Agenda item

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 that looking solely from the perspective of economics, it was clear that the oil and fossil fuel sector would shrink in the future, whilst electricity and other cleaner energy options would grow and therefore, despite the Funds decarbonisation targets, it was still the right way financially to invest over the long term.  In addition, companies were recognising that decarbonisation brought wider energy and cost efficiencies.

 

viii.          A Member requested more information regarding the successes of collaborative engagement with companies on climate action delivered by the current policy. The Fund invested in excess of £6billion on behalf of 100,000 plus scheme members and it was questioned how this helped to nudge companies to meet aspirations of responsible investment.  Members noted that some examples would be:

 

·       The increasing number of companies which now produced net zero plans and set net zero targets for delivery by 2050;

·       The level of disclosure amongst listed companies compared to private companies which was far more transparent regarding progress in delivering against those targets;

·       The successful encouragement of companies to produce reports on lobbying activity around climate (for example, some big mining companies now produced such reports and had ceased their involvement with industry bodies who were not conducive to the companies climate transition plans);

·       Action taken against BP which had now back-tracked on its transition plan to push back on some of its net zero targets following public backlash and scrutiny generated by investors and shareholders.

 

The Chairman then invited Councillor Cartwright to put forward his previously raised motion.

 

In moving the motion, Councillor Cartwright highlighted that other similar LGPS pools in the UK including Brunel, the London Collective Investment Vehicle and the Border to the Coast pool had fossil free investment funds as a result of their pension committees asking for them to be set up.

 

They suggested that having a fossil free fund would make it simpler for the LLGPS to reduce its carbon intensive holdings in companies producing coal, oil and gas in line with the City and County Council’s Net Zero Strategies.  He also felt that the motion would allow a straightforward fossil free investment option in case the shares of fossil fuel companies suddenly lost value, which he considered to be a real risk to the Fund.

 

He also suggested that other LGPS’s in the Central Pool would welcome a fossil free fund being set up.

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 board from district councils such as Hinckley and Bosworth Borough Council in my name that the LLGPS require Central Pool to set up a fossil free investment fund.”

 

The Chair sought advice from the Director on the proposals, who suggested that if the Committee wished to consider requiring LGPS Central to establish a fossil free fund, that investment advisors should be asked to consider and provide advice on this as part of its proposed report to the Committee in January on the Strategic Asset Allocation. This would enable the proposal to be considered in light of the steps the Fund had already taken to decarbonise.

 

An amendment was moved by Mr Grimley CC and seconded by Mr Harrison CC:

 

“That the proposal requiring LGPS Central to establish a fossil fuel free fund be considered at the next meeting of the Committee to be held in January 2024 as part of its consideration of the Strategy Asset Allocation”.

 

The amendment was put and carried unanimously, along with the recommendations set out in the report.

 

[Councillor Denney had left the meeting before the motion was put and voted upon.]

 

RESOLVED:

 

a)      That the proposal requiring LGPS Central to establish a fossil fuel free fund be considered at the next meeting of the Committee to be held in January 2024 as part of its consideration of the Strategy Asset Allocation;

b)      That the Climate Risk Management Report 2023 be noted;

 

c)      That the recommended actions and considerations set out at paragraph 28 of the report, for inclusion within the Fund’s Responsible Investment Plan 2024, be approved;

 

d)      That the Director be requested to provide information on the successes of collaborative engagement with companies on climate action at a future meeting of the Committee.