Agenda item

To consider the report of the Head of Finance

Following a training session held jointly with Board members on 18.1.2018, it was reported that Paul Potter from Hymans had prepared a report that outlined the agreed investment principles of Gwynedd members and officers based on responses to the questionnaire completed for the session. It was noted that this report, 'Agree Responsible Investment Principles' had been discussed at the Investment panel held on 28 February, and the Panel's main considerations were presented to the Committee to approve the principles.

The next step would be to present the listed principles to the Pensions Board (12.4.18) for scrutiny. If the Board agreed, it would be possible to incorporate the principles as an official part of the Fund's Investment Strategy Statement.

In response to the report, it was highlighted that it was timely to accept the principles in the context of the Wales Pensions Partnership. Gwynedd would have a clear opinion about its investing principles.

The principle of seeking to invest in sustainable assets was welcomed, including investing in the Wales area when 'non-financial gains' derived from it. It was reiterated that the Fund would consider investing in Welsh assets when the criteria permitted. Ensuring the best returns is the Fund's main priority.

In response to an observation about the wording of principles 2.1 and 2.2, and the suggestion that statements contradicted each other, it was noted that it was necessary to consider the principles in their entire context, without breaking up sentences and focusing on individual words.

The Head of Finance Department explained that the legal interpretation of "SAB" or "fiduciary duty" had been circulated to members of the Committee before the meeting of the Investment Panel.

RESOLVED  to adopt the fundamental principles about responsible investing so that they can be included in the Fund's Investment Strategy Statement.

2.1     In accordance with the Committee's fiduciary duty, financial considerations should carry more weight than non-financial considerations when making investment decisions, even though environmental, social, and governance ('ESG') matters can materially affect risk and returns. Therefore, 'ESG' factors should be embedded in the investment processes and in the decision-making processes of the managers appointed by the Fund.

2.2     The Fund's Committee will seek to invest in sustainable assets, including investing within the Wales area when non-financial investments can derive from this, on condition that they satisfy the requirements of the fiduciary duty.

2.3     The Committee accepts that it has a duty to be a responsible investor. It is expected that consulting with companies, rather than avoiding investing, will be more effective in changing corporate behaviour and reducing risk. Wherever possible, collaborative action provides the most successful route to influence outputs.

2.4     As a long-term investor, the Fund is vulnerable to systemic risks such as climate change and the expectation of a transfer to a low carbon economy.  Financial outcomes can be improved through managing how open to such risks the fund is.

2.5     Share-holder comprehension and outcomes can be improved through providing transparency at each step of the value-adding chain.