Agenda item

The Committee noted, commented on, and approved the revised RI Policy of the ISS, for consultation.

            The Chair explained that the Fund held a number of training sessions on this topic, and that the proposed responsible investment wording had been circulated in advance of the meeting and was now being brought to the Committee for approval.

            Mr Turner talked the Committee through the RI section of the Investment Strategy Statement (ISS), highlighting key areas of change.

-       The first major change was the establishment of a clear six-stage framework to assess the appropriateness and potential impact of any exclusions considered by the Committee, on page 227 of the pack.

-       On page 330, changes were made to the wording of target 4, addressing investment in sustainable mandates by 2030 within the listed equity portfolio. The target had been changed from 30% to 100% by 2030, reflecting the Fund’s switch to the WPP Sustainable Equity sub-fund. This target will require WPP/Russell to investigate the possibility of a sustainable emerging markets sub-fund. If this is not practicable, the Fund would then potentially consider switching these investments into the existing Sustainable Equity sub-fund.

            Feedback on the proposed wording had been received from Mr Hibbert and Cllr Swash prior to the meeting:

-       Regarding the last paragraph of page 330 and the first of page 331, Cllr Swash had asked if this was sufficiently strong in relation to divestment from fossil fuels, and the Head of Fund had provided a response. Mr Turner explained that this was considered, however it was proposed that the Fund keep the existing wording which was based on the IIGCC (Institutional Investors Group on Climate Change) definition of fossil fuels companies, which is more comprehensive and captures carbon intensive companies across all sectors including manufacturing, construction and transportation.

-       Cllr Swash had also suggested removing some wording in the exclusions policy and this change has been applied.

-       Mr Hibbert had suggested some additional wording around taking action to divest from companies where it was considered that engagement was not effective. Based on this feedback the draft wording had been updated while recognising the balance between the Committee’s ambition and the practicality of divestment in connection to ongoing discussions of an escalation process within WPP.

            Mr Hibbert noted that he approved of the resulting wording.

            Mr Turner then took the Committee through the proposed Exclusions Policy within the ISS. He noted the Local Pension Board’s statement of approval for the process that had been taken and their support for a Paris aligned investment approach, where appropriate. He confirmed that the Board’s proposed change to the exclusions policy would be applied. He explained that the main objective of this part of the ISS was to make clear the Committee’s ambitions for exclusions, and how these are balanced against the implementation challenges and ongoing engagement that will be required with WPP.

            With reference to the key targets within the Listed Equity portfolio on page 330, Cllr Swash questioned whether the aim “to target all of the Listed Equity portfolio being invested in sustainable mandates by 2030” contradicted the later target “by 2030, at least 90% of companies in carbon-intensive sectors have clearly articulated and credible strategies to attain net zero or are subject to engagement to achieve this objective”. Mr Turner explained that this was not viewed as contradictory because even if all assets are invested on a sustainable equity basis, there will be currently carbon intensive companies which have committed to a clear trajectory towards net zero. The proposed wording retains flexibility to invest in those transitioning companies, subject to regular review.

            Cllr Swash announced his intention to move an amendment to the strategy with reference to the final two targets within the listed equity portfolio (Page 330-331): For the target beginning “by 2025” he proposed to delete “70%” and replace this with “90%”, and in the target beginning “by 2030” he proposed to replace “at least 90% of companies” with “all companies” and delete the phrase “or are subject to engagement to achieve this objective”. He felt that this gave a clear and measurable course of action.

            Cllr Swash advised that his understanding is  that other local authorities aim to be totally divested by 2030, and felt that by comparison, expecting carbon intensive companies to have a net zero plan in place was a relatively minor requirement. He also questioned what criteria the Fund would use to come to a decision on which companies to divest from in order to meet the 90% target, and felt that this was unclear. Finally he felt that specifying the number of companies rather than percentage of investments by value compromises the effectiveness of the strategy as it would enable the Fund to purchase single shares of little value in companies that have plans in place, in order to meet the target, without divesting from any carbon intensive companies. He felt that his proposed changes made clearer the intention of his original motion to amend the ISS, and that by 2025 the Fund would have a non-binding yardstick to measure progress against, while being unambiguous of the requirements by 2030. He also felt that it cleared up any confusion around percentages.  

            Mr Turner acknowledged that there were several complicated elements to Cllr Swash’s amendments and suggested that a detailed response be provided to this outside the meeting to appropriately and carefully consider this. He highlighted that the policy is not limited to companies only involved in fossil fuel sectors and is more comprehensive across all sectors of the economy.

            Mr Hibbert commented that it would be difficult to accept the amendment without seeing a detailed response which may influence the outcome.

            Cllr Swash motioned to amend the ISS. Addressing the final two targets within the listed equity portfolio on Pages 330-331 of the pack, the amendment was:

-       Regarding the target beginning “by 2025”: to delete “70%” and replace this with “90%”,

-       Regarding the target beginning “by 2030”: to delete “at least 90% of companies” and replace this with “all companies”, and to delete the phrase “or are subject to engagement to achieve this objective”. 

          Cllr Wedlake seconded this motion. A vote by show of hands resulted in a majority against the amendment. Mr Turner confirmed that a detailed written response to the proposal would still be provided for the Committee.

            Cllr Wedlake commented that while he recognised there was still work to be done going forward, he was grateful for the input of all parties in contributing to the progress made by the Committee on this matter.

            A vote by show of hands was carried out to agree the recommendation for this item. The majority voted in favour. Cllr Swash voted against the recommendation.

RESOLVED:

The Committee noted, commented on, and approved the revised RI Policy of the ISS, for consultation.