This paper updates Members on a reminder of the work and previous papers that have been discussed regarding low carbon equity indices and the two options, including a comparison and preferred option for the Fund.
Faith Ward, Brunel Pension Partnership (BPP) gave a presentation highlighting BPP’s approach to responsible investment and stewardship. She showed slides that outlined the different asset classes and reporting strategies. BPP had been running for two years and used environmental, social and governance (ESG) principles to help reduce risk - using an ethical and responsible investment approach whilst monitoring the financial implication for Funds. An update on the different group of Funds as well as the different investment principles was provided. There were 17 different sustainable development goals available to different Funds that contributed towards tangible progress.
Faith Ward explained that BBP was set up to implement an investment strategy of each Fund by exploring options for pooling investment assets. However, if any concerns were discovered, BBP would work in collaboration with the selected managers to resolve these issues. The objective of pooling assets was to achieve savings over the longer term from both lower investment management costs and more effective management of the investment assets. ESG was constantly moving directions due to a challenging market – managers needed to regularly review these issues and pressures to maintain the investment processes.
Councillor Matt Thorley thanked Faith Ward for her presentation and experiences shared on ESG integration. He noted that it was very informative and there was a lot of information delivered that needed to be considered. Furthermore, he asked why there was no mention of companies such as banks throughout the presentation. In response Faith Ward explained that the main area of focus for BPP was mobile ecosystems and Google rather than banks.
The Chair asked for details to be provided on the different Funds which contributed to ESG. Faith Ward, explained that there was a total of 10 pools that were managed by BPP and majority of them were heavily involved in the responsible investment strategy.
The Chair asked for clarification around how much work was being carried out individually by each Fund and the contributions made by BPP. In response Faith Ward explained that BPP supported the asset allocation strategy (developing their thinking). In addition, manager selection was also BPP’s responsibility. Information was fed back to each Fund on a regular basis by providing quarterly reporting updates.
Phil Triggs, Director of Treasury & Pensions referring to page 19 of the agenda pack noted that the Fund’s investment consultant had met with FTSE Russell and prepared a short paper (Appendix 1) on a comparison between the two managers. He explained that MSCI World Low Carbon was well established and the main provider to LGPS funds. It also had a preferential fee rate with the Fund’s existing provider, Legal and General. The FTSE Russell World Low Carbon index took account of green revenues within such stocks as Royal Dutch, Shell, and BP.
Kevin Humpherson, Deloitte explained that given the lack of formal reporting requirements on carbon emissions, information gathered from FTSE was often inconsistent, incomplete, and lacking in quality. Therefore, their data collection process was very manual and data interpretation was time consuming. This was expected to change in the future as reporting requirements became more formalised. For these reasons as well as considering implementation, product availability and fees, he was of the view that MSCI Low Carbon Target Fund with LGIM was a more appropriate low carbon option for the Fund.
The Chair queried the timescales around the implementation to MSCI Low Carbon and the fees involved. Kevin Humpherson explained as the Fund’s current passive equity allocation was with LGIM, moving to MSCI Low Carbon Fund would not involve any on-boarding documentation or set up work. There was a management fee of 2 basis points and the benefit of a preferential fee agreement with the London CIV.
Members felt that after taking into consideration all the reasons above, moving to MSCI Low Carbon would be the most appropriate option for the Council. They requested that the transfer took place when the overall asset allocation was considered.
The Chair thanked Faith Ward for the presentation and the contributions made to the meeting.
That the Sub-Committee approved the selection of the MSCI World Low Carbon Target Index.