurance that the Fund's policy requirements could be delivered by WPP. Mr Latham responded that Russell and Link are at the next Committee therefore the Committee can ask them questions and get more clarity.

            Mr Buckland explained that he attended the Scheme Advisory Board Investment, Engagement and Governance Sub-Committee meeting the previous week where responsible investment was on the agenda. The intention was that there will be Responsible Investment guidance issued to LGPS Funds. The DWP have issued regulations on 1 October outlining that corporate schemes need to have a responsible investment policy. It is also a requirement to have a policy on climate change however the current LGPS do not require this.

            There was a debate around individual fund policies coming together as part of the WPP pool. It was highlighted that is up to each individual administering authority to set its own Fund policy and the pool should be there to implement those policies. However, this can be difficult with eight different administering authorities around the table.

            Mr Buckland confirmed that the results of the RI survey that was undertaken showed four Committee member responses. In respect of the ESG issues, 75% of the results reflected that the Committee had a fairly well developed understanding on investment risk/opportunity and the other 25% felt that they are not that developed in this area.

            Cllr Hughes asked whether the key focus is to look at climate change and at investments in the aerospace industry and so potential damage to climate change. Mr Buckland confirmed that there is a methodology of looking at any impact e.g. Global Index 2000 stocks NISI who do a lot of work around each individual stock against ESG factors, one of those being climate change and carbon emissions.

            Mr Latham wondered what the reaction of the Committee would be if the Fund could reduce the carbon footprint with a low tracking error. Mr Latham also queried how much the Committee believed in screening. Mr Hibbert said that the issue with screening is where do you stop e.g. do you not invest in retailers because they sell tobacco?  Cllr Rutherford noted his agreement with Mr Hibbert that there should be an element of screening from the start. He also asked for the Fund's investment reporting to be enhanced to include more information on ESG factors.

            Mr Hibbert expressed concern around passive investing given the investment manager achieves a market return without actively screening stocks. Mrs Fielder stated that she has now seen passive managers develop over time; if people wish to exclude something, some managers are now adapting their approach. Mr Buckland added that it depends on what index they are looking to track.

            Mr Buckland concluded by commenting that he felt a lot of good views were discussed and that he will look to embed all of the views into the revised policies.

            The Chair said that it would helpful to understand the theory in practice. Mr Buckland confirmed that he would look to address this as part of the forthcoming training session in October.

            Cllr Rutherford requested more detailed training on responsible investments aside from the usual agenda items so there can be in-depth discussions. Mr Harkin confirmed that this would be covered at the training day.

   Cllr Rutherford wondered whether there had been any research on this topic i.e. gathering information regarding how the members in each Council feel. Mrs Fielder confirmed that she receives frequent queries from members asking for various information e.g. a member questioned how much the Fund invests in fossil fuels/arms etc.

The Committee considered the draft Wales Pension Partnership RI Policy and no further changes were requested in relation to it.

RESOLVED:

(a)          The Committee expressed views on the Fund’s RI beliefs, to help develop the Fund’s policies; and

(b)          The Committee agreed the Wales Pension Partnership RI Policy.