Agenda, decisions and minutes

To receive any Declarations and advise Members accordingly.

There were no declarations of interest.

The Chair invited attendees to declare any potential conflicts of interest that they may have in relation to the Fund, other than those already recorded in the Fund’s register.

There were no declarations of interest.

To confirm as a correct record the minutes of the last meeting held on 23 November 2022.

The minutes of 23 November 2022 were received, approved, and will be signed by the Chairman.

            Before receiving the minutes, the Head of the Fund, Mr Latham, raised a matter discussed at previous meetings regarding whether future Committees should be held remotely or in hybrid form. This had been taken up with Flintshire County Council, however it was concluded that hybrid meetings were not practical at this time. Mr Latham had, prior to the meeting, distributed a short questionnaire to survey Committee members’ preferences. He noted that Flintshire County Council members had previously received a longer survey on the topic from Committee Services, but asked that all Committee Members respond in order to reflect the views of the whole Committee.

            In relation to the minutes, the Head of the Fund commented with reference to the FRC Stewardship Code update on Page 11, that just prior to the commencement of this meeting the Fund became aware that the Fund’s Stewardship Code application had been successful.

            The minutes of the meeting of the Committee held on 23 November 2022 were agreed.

RESOLVED:

The minutes of 23 November 2022 were received, approved, and will be signed by the Chairman.

The Committee considered, discussed, and noted the TCFD and ACT reports covering periods to the end of March 2022.

            The Chair noted that TCFD and climate analytics were discussed in detail at the recent Essential Training session held on 1 February, and given the report was for noting only, requested that questions/comments be limited to clarification of information within the report and areas of understanding.

             Mr Gaston of Mercer summarised the key points of the Fund’s proposed inaugural Taskforce on Climate-Related Financial Disclosures (TCFD) Report, and the analysis from the Analytics for Climate Transition tool. He noted that the Fund’s approach to climate change was well documented in the Fund’s Investment Strategy in terms of beliefs, processes and Carbon Footprint monitoring, alongside investments in climate-aware investment solutions. There has been a consultation on TCFD reporting for the LGPS but the requirements are not yet finalised. The Fund has produced its first report a year early, with the intention to refine the approach and bring it in line with LGPS regulations once they had been made.

            With respect to the TCFD report, Mr Gaston highlighted:

-       TCFD reporting is aimed at companies, asset managers and asset owners (including pension funds). The Fund viewed this as a best practice framework encouraging proper disclosures, informing good decision making around climate change, and encouraging standardisation across the market allowing investors to identify, assess and manage the risks & opportunities.

-       The four pillars upholding the framework are Governance, Strategy, Risk Management, and Metrics and Targets. The draft report was structured on this basis.

            Mr Gaston then went on to provide a summary of these four pillars as outlined in the report.

            Mr Hibbert commented that the assessment provided did not include the Fund’s Tactical Asset Allocation (TAA). He noted that a previous assessment had shown that the Tactical portfolio had a higher carbon intensity per pound invested than most, if not all, other asset classes. Mr Hibbert asked why this allocation had been excluded from the present assessment. Mr Gaston clarified that the TAA had been included in the assessment within various metrics to the extent available, and these were noted within the appendices. Those results showed that a number of those holdings were more carbon intensive than the rest of the portfolio. The Fund had yet to set formal guidelines and targets around those holdings and this had been identified as a next step in terms of expanding the target-setting beyond the Listed Equities to the wider portfolio.

            Mr Hibbert referred to a statement on Page 37, “The Fund has a commitment to actively exercising the ownership rights attached to its investments”, and asked who was dealing with this with regards to stocks and fund managers in the TAA. Mr Gaston explained that the day-to-day engagement is delegated to the investment managers of the underlying funds making up the TAA and these managers would have responsibility to engage with the invested companies and hold them to account, as well as voting.

            Mr Hibbert asked if there is any evidence that the managers were doing this, as he did not note any reports of  ...  view the full minutes text for item 37.

(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  ...  view the full minutes text for item 38.

(a)          The Committee noted the activity since the November 2022 meeting, including consultation with employers.

(b)          The Committee approved the Funding Strategy Statement.

            The Chair handed over to Mr Middleman, the Fund’s Actuary, to talk the Committee through the key points in this report.          

-       Following approval of the draft Funding Strategy Statement (FSS) by the Committee in November, the consultation with employers encouraged employers to provide feedback. A number of employers fed back generally positive responses regarding the construction of the strategy which allowed employers the flexibility to manage their own financial sustainability in the context of the Fund’s improved funding position.

-       The FSS set a framework with a minimum employer contribution requirement that the Fund felt was sustainable, however a number of employers expressed an intention to pay above this minimum requirement in order to further help the sustainability of contributions. Mr Middleman noted that this was a positive outcome and evidenced that the messages on sustainability had been heard and actioned.

-       Following consultation with the employers, there were no changes to fundamental assumptions within the report since the draft was received by the Committee. Mr Middleman highlighted paragraphs 1.08 and 1.09, which addressed two changes to the strategy since the draft.

o   Climate risk was quantified by the actuary using implications under different scenarios. This had been done on a consistent basis to analysis on the expected returns as per earlier discussions.

o   Wording was added to the Termination policy, whereby employers can exit the Fund with an exit debt or credit, enabling the formal ability to review the policy, although it was noted that not any or many employers were expected to exit the Fund.

RESOLVED:

(a)          The Committee noted the activity since the November 2022 meeting, including consultation with employers.

(b)          The Committee approved the Funding Strategy Statement.

The Committee considered and noted the Investment and Funding update.

Mr Hughes updated the Committee on the Investment and Funding, highlight the following:

-       Regarding the business plan update all but one of the key tasks highlighted at last Committee had been completed, detailed in 1.01.

-       DLUHC recently published a consultation proposing changes to the SAB cost management process, summarised in 1.03. This was not expected to have any direct impact on the Fund.

-       The Fund has been recognised by Environmental Finance as Impact Pension Fund of the Year.

-       Mr Hughes highlighted a report from Robeco on the social impact of Artificial Intelligence (AI), among other studies.

-       The Fund continues to identify sustainable opportunities and has made two recent commitments. These were:

o   £15 million to Newcore (Fund V), a UK-based real estate manager specialising in social infrastructures.

o   £17 million (approximately $20 million) to Sandbrook (Fund I), a US manager‘s first climate infrastructure fund.

-       The Fund had recently filled the Governance Administration Assistant vacancy, however two outstanding vacancies within the Finance team remained. The priority was to fill the vacant Principal Accountant role which was currently being advertised.

RESOLVED:

The Committee considered and noted the Investment and Funding update.

The Committee noted and discussed the update.

            The update on pooling was presented by Mr Latham, the Head of the Pension Fund, highlighting the following key points:

-       The Fund originally wrote to WPP to request an Active Sustainable Equity fund, and all 8 funds in Wales would now be making investments to this. The fund was expected to go live in April 2023, meaning that the impact of the Fund’s proposed 15% allocation would not come into effect until after the March 2023 TCFD reporting date, and would therefore not be reported on until September 2024 based on the data as at March 2024.

-       There had been no update regard the Link Fund Solutions Ltd matters since the last Committee discussion. Should the Host Authority provide a further update, this information would be forwarded to the Committee.

-       The WPP’s current focus was on procurement of the operator contract. Mr Latham and Mrs Fielder will be attending engagement days with interested parties in Cardiff, along with meeting potential WPP property managers.

-       Regarding Private Markets, the commitments for Private Credit, Private Equity and Infrastructure would to be ready to go next year. Considerations were being made on how to manage the cost of this. The intention was to use Mercer for the Impact Portfolio, until an equivalent becomes available within the WPP.

-       WPP training would be taking place on 27 February covering several of the matters discussed at this meeting, and the invitation was extended to all Committee and Board members.

            Regarding the stock lending policy, Mr Hibbert commented on the clarification that WPP are able to lend up to 95% of any stock, for a fee. Mr Hibbert asked if there is any intention to prevent lending out stock over the voting period so they could be recalled. He also noted that the amount of shares voted in the Robeco report seemed extremely low, and requested an explanation for this.

            With respect to Mr Hibbert’s second question regarding the amount of shares voted, Mr Latham confirmed he would look into this. Regarding the stock lending question, Mr Latham explained that representatives of the Fund attended a training session on stock lending, which was open to JGC members only. He expected this would lead to a report going to the WPP JGC on stock lending, covering the points Mr Hibbert raised on recalling stock for voting purposes. Mr Latham assumed the position of the Fund would be to recall those stocks and be able to vote on them, but asked the Chair, who had also attended the training, to confirm this, which he did. 

            Mr Hibbert commented that he was pleased to see progress being made on this matter. Mr Hibbert asked about the Committee’s previous agreement to write to Robeco regarding their voting on companies in the petrochemical industry carrying out exploration in order to maximise profits, and asked whether this had been sent. Mrs Fielder noted that this had not been done as yet, as she had been waiting for Mr Hibbert  ...  view the full minutes text for item 41.

The performance of the Fund over periods to the end of December 2022 was noted by the Committee, along with the Economic and Market update which effectively set the scene.

The Fund’s Investment Consultant, Mr Dickson, summarised the market position and environment over the past year, highlighting factors affecting markets over the last year and the last quarter. Mr Dickson then explained how this has impacted the performance of the Fund:

-       Over the last quarter (30 September to 31 December) assets were flat.

-       Over the year, the Fund’s performance was down overall by 10.6%, with poorer returns particularly in equities and multi-asset credit. Private Markets produced positive returns for the Fund, particularly with Sterling weakening, as did the TAA and hedge funds.

-       The three year view, important for the Fund’s long-term approach, continued to show positive returns.

-       Mr Dickson updated the Committee on performance since the start of the calendar year when markets have been positive.

RESOLVED:

The performance of the Fund over periods to the end of December 2022 was noted by the Committee, along with the Economic and Market update which effectively set the scene.

(a)          The Committee noted and considered the contents of the report.

(b)          The Committee approved the proposed updates to the Fund’s Scheme of Delegation.

            Mr Middleman took the Committee through this report, making the following key points:

-       The overall flightpath and framework were working as expected following the volatile period.

-       A number of changes had been made to maintain sufficient liquidity for the framework to work as expected.

-       The funding level at the valuation date 31 March 2022 was 105%, with small dips over the year but by the end of December this returned to 105% and had remained around this mark.

Mr Middleman highlighted that in times of volatility, any changes needed to react to market changes need to be made quickly. This resulted in the suggested changes to clarify delegations to the Head of Fund in the appendix to the report.

RESOLVED:

(a)          The Committee noted and considered the contents of the report.

(b)          The Committee approved the proposed updates to the Fund’s Scheme of Delegation.

The Committee noted the minutes of the Pension Board held on 30 September 2022.

FFuThe Chair noted that the Committee considered a summary update at the last meeting.

RESOLVED:

The Committee noted the minutes of the Pension Board held on 30 September 2022.

The Chair asked the Committee to note the following future Committee meeting dates:

-       29 March 2023

-       21 June 2023

RESOLVED:

The Committee noted the upcoming Committee dates.