Agenda item

(a)          The Committee agreed the changes to the Fund’s Strategic Asset Allocation.

(b)          The Committee voted to defer the approval of the Investment Strategy Statement to the June Committee meeting to allow further advice to be received on a potential amendment to the current draft Statement.

            Mr Harkin of Mercer presented the recommendations following the Investment Strategy Review, and the proposed Investment Strategy Statement (ISS), highlighting:

-       The process of the ISS review had been delayed slightly due to the impact that the previous Chancellor’s mini budget had had on the UK Government Bond market and other factors which had destabilised the UK market.

-       The impact of pooling and the Fund’s transition to employing capital through the WPP.

-       Current themes including energy crisis, geopolitical events, inflation, and the opportunity to benefit from transitions.

-       The role of the current asset classes including the Cash & Risk Management Framework which holds an important background role hedging risks for the Fund

-       The Fund’s expected return was in excess of the discount rate required by the Fund Actuary.

            Mr Harkin explained the reasons for the minor changes to the asset allocation which included:

-       Reducing the emerging markets equities component from 10% to 5%. The excess 5% would be moved to Developed Market Equities, which would ultimately be invested in the WPP Global Equity Sustainable fund.

-       Reducing the Hedge Fund allocation from 7% to 5%. The excess 2% would be allocated to the Local/Impact Fund.  Mr Dickson added that as well as reflecting the Fund’s sustainable and impact philosophy, this 6% Local/Impact allocation would align with, and exceed, the Government anticipated plans to introduce a mandatory 5% local deployment of assets, with ‘local’ meaning within the UK.

            Mr Hibbert commented, regarding the Levelling-Up and Impact investment, the difficulty that affordable/social housing impact will be focussed in the South-East, so there would be a lack of investment opportunities centred elsewhere in the UK.

            Mr Hibbert also asked for the Tactical Allocation Portfolio Terms of Reference referred to on page 144 to be brought to Committee for review. Mr Harkin agreed and noted that they would be reviewed in line with the proposed work to incorporate a new responsible investment framework to the TAA.

            Mr Hibbert referred to the proposed Investment Strategy Statement (ISS) on Page 155 and requested reference to the non-voting scheme member representative on the JGC be added. Mrs McWilliam also agreed this would be a helpful addition. Mr Hibbert also referred to Page 160 which states “Engagement is the best approach to enabling the change…”, and again highlighted the need for clarity on when a decision on divestment would be made.

            In relation to the recommendations, Cllr Swash commented that he had previously voiced his opinion that the Fund’s Net Zero target date of 2045 was too late. He highlighted that South Yorkshire Pension Authority had agreed a 2030 target. Cllr Swash referenced the proposed ISS (Page 161), highlighting key carbon emissions targets within the Listed Equity Portfolio. Cllr Swash proposed an amendment to this paragraph to add an additional aim to reduce exposure to companies who extract fossil fuels, or whose primary business is the trading of fossil fuels, by 100% by 2030.

            Mrs McWilliam advised the Committee that in order to ensure proper governance, the matter of amending the ISS with a new investment target should be subject to the Committee receiving formal advice on the proposed amendment and the impact of it. She recommended Officers and advisers should investigate further the implications of the motion and the matter be considered further at a future Committee meeting with the appropriate advice on the suitability of the amendment.

            Cllr Ellis noted Cllr Swash’s motion, and commented that she would value advice on the matter.

            Cllr Wedlake noted that in the event that this item be deferred in order to receive advice, it would be helpful to receive advice stating the implications of the amendment. He felt that without this information he would personally have difficulty accepting the ISS considering the underlying principles of the Fund’s approach to Responsible Investment. Mr Hibbert commented his agreement with Cllr Wedlake.

            Mrs McWilliam then requested Mr Harkin and Mr Latham to clarify if there was anything in the draft paper that would be impacted if the recommendation to approve the ISS was not agreed at this Committee meeting. Mr Latham highlighted that the move to the WPP Active Sustainable Equity Fund could not proceed if the asset allocation was not agreed by the Committee. Mr Harkin agreed that if the asset allocation changes were agreed, there would be no immediate impact on delaying agreement to the ISS whilst the Committee considered the proposed amendment. Mr Latham highlighted that the CPF employers had been consulted on the ISS as it currently stood. Mr Latham therefore suggested that the Committee consider approving the first recommendation relating to the asset allocation changes, and that the Committee can return to the considering the ISS amendments, including the proposed amendment by Cllr Swash at a later date. However, he noted given the full agenda for the March Committee meeting and the time Officers will need to take properly regulated investment advice on the proposed amendment, that the review of the ISS would likely need to be delayed until the June Committee.

            Cllr Swash noted that he would be happy to accept the first recommendation but defer the second recommendation until further advice had been received.

            The Chair agreed to go ahead with a formal vote, which was carried out by Mrs McWilliam. With respect to the recommendation to agree the changes to the Fund’s Strategic Asset Allocation, the Committee voted unanimously to approve the recommendation. With respect to the second recommendation to approve the proposed changes to the Investment Strategy Statement, the vote resulted as follows:

-       One vote for accepting the recommendation.

-       Six votes against accepting the recommendation.

-       One Member abstained from voting.

The second recommendation was therefore not agreed.

Mrs McWilliam requested that Cllr Swash provide written details of the proposed amendment for the Fund to consider and ensure appropriate advice would be provided.

RESOLVED:

(a)          The Committee agreed the changes to the Fund’s Strategic Asset Allocation.

(b)          The Committee voted to defer the approval of the Investment Strategy Statement to the June Committee meeting to allow further advice to be received on a potential amendment to the current draft Statement.