Issue - meetings

(a)          The Committee considered the analysis in light of the previously agreed net zero target by 2050;

(b)          The Committee considered and agreed each of the proposals in paragraph 1.08 of this report, specifically, targeting net zero by 2045 - a more ambitious timeline; and

(c)          The Committee agreed that the Investment Strategy Statement is updated to reflect these commitments for consultation with the Fund’s Employers.

Mr Latham started by highlighting the significance of the decisions in this report and particularly the key proposal that the Fund target net zero carbon emissions by 2045 (rather than 2050) with a 50% total portfolio carbon reduction by 2030.

Mr Latham reminded the Committee that the Fund’s key overriding objectives were to ensure there are sufficient funds to pay benefits and to assist employers in making these costs affordable. This is done by focussing on maximising investment returns, as it is the Fund’s fiduciary duty to do so. He explained, however that this could be done responsibly, without compromising that financial return, by taking into account ESG factors and other financial issues such as inflation and interest rate risk.

Mr Latham added that the Fund would need to update the Investment Strategy Statement (‘ISS’) to reflect the commitments to a net zero ambition and consult with employers regarding the proposed updates as per the regulations. Subject to agreement of the proposals in the report, the Fund would launch the employer consultation at the AJCM in November. He believed that the Fund should be looking to invest where there was a clear transition path away from carbon intensive assets and it should also be looking to manage exposure to assets that may be negatively impacted or lose value due to the low carbon transition.

            The Fund were also in discussion with the WPP over the creation of an active sustainable global equity sub-fund, but that this may take another 12 months to create.

            Mr Latham introduced Mr Gaston who would take the Committee through the analysis.

            Mr Gaston then went through a presentation explaining the proposals, highlighting the following key points:

-       The purpose of the analysis was to help set out the Fund’s net zero targets and to take a deeper dive into the listed equity portfolio to set more granular interim targets to help reduce carbon intensity.

-       It is being proposed that the Fund support limiting warming to well below 2^oC, in line with the Paris Agreement. Physical damages from warming, particularly under 3^oC and 4^oC degree scenarios, could be expected to undermine the Fund’s investment returns.

-       As an LGPS, the Fund was under scrutiny given the high level of transparency; wider stakeholders and members will want to know what the Fund is doing to mitigate climate risk.

-       Technology (such as the falling cost of renewable technologies) and market developments (such as markets rewarding sustainable companies over fossil fuel based companies) meant that low carbon transition risks and opportunities were relevant for the Fund today and into the future.

-       Page 244 outlined Mercer’s Analytics for Climate Transition (ACT) framework. The analysis showed the split of the portfolio between the grey (carbon intensive, low transition capacity companies), the green (low intensity and high transition capacity companies) and the in between (companies with a range of carbon intensities and transition potential).

-       Step 3 on page 244 showed the framework  ...  view the full minutes text for item 31