Agenda item

Report for the Director of Finance

Two appendices from LGPSC to follow

The Director of Finance submitted the Responsible Investment and Engagement Report to the Panel, which included the Climate Stewardship Plan for 2022/23, the Local Authority Pension Fund Forum (LAPFF) Quarterly Engagement Report and the Local Government Pension Scheme Central (LGPS Central) Quarterly Stewardship Update. It was noted that the LGPS Central Annual Stewardship Report 2022 had not been received. It was agreed that this document would be circulated to the Panel and included in the agenda pack when it had been received.

The Panel heard that the Fund had recently received ‘Substantial Assurance’ in a 2022/23 Responsible Investment, Climate Change and Engagement Audit from Staffordshire County Council’s Internal Audit service. This recognised the hard work of Officers, Advisers and colleagues at LGPS Central for putting the Fund in a good position to deliver its Strategic Asset Allocation within the framework of its Responsible Investment beliefs and Climate Change Strategy. The Panel also heard that the Fund had submitted the Annual Stewardship Report to the Financial Reporting Council and were awaiting approval. It was suggested that, if approved, this would put the Fund in the top 10% of Pension Funds within the UK for responsible investment reporting.

An updated Climate Stewardship Plan (CSP) for 2023/24 had been developed following the production of the Fund’s latest Climate Risk Report by LGPS Central in March 2023. The CSP was a working document which was updated for engagement activity carried out throughout the year, with progress reported to the Panel quarterly. The CSP, attached at Appendix 1 to the report, provided information on manager engagement and voting during Q4 2022/23. In Q4 2022/23, notable managers’ engagement topics included:

•     Engagement with a financial services company about workplace behaviour.

•     Discussions with a multinational insurance company to discuss governance and stakeholder engagement on artificial intelligence and cyber security, along with conversations around gender diversity at executive levels.

•     Assessing how companies identified, assessed, mitigated, and acted on the risks or instances of modern slavery in their operations and supply chains.

LAPFF’s Quarterly Engagement Report for Q4 2022/23 was attached at Appendix 2 to the report. The report highlighted the good work LAPFF did in engaging with organisations on behalf of its members. Examples of engagement from the last quarter included:

•     Meeting with McDonald’s to discuss management of environmental risks across its agricultural supply chain and requested publication of its water risk assessment to identify high risk areas.

•     Meeting with Volvo to discuss the transition of Heavy Good Vehicles to electric.

•     Attending a round table with Nestle discussing their approach to reducing Scope 3 emissions, and their focus on regenerative farming, plastics and nutrition.

The Panel were informed that LGPS Central had been asked to provide more detail on the engagements undertaken with companies highlighted in the Fund’s Climate Stewardship Plan, which were derived from the Climate Risk Report that LGPS Central prepare for the Fund. As per Councillor Greatorex’s request, LGPS Central had also been asked to provide specific examples, and additional evidence, that demonstrated the positive impact their engagement processes had made.

In response to a question from Councillor Greatorex regarding the voting activity of managers, in particular noting a high proportion of voting against management by Legal and General (LGIM), it was highlighted that LGIM had its own Climate Change Pledge which may result in the manager taking a firmer stance against organisations when it came to voting processes. The approach may also be more mechanistic given the passive nature of the portfolio. It was agreed that Officers would arrange a discussion with LGIM to better understand these figures, with feedback being provided to the Panel at a future meeting.

Resolved: a. That the content of the Responsible Investment and Engagement report, including the Climate Stewardship Plan (Appendix 1), the Local Authority Pension Fund Forum (LAPFF) Quarterly Engagement Report (Appendix 2), and the LGPS Central Quarterly Stewardship Update (Appendix 4), be noted.

b. That the LGPS Central Annual Stewardship Report 2022 (Appendix 3) be circulated to the Panel when it had been received.