Agenda item

The Committee considered a report of the Director of Corporate Resources which provided information on the Leicestershire Pension Fund’s (The Fund) investments held with LGPS Central (Central). A copy of the report marked ‘Agenda Item 11’ is filed with these minutes.

Mr Gordon Ross, Mr Patrick O’Hara, Mr Basyar Saleh, Mr John Burns and Mr Jack Yonge (online) were in attendance and supplemented the report with a presentation which is also filed with these minutes.

Arising from the presentation the following points arose:

i.          In light of the statement from Government’s Spring Budget and the implications for pooling the Chairman clarified that the Government did not have the right to dictate where the LGPS invested, including whether they were pooled or otherwise, unless legislation was passed to the contrary. It was for the Local Pension Committee to decide on where investments were made to give best and safest returns. The strength across the LGPS and LGPS Central was recognised, and it was likely discussions would continue.

ii.          When asked about their Global Equity Mandate, it was explained that Central were looking to add a fourth manager to its Global Equity Fund a quality manager the performance of which was suitable in any environment, whether it be growth economy or a value economy, and with the blend of other managers would ensure continued performance of the fund rather than on a volatile basis.

iii.          A Member raised the issue of a company lagging on environmental, social or governance (ESG) issues making a lot of money, and how they were managed. It was explained that a company may be very profitable and very successful in many respects, but if they were not managing the ESG risks appropriately that was a potential future risk for them and if a material risk it could affect revenues and ultimately could affect share price. Central would engage with those companies, and would expect the manager to also engage, to understand those risks.

iv.          In response to a comment from a Member that investment in companies such as Shell was not welcome, it was noted that the ESG tool allowed for comparison of companies within their peer group. It allowed Central to look at companies such as Shell and BP, and how they managing carbon emissions, how they embraced renewable energy and other technologies, and how they managed their risk exposure.

v.          A Member queried if governance issues within ESG was being given the attention it deserved given the number of businesses that folded due to poor governance. It was noted that governance was a very immediate risk and would be very much represented in the ESG reports. It was further explained that country risk ratings could considered and analysis of corporate risks and other geopolitical issues such as China and Russia.

vi.          Mr. Geoff Lawrence declared an interest at this point as he had been elected as a Member on Charnwood Borough Council at its last election.

vii.          A Member sought reassurance that the reporting tool being used by Central would show up the bigger oil companies that were not pivoting to renewables as quickly as they should be, and were a long-term risk for the pension fund from an environmental perspective. Central informed the meeting that it was the intention in terms of climate risk reporting to focus on scope one and scope two emissions (i.e. the operational emissions) of a company. There would be additional metrics added to the analysis tool to give a more holistic view of the company’s business model in terms of being positively or negatively positioned in terms of transition and business risk.

viii.          A Member sought assurance around the processes and integrity of the data that went into the preparation of the report. Central noted that all data in the reports was publicly disclosed, some disclosed by the company, and some industry level disclosures, government policy and litigation amongst other matters. An analyst would estimate data themselves and would give companies an opportunity to respond to the findings, and there were robust controls to ensure data was based on accurate reporting.

RESOLVED:

That the LGPS Central update report and presentation be noted.

Mr Ross, Mr O’Hara, Mr Saleh, Mr Burns and Mr Yonge (online) left the meeting at this point.