Agenda item

There will be a presentation from LGPS Central on this item regarding the Climate Risk Report.

The Committee considered a report of Corporate Resources setting out the Responsible Investing Update, including the Fund’s Climate Risk Report and received a presentation by LGPS Central. A copy of the report and presentation slides marked ‘Agenda Item 7’ is filed with these minutes.

 

The Chairman welcomed representatives from Climate Action Leicester and Leicestershire, to the meeting, and noted the detailed representations received on the case to divest, which  is filed with these minutes.

 

The representatives set out the importance of divestment and the reasons they felt that the Fund should divest:

 

• Firstly, that investment in fossil fuel was financially risky due to the shift towards renewable energy.

 

• Secondly, that divestment complimented the Fund’s fiduciary duty, having cited a study from BlackRock that divestment did not affect investment return. Additionally, their view was that the Fund was legally able to consider ethical considerations as part of its strategy, which some other funds had already taken on board.

 

• Lastly, they set out their view that the Fund’s preference to engage with companies on Climate Change would not work fast enough to sufficiently reduce emissions to keep the world below 1.5 degrees warming. Furthermore, there was a concern that engagement provided cover for companies, such as Shell, who had not done enough to sufficiently address the challenges faced, as highlighted by the Local Authority Pension Fund Forum.

 

The Chairman thanked Climate Action Leicester and Leicestershire for their engagement on the matter with the Fund and Committee. The Chairman highlighted that the Fund agreed Climate Change was a principal risk, however in line with Government’s recommendation its position was to engage with carbon intensive companies, before a divestment decision would be taken. It was evident that no company was insulated from the economic impact of extreme global warming.  Hence, engagement was considered more compatible with the Fund’s fiduciary duty and more supportive of responsible investment as it provided the opportunity to influence companies, something that would not be possible if the investment was divested.

 

The Chairman concluded that Climate Change rightly needed to be at the front of the Committee’s mind when making investment decisions but taking a measured approach was most appropriate for its fiduciary duty and the Fund.

 

The Chairman welcomed Ms. V. Lie and Ms. A. Gaston to the meeting representing LGPS Central.

 

Arising from the discussion the following points arose:

 

1. The Transition Pathway Initiative Carbon Performance assessed, and validated, companies claim that they were aligned to the Paris Agreement.

 

2. The Fund indicated its intention to create a Climate Strategy Plan. The timeline for completion had not been finalised but it was expected in the first half of 2022. Officers would provide a timeline which would set out detail of a consultation timeframe and coordination with LGPS Central.

 

3. Members recognised the rationale for both engagement and divestment. However, questioned whether more information could be provided on other LGPS funds that had taken an alternative route to divestment, such as Waltham Forest, Islington and Cardiff councils. In response the Director advised the Committee that across pension schemes there were funds that had declared they would become net zero, such as the Environment Agency Scheme by 2045. However, schemes still needed to publish their plans to meet set targets, which would not necessarily address all asset classes. As an example, the Paris Aligned Investment Institute set out a framework which proposed key components of a net zero investment strategy, which initially focused on four asset classes.

 

4. In response to a query regarding action achieved by engagement, it was highlighted that positive action had been achieved in the case of EXXON, where three responsible investment (RI) savvy investors had been appointed to the management Board after it was felt RI goals had not been achieved quickly enough.

 

5. Carbon Risk Metrics were figures produced by companies. Some companies used external auditors to validate the figures, others did not, meaning data was disaggregated. However, officers were aware that work was being done on the creation of standardised reporting methods.

 

6. Various polluting firms looked to offset their carbon figures by tree planting, these offsets were not included within Carbon Risk Metrics. It was expected that once companies declared their net zero plans it would be inevitable that some sectors were required to use offsets, and other technologies to reach net zero. This would present another area for shareholders to demand the highest standards possible.

 

 

RESOLVED:

 

That the following recommendations as set out within the Climate Risk Report 2021 be approved, to:

a. Develop a Climate Strategy

b. Integrate communications on climate risk into communications strategy

c. Make clear the roles of key governance committees in the ISS

d. Update the governance policy statement to explain how climate risks are governed

e. Review as part of the FSS the extent to which climate risks could affect other risks noted in the FSS

 f. Consider reporting against the Stewardship Code, should it be deemed feasible given the Fund’s resources