Agenda and minutes

The minutes of the meeting held on 8 September 2023 were taken as read, confirmed and signed.

The Chief Executive reported that no questions had been received under Standing Order 34.

The Chief Executive reported that no questions had been received under Standing Order 7(3) and 7(5).

There were no urgent items for consideration.

The Chairman invited members who wished to do so to declare any interest in respect of items on the agenda for the meeting.

Councillor Denney declared an Other Registrable Interest in all of the substantive items on the agenda as he had investments managed by companies that also managed some of the Fund.

The Committee considered a report of the Director of Corporate Resources which provided information on the Fund’s estimated Funding Position as at 30 September 2023. A copy of the report marked ‘Agenda Item 6’ is filed with these minutes.

Members welcomed the substantial increase in the overall funding level from 105% to 149% funded, but agreed that extra caution was needed given that the assets held in the Fund were broadly the same as in 2022. Members noted that the mid-valuation was not as thorough as the full valuation exercise which would be undertaken in 2025 and that over this longer term the increase could just as quickly be reduced with a reduction in inflation and discount rates. Members considered the current position to be a short-term anomaly and agreed to await the next valuation to see if the level of funding could be sustained.

The Director confirmed that there would need to be a full review of assumptions before deciding on member contribution rates which would have to be based on long-term improvement, and not on a single data point in time.

It was moved by Councillor Cartwright and seconded by Mr. Bill CC, that “In light of COP28 taking place right now and the motions submitted to the Committee from district councils, such as Hinckley and Bosworth Borough Council, which was seconded in my name, that LGPS require Central to set up a specific fossil free fund.”

In light of the motion now moved, a Member questioned what feedback had been sought to understand pension scheme members’ views on how they would like to see the Fund invested, particularly with regard to investments in fossil fuel companies.    The Director advised that fund members had been consulted as part of the development of the Fund’s Net Zero Strategy, the outcome of which had been reported to this Committee in 2022 and 2023 prior to the Strategy being approved.  This had shown polarised views on the approach to be adopted, but this had been slightly weighted towards engagement rather than divestment.  The Director undertook to forward to the Member copies of those reports.

A Member raised a point of order on the basis that the Motion now put, and the questions being raised, were not related or relevant to the report under discussion and should be raised either under another, more appropriate item, or as an item for a future agenda to allow for a proper debate to take place. 

The Chairman, after receiving advice from officers, suggested to Councillor Cartwright that the motion would be better put under agenda item 12, Climate Risk Management Report 2023.  Councillor Cartwright indicated that in line with such advice he wished to seek permission to withdraw his Motion at this point in the meeting.  Following the concurrence of the seconder, the Committee agreed to the withdrawal of the Motion.

RESOLVED:

That the Fund’s estimated Funding Position as at 30 September 2023 be noted.

The Committee considered a report of the Director of Corporate Resources, the purpose of which was to provide an update on the investment markets and how individual asset classes were performing, focussing on listed equity. The report also provided an update on progress with respect to the listed equity changes approved by the Investment Sub-Committee in April 2023 and to the scope of the Fund’s investment advisor’s strategic asset allocation review which would be presented to the Committee for approval in January 2024. A copy of the report marked ‘Agenda Item 7’ is filed with these minutes.

It was noted that phase two, the reorganising of listed equity holdings, which was the reorganisation of the Legal and General Investment Manager (LGIM) passive holdings, had been completed on 15 November 2023. The two final stages left were forecasted to be completed by the end of the current financial year.

RESOLVED:

That the report on the Summary Valuation of Pension Fund Investments be noted.

The Committee considered a report of the Director of Corporate Resources, the purpose of which was to advise of any changes relating to the risk management and internal controls of the Pension Fund, as stipulated in the Pension Regulator’s Code of Practice, and to provide an update regarding the Pension Fund’s budget for 2023/24. A copy of the report marked ‘Agenda Item 8’ is filed with these minutes.

The Director advised the Committee that following publication of the report, there had been one further change following the Government’s Autumn Statement regarding the consultation on pooling and the proposal that this be brought forward. A new risk would be drafted and added to the risk register in time for the next Committee meeting.

Arising from discussion, the following points arose:

i.          Members noted the scale of the work involved in implementing the McCloud remedy and to rebuild the records necessary to assess members entitlements which had so far taken two years, but which was now 90% complete. New retirees or new leavers in scope were automatically being calculated with the McCloud remedy in place. It was reported that there were some anomalies where system calculations did not work, but these had been highlighted and reported back to the system provider to address.

ii.          The next part of the exercise would be to look retrospectively to see if members benefits might need to change.  This would begin shortly and likely to take a further one to two years to complete.  In terms of expectations, Members noted that less than 1% of members were expected to receive an increase in their benefits. So far only two cases had been identified which were for small increases.

iii.          In response to a Member’s questions, it was reported that beneficiaries of deceased scheme members did not need to submit a claim, as these would automatically be addressed and paid as part of the work being undertaken.

iv.          A Member queried if more cases would affect the next valuation. The Director reported that for the actuarial valuation in 2022, McCloud had already been taken into account and for 2023 the impact had been reduced. The potential cost had been overstated and so whilst further adjustment might be needed this was expected to minimal.

RESOLVED:

a.     That the report on Risk Management and Internal Controls be noted;

b.     That the revised risk register be approved;

c.     That the current budget and forecasted costs for the Pension Fund budget for 2023/24 be noted.

The Committee considered a report of the Director of Corporate Resources, the purpose of which was to provide details of decisions taken by the Investment Sub-Committee (ISC) at its meeting held on 11 October 2023. A copy of the report marked ‘Agenda Item 9’ is filed with these minutes.

RESOLVED:

That the report on Action Agreed by the Investment Sub-Committee be noted.

The Committee considered a report of the Director of Corporate Resources, the purpose of which was to update the Committee on progress versus the Responsible Investment Plan 2023, update the Committee on the Fund’s quarterly voting report and stewardship activities, and set out a high-level overview of the Fund’s investment managers net zero approach. A copy of the report marked ‘Agenda Item 10’ is filed with these minutes.

The Chairman welcomed to the meeting Ms. Zina Zelter, a representative of Climate Action Leicester and Leicestershire. Ms. Zelter presented to the Committee the following representation:

“Thank you for allowing me to speak in person today on behalf of Climate Action Leicester and Leicestershire. As a group we have thousands of members locally, hundreds of whom are in your pension scheme, and are supported by dozens of local groups as well as five local councils who’ve passed motions this year calling on you to stop investing in fossil fuel producing companies.

We want to ask you to question the assumptions and beliefs which underpin your approach to responsible investment. We are concerned that some of the assumptions we’ve heard repeatedly in this committee over the past four years, are preventing you from creating real world change when it comes to the carbon emissions of fossil fuel companies - and at the moment these companies produce almost half of the worlds carbon emissions!

As you can see from our paper submission to this meeting, there are several of these assumptions which we’d like you to reconsider, but the one we want to particularly want to raise today is the belief that fossil fuel companies are part of the solution to climate change.

Our question to you is what is the solution you think fossil fuel producing companies offer? Carbon capture and storage is not expected to become a fully functioning technology for at least ten years – but the world must half its carbon emissions within the next ten years in order to stay below 1.5degrees of global heating.

If fossil fuel producers were serious about developing Carbon capture and storage technology, they would be pouring all their capital expenditure into it. Instead, they are deliberately using the idea that it might be a solution to make organisations like this pension fund continue to invest in them, at the same time as spending their capital on opening new reserves of oil and gas.

Obviously we need to continue using oil and gas while the world transitions to net zero. But equally obviously, this oil and gas is already in production. These reserves don’t need investment because they are already operational – and they contain enough fossil fuels to carry the world to net zero.

The only realistic way in which fossil fuel companies can become part of the solution to climate change is by halving their fossil production by 2030. But by putting the vast majority of their capital expenditure into opening new oil and gas reserves instead, they are showing that although they claim to listen to shareholder engagement, they have no intention of doing what is needed within the timeframe necessary. By continuing to invest in and engage with them you are doing exactly what they want. You are providing a fig leaf for their fossil fuel expansion and enabling them to lobby against climate legislation. Which is what they are doing at COP28 right now.

If you want to create real world change which will reduce the risk to this pension scheme and the world from climate change – and again, bear in mind that these few companies currently produce  ...  view the full minutes text for item 82.

The Committee considered a report of the Director of Corporate Resources, the purpose of which was to provide details regarding the proposed 2024 investment advisor objectives for Hymans Robertson, the Fund’s investment advisor. A copy of the report marked ‘Agenda Item 11’ is filed with these minutes.

RESOLVED:

That the Investment Advisor Objectives for 2024 be approved.

The Committee considered a report of the Director of Corporate Resources the purpose of which was to provide background information on Leicestershire County Council’s Pension Fund (the Fund) 2023 Climate Risk Management Report (formerly known as the Climate Risk Report), and progress towards net zero targets. A copy of the report marked ‘Agenda Item 12’ is filed with these minutes.

The Chairman welcomed to the meeting Mr. Patrick O’Hara, Mr. Edward Baker and Mr. Alex Galbraith from LGPS Central who supplemented the report with a presentation. A copy of the slides is also filed with these minutes.

Arising from discussion and questions, the following points arose:

i.          In response to a Member’s query regarding companies’ greenhouse gas emissions, it was noted that audits were undertaken by large audit firms such as KPMG, Ernst and Young, and PWC. They were appointed by the company themselves, following guidelines about audit rotation and the data was made public.  These audits were then used by LGPS Central to identify where best to engage with companies to deliver its net zero targets.

ii.          It was noted that various tools and escalations could be taken against companies that failed to engage with LGPS Central regarding decarbonisation, such as public debate, shareholder resolutions, provision for legal action against a board for non-transparency. Ultimately, if a company was not being transparent this would affect confidence and result in those companies no longer being attractive for investment.

iii.          Members noted that LGPS Central met with managers on a quarterly basis to discuss and challenge them on progress being made with companies to deliver environmental, social and governance (ESG) integration.  This was regarded as ‘business as usual’ activity for any responsible manager of an investment portfolio.

iv.          The Director highlighted that the Net Zero Climate Strategy set targets for the fund as a whole for decarbonisation (including those which sat outside of the central pool).  The Fund would be kept under review to ensure it was on track to meet those targets at the right pace, and continue to report annually on the progress being made.

v.          A Member questioned if and how adjustments might be made to record emissions arising from staff working from home. LGPS Central reported that as a business it was beginning to set targets for its own emissions, covering buildings and any travel associated with work. However, the impact of homeworking was difficult to capture as it relied on staff providing data on their own personal energy usage. Homeworkers would be encouraged to participate and record their energy use increases when working at home in an attempt to begin to collect such data collection which could in turn assist other business in trying to record their emissions more accurately in light of increased hybrid working practices.

vi.          A Member questioned why, with regards to Climate Data Quality, there appeared to be some companies for which no data was held. It was noted that these might not necessarily be companies, but could be cash held in the portfolio, or collective investment schemes. It was further noted that where a company should but did not report emissions, it would be estimated based on its peer groups. 

vii.          A Member questioned whether the Fund and the investments made towards decarbonisations would be affected if climate change was not demonstrated in the long term.  Officers confirmed that the approach to meet net zero targets was based in science and that it was accepted by climatologists that climate change was being contributed to by manmade activities.  Failure to transition towards decarbonisation would therefore affect investments.  Officers from LGPS Central commented  ...  view the full minutes text for item 84.

The date of the next meeting is scheduled for 26 January 2024, at 9.30am.

The date of the next meeting was scheduled for 26 January 2024, at 9.30am.

The public are likely to be excluded during consideration of the remaining items in accordance with Section 100(A)(4) of the Local Government Act 1972 (Exempt Information).

RESOLVED:

That under Section 100(A) of the Local Government Act 1972 the public be excluded from the meeting for the remaining items of business on the grounds that they involve the likely disclosure of exempt information as defined in Part 1 of Schedule 12(A) of the Act.

The Committee considered an exempt report of the Director of Corporate Resources. A copy of the report marked ‘Agenda Item 16’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report of the Director of Corporate Resources. A copy of the report marked ‘Agenda Item 17’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

The Chairman welcomed to the meeting Mr. James Sparshott and Mr. Stephen Beer from Legal and General Investment Management (LGIM) who supplemented the report with a presentation, which is also filed with these minutes.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Hymans Robertson. A copy of the report marked ‘Agenda Item 18’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by LGPS Central. A copy of the report marked ‘Agenda Item 19’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by LGPS Central. A copy of the report marked ‘Agenda Item 20’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Adams Street Partners. A copy of the report marked ‘Agenda Item 21’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Aspect Diversified. A copy of the report marked ‘Agenda Item 22’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Legal and General Investment Management. A copy of the report marked ‘Agenda Item 23’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Pictet Asset Management. A copy of the report marked ‘Agenda Item 24’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Ruffer LLP. A copy of the report marked ‘Agenda Item 25’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Abrdn. A copy of the report marked ‘Agenda Item 26’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by IFM Investors. A copy of the report marked ‘Agenda Item 27’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by KKR Global Infrastructure Investors. A copy of the report marked ‘Agenda Item 28’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Saltgate Alternative Investment Services. A copy of the report marked ‘Agenda Item 29’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Partners Group. A copy of the report marked ‘Agenda Item 30’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Colliers. A copy of the report marked ‘Agenda Item 31’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by LGPS Central. A copy of the report marked ‘Agenda Item 32’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Infracapital Greenfield Partners. A copy of the report marked ‘Agenda Item 33’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by JP Morgan. A copy of the report marked ‘Agenda Item 34’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by LaSalle. A copy of the report marked ‘Agenda Item 35’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by M&G Investments. A copy of the report marked ‘Agenda Item 36’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Quinbrook Infrastructure Partners. A copy of the report marked ‘Agenda Item 37’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by LGPS Central. A copy of the report marked ‘Agenda Item 38’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Stafford Timberland. A copy of the report marked ‘Agenda Item 39’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.

The Committee considered an exempt report by Aegon Asset Management. A copy of the report marked ‘Agenda Item 40’ is filed with these minutes. The report was not for publication by virtue of paragraph 3 of Part 1 of Schedule 12(A) of the Local Government Act 1972.

RESOLVED:

That the report be noted.