Agenda item

The Committee considered a report of the Director of Corporate Resources on the outcome of engagement on Net Zero Climate Strategy targets and draft strategy and responsible investing update. A copy of the report marked ‘Agenda Item 7’ is filed with these minutes.

 

Ms Zina Zelter, a representative of Climate Action Leicester and Leicestershire, presented to the Committee a representation on behalf of Climate Action. The representation set out a request to include three actions in the draft Leicestershire Pension Fund Net Zero Climate Strategy (NZCS), which were:

 

1.    Formally stop investing in all fossil fuel companies which continue to develop new oil, gas and coal reserves.

2.    Focus climate engagement on the banks and insurance companies the fund was invested in. Those companies could play a major role in accelerating the global path to Net Zero.

3.    Invest some of the pension funds into local projects that actively provide solutions to climate change and fuel poverty.

 

Ms. Zelter was thanked for her representation and consultation response that would be considered as part of the development of the draft strategy.

 

During presentation of the report and appendices, and subsequent discussion, the following points were made:

 

      i.         It was noted there was circa 70% engagement responses supported the target for Net Zero by 2050 with an ambition for an earlier achievement date. Similar rates of support were received for the other underlying measures and targets consulted upon.

 

     ii.         The Fund’s response to representation from Climate Action Leicester and Leicestershire was included at paragraph 38 of the report. It was noted that quarterly reports on the Fund’s responsible investment activity provided to the Committee included company engagement information, which contained specific bank engagements.

 

    iii.         The draft NZCS, developed with Hymans Robertson, was attached at Appendix A to the report. The document outlined the LCC Pension Fund strategic approach to managing climate risk and proposed approach to achieving Net Zero 2050, and included four key sections:

a.    Climate Change Risks and Opportunities

b.    Targets and Measures

c.     Decision Making

d.    Stewardship, Engagement and Divestment

 

   iv.         In reference to Aegon Asset Management’s approach to responsible investing, the Director said it was a good approach which it would like to see other fund managers take in terms of investing in companies which were better placed to achieve responsible investment targets.

 

     v.         The Strategy would be reviewed every three years and progress monitored annually. There was further work to be undertaken on asset plans and with managers to set out expectations and  for them to understand their own Net Zero targets and commitments.

 

   vi.         The Committee was being asked to approve the draft Strategy for formal consultation. A final Strategy would then be presented to the Committee in March 2023 for approval.

 

  vii.         In reference to Climate Action Leicester and Leicestershire’s comments regarding local investment, it was noted that approaching local councils for investment proposals would lend itself to conflict of interest and the Pension Fund did not have resources to manage individual investments. It was further noted that local authorities could access far cheaper capital than they would be able to via the Pension Fund.

 

 viii.         One member suggested that on the basis that the majority of people who completed the initial engagement would have an interest on climate change matters, the fact that 20% of people who responded to the survey did not agree with any action on climate change was significant and questioned whether independent polling would produce a different response rate compared to specific questions which may have leant themselves to certain answers. In response, it was noted that opinion polls over many years had shown a significant majority of the general population had real concerns about climate change.

 

   ix.         In response to a question concerning the trigger withdrawal for companies who were not adhering to the Fund’s Net Zero approach it was noted that a specific  measure was being developed with LGPS Central as to how underlying companies alignment or non-alignment to Net Zero  could be measured. It was stated that in the future there would be targets and expectations for the companies to align to, but each sector would have its own different transition pathway to Net Zero.

 

     x.         A member raised concern that the draft Strategy was confusing with regard to the suggestion that engagement and divestment could not be achieved together when in fact that they could coexist if worked through properly. There was a need to recognise ESG holistically, to understand when engagement was not working, and when the final outcomes of COP27 were known there would be a need for more focus on trigger points for disinvestment. He added that there should be an explicit threat of divestment when recognising the risk to the fund was under five percent of total investment, and when considering the risk to polluters of divestment, the Fund’s risk was so much lower than any risk of moving towards divestment with Shell or other polluting organisations of that scale.

 

   xi.         It was recognised there was a value in and a need to divest from companies that would ultimately harm the Fund.

 

  xii.         In response to a question, the Director said that an eight-page summary document had been created which set out the Strategy’s key points and would be made available as part of the consultation. The document had been considered by the County Council’s Engagement and Communications teams and would be circulated to members of the Committee for comment prior to its publication. All employers would be contacted through the employer bulletin, and around 40,000 scheme members where emails were known would be emailed, and the consultation advertised on the scheme’s website.

 

 xiii.         It was noted that a significant proportion of the respondents to the engagement said they had little or no understanding of the fiduciary duty. It would therefore be beneficial for further work to be undertaken to help, members of the Pension Fund understand the duty and how investment performance could have an effect on how much employers would have to pay in future.

 

That Chair said that a lot of work had been undertaken to produce the draft Strategy and he thanked officers for all their efforts. He acknowledged that people felt strongly about climate change and it as difficult to produce a Strategy which aligned all people’s opinions on the topic.

 

RESOLVED:

 

That the Committee:

 

a)    Noted the findings of the engagement exercise on the draft targets and measures to be included in the draft Leicestershire Pension Fund Net Zero Climate Strategy (NZCS);

 

b)    Approved the draft NZCS for consultation, subject to the consultation document be circulated to Members of the Committee for comment prior to consultation;

 

c)    Approved the Fund’s response to the Department for Levelling Up, Housing and Communities consultation on proposals to require LGPS administering authorities in England and Wales to assess, manage and report on climate-related risks;

 

d)    Noted the quarterly update on stewardship, engagement and voting.