To consider the
report
Decision:
To approve the statement
and for the Chair to sign the declaration.
Minutes:
The Head of Finance Department highlighted that electors in Anglesey,
Conwy and Gwynedd had submitted questions to the Committee relating to
responsible investment. Appreciation was expressed for
receiving the questions beforehand, and the presence of the electors at the
meeting was appreciated. Resolved to respond to the questions before discussing
the report.
1.
What evidence does
the Gwynedd Pension Fund have that its engagement policy has genuinely changed
the behaviour of the companies in which they are shareholders?
It was explained that, as a Fund, regular meetings were held
with fund managers and progress reports were received on their engagement
activities. It was noted that the fund's managers were
very active and that the recent progress had been very satisfactory, with open
discussions being held regarding the climate strategy of some funds. It was highlighted that the Wales Pension Partnership (WPP) had
a Voting and Engagement Provider who assisted with the engagement process.
Reference was made to the following examples of considerate adaptations
by companies within the Partnership's portfolios.
a)
Archer Daniels Midland (ADM). Shortcomings had been seen in ADM's policies, which contributed to
continuous deforestation and a failure to protect native vegetation. It was noted that Robeco (Voting and
Engagement Provider) had held discussions with ADM since 2020 and had
introduced a proposal on behalf of the shareholders regarding their
contribution towards deforestation and the clearing of native vegetation in
South America. In March 2021, the proposal was withdrawn as the company had
committed to:
·
set obligations and a deadline for the abolishment
of deforestation by 2030
·
trace the soy supply chain in full by 2022
·
include native vegetation in their No Deforestation
Policy
·
publish a protocol for engaging with suppliers
b)
Enel Spa. It was reported that Enel Spa (an
international energy company from Italy), was active in the electricity
production and distribution sectors. By leading on cooperative engagement under
the Climate Action 100+ initiative, it was noted that Robeco had engaged on a number of occasions with the
company's executive and non-executive managers, who had led on developing an
ambitious strategy to develop renewable energy and digitalise distribution
networks. As part of the efforts to strengthen the governance of companies on
climate matters, Robeco succeeded to nominate the
former Chief Executive Officer of Wind Power at DONG Energy to the Enel Board,
along with a group of institutional investors. The next steps in their
engagement discussions will seek to address the company's intention to achieve
the target of net-zero by 2050, and set a long-term target for the Emissions of
Scope 3
c)
It was reported that ING Bank (financial services
provider in the Netherlands), placed a strong focus on digital services for
standard banking services. It was noted, in 2018, that ING had announced a fine
settlement of 775 million Euros due to their failure to discover money laundering matters between 2012 and 2016, and earlier
in the year, the oversight board abolished its proposal to increase their
executive pay levels following social pressures. It was
highlighted that Robeco had held meetings with
the Board's Chair to assess the strengths and weaknesses of ING and had
contacted the Investors in an attempt to review the risk management framework.
It was suggested to appoint an independent director to
the Board in 2019, and to continue to focus on further independent supervision.
In
addition, it was noted that the Gwynedd Pension Fund
was working with other Local Government Pension Funds via LAPFF, which promoted
the highest standards of corporate governance to protect the long-term value of
local government pension funds. It was reported that
the Forum was engaging directly with hundreds of companies by building a
healthy relationship and holding an open dialogue about corporate
responsibility in the fields of stewardship, climate risk, social risk and
governance risk. It was reiterated that LAPFF acknowledged that the 'change in
the climate was a substantial and urgent investment risk', and LAPFF was
considered to be a very useful forum to ensure an effective impact - recent
examples of engaging with Shell, Mitsubishi UFJ Financial Group and Sainsbury.
A
further comment was made that behaving as a 'critical friend' was a way of
stimulating change and engagement was considered to be the
best method of seeking changes.
2.
Has the Gwynedd Pension Fund looked in detail at
investing a proportion of the fund in local projects?
In response, the
Cabinet Member for Finance, despite being a relatively new member of the Pensions
Committee, noted that the matter of investing in local projects was one that
arose regularly in meetings. It was reported that as an individual pension fund
and nationally as WPP, that there was a common goal of investing locally, and
nationally in Wales. Reference was made to possible opportunities being
considered, along with an acceptance that more effective
investment could be done in Wales.
·
renewable and community projects across Wales
·
other growth deal projects (city deals).
Further
observations to the response:
·
that local investment was close to the Members'
hearts
·
that a definition of the word 'local' was needed
- need to differentiate between local and parochial. The world was smaller,
links were better and so 'local' was difficult to define
·
that joining the WPP fund had strengthened the hope
of local investment
3.
Does the Gwynedd Pension Fund consider the risk of
stranded assets, considering that a recent statement from the International
Energy Agency noted the need to prevent every new fossil fuel development this
year?
In
response, an explanation was given of the restrictions
in an attempt to prevent global warming, along with how the economy is making
the shift from energy sources such as coal, oil and gas, to using renewable energy
sources with governments recommending that companies reduce carbon emissions.
It was reiterated that Gwynedd Council was fully aware
of these risks and with assistance from the Fund's advisers, was seeking to
ensure that the asset managers, who chose the stocks, invested in companies
that were diversifying their businesses towards renewable energy, so that the
Fund is less open to risk. It was noted that the
choice of companies that the Investment Managers invested in them was being
monitored on an ongoing basis and challenged when needed by the Committee and
the advisers.
In
addition, the Members were reminded that the WPP had a Global Opportunities
Fund, a de-carbonisation strategy that excluded coal, as it was considered as a
stranded asset - coal was the least efficient energy source in terms of CO2,
therefore, an attempt was made to avoid coal.
4.
Will the Gwynedd
Pension Fund set a timetable for full diversification before
the COP26 Climate Conference in November 2021
It was
reported that the main aim of the COP26 Conference was:
‘Ensuring global
net zero by the middle of the century and keep within the reach of 1.5 degrees
and asking countries to bring forward ambitious targets for reducing the 2030
emissions that correspond to reaching net zero by the middle of the century.’
In order to achieve these
extended targets, nations will need to:
·
speed-up the period for
abolishing coal
·
reduce deforestation
·
speed-up the switch to
electric vehicles
·
encourage investment in renewable energy.
It was explained, as trustees of pension funds, that it was
essential to plan appropriately, and act and influence where possible, for the
benefit of the environment. It was noted that the Gwynedd Pension Fund had a duty as
trustee towards all of the fund's employers, their staff and pensioners, and
therefore, it did not divert for non-financial reasons alone. This meant that
decision to invest or not to invest in a specific company or asset type was based on the ability to generate sustainable long-term
returns for the fund, or something that would be influenced by the method that
a company would adopt towards climate change.
It was noted that the matter regarding owning fossil fuel
companies was more complex in nature that direct disinvestment. Whilst
dis-investing in fossil fuel reduced the attention on the pension fund,
disinvestment in itself did not address global carbon problems. Some considered
that fossil fuel would continue as an essential component of the energy mix, by
supporting economic growth and future global income. For example, reference was made to their use in the production and installation of
wind turbines - disposing of fossil fuel companies would likely dispose of the
best energy companies that invested in the generation of renewable energy.
These are the companies who support and set a
direction and drive the energy transformation programme. It was
noted that engagement was a more effective way of encouraging change,
rather than complete disinvestment as it allowed asset owners, such as the Gwynedd
Pension Fund and the WPP to undertake its executive ownership and maintain a
long-term relationship on such matters.
The
Fund will challenge the investment managers regularly on the steps they take on
environmental, social and governance matters, and seek to divert from fossil
fuel in general as part of the general strategy to reduce carbon emissions
across all sectors. It was reiterated that the Fund was developing its longer term strategy for reducing carbon emissions that is
consistent with the expected requirements of the Task Force for Climate-Related
Disclosures (TCFD).
Reference
was made to the steps already taken to reduce carbon
emissions:
·
Black Rock's Low Carbon Fund (12% of Gwynedd's
Fund) - a further low carbon fund has been developed which screens fossil fuel
before optimising low carbon, and therefore reduces carbon emissions further by
44% (Pensions Committee decision, 14/10/2020)
·
Global Growth Fund (17% of Gwynedd's Fund) -
efforts by investment managers within the fund to reduce the carbon footprint.
Baillie Gifford have developed a fund that dis-invests from fossil fuel
extractor companies and fossil fuel service providers (Pensions Committee
decision, 21/01/2021) and Pzena have decided to sell
stocks in a company that contributed 35% (31/12/20) of carbon emissions in this
specific fund.
·
Global Opportunities Fund
(17% of the Gwynedd Fund) - WPP has actioned a de-carbonisation overlay by
Russell Investments, which reduces the carbon footprint by 25%. It will be
possible to implement the same overlay at the next transfer to the WPP emerging
markets fund (3% of the Gwynedd fund) in October 2021.
·
Russell Investments (WPP
Investment Management Solution Provider) - have stated that they intend to
achieve a standard of net zero carbon emissions in their global investment
portfolios by 2050.
·
ESG GRESB Benchmark - a
global benchmark for environmental, social and governance factors within the
property field. Gwynedd Fund with a 10% allocation for investments in property
with relevant property managers, UBS and Black Rock have retained position
number 1 and 2 in their peer group for their 'ESG GRESB' score in 2020.
·
Manager engagement - the
Fund engages with managers, e.g. verifies their voting records, in an attempt
to influence change in the companies in which the Fund invests, particularly
WPP and Black Rock.
Although
it was noted that Russell Investments (WPP Investment
Management Solution Provider) have stated that they intend to achieve a
standard of net zero carbon emissions in their global investment portfolios by
2050, the Gwynedd Fund has not committed to this statement and it is not
convinced that such an ambitious and definitive target should be set.
It was highlighted that positive steps had been taken within
the Fund regarding matters relating to climate and that they had considered the
options seriously. It was accepted that more could be
done, but positive steps have already been taken with an intention to continue
as appropriate, by weighing things up carefully. It was reiterated that the Ffordd Gwynedd principles were being actioned, which
encourages a change in mindset to seek the best
result.
Gratitude
was expressed for the questions and for their
contribution to the Committee. Gratitude was expressed
for the update to the statement - by planning appropriately, it will be
possible to take timely steps when investing responsibly which will,
consequently, influence environmental benefits.
RESOLVED to approve the statement and for
the Chair to sign the statement.
Supporting documents: