Agenda item

To note the contents of the report and consider any associated risks

The Investment Manager presented a report, responding to how the Gwynedd Pension Fund had considered the climate in setting its funding and investment strategy, and how this would develop to the future.

It was reported that several articles had been published recently which stated that the advice that pension funds receive does not follow climate science, and therefore risks these investments (this was based mainly on a report by Carbon Tracker (July 2023)). It was noted that some Board members had also drawn officers' attention to the articles and shared their concerns. The main message of Carbon Tracker, a not-for-profit company researching climate risk, is that economic papers ignore climate 'tipping points' which meant that changes in the economic impact from global warming “are far more likely to be impermanent and sudden, rather than continuous and relatively gradual”.

It was noted that the concerns had been shared with Hymans Robertson, the Fund's investment advisors, who agreed that the report raised valid points, but that the aspects they referred to had been considered in setting out the Fund's investment strategy. These matters had been considered using 'scenario analysis', and examples of those scenarios had been shared with the Members. It was acknowledged that this aspect needed to be evolved as understanding of climate risk developed, and that Hymans needed to research more detailed and extreme scenarios. It was added that measuring exposure to climate risks and the development of a climate transition action plan would be key next steps for the Fund to address, together with implementing the TCFD requirements (namely, disclosure of the Fund's governance arrangements in the context of climate-related risks and opportunities).

Members expressed thanks for the report.

During the ensuing discussion, the following observations were made by members:

·         Following recent training by Hymans, one felt more comfortable that what the Gwynedd Fund was doing corresponded with the required standard.

·         A balance must be ensured – there was benefit to engagement and trying to influence.

·         If it was planned to invest less in equity and more in infrastructure in future, this would be more carbon neutral.

·         Hymans were being paid a fee to do the work. Should we accept what Hymans were saying – was the response acceptable? Should there be a discussion with the Fund's Members to find if they were happy not to invest with companies that were damaging to the climate? Why was disinvestment not possible by 2030? Other pension funds were disinvesting – need to look into this.

In response to the comments, the Head of Finance stated that the Pensions Committee's primary responsibility was to ensure good returns for the Fund's members through responsible and secure investment. He explained that when advice was received from Hymans Robertson, professional officers would challenge, question, interpret and analyse the information before sharing / discussing it with members. This was a means of ensuring responsible governance of the Fund and avoiding risking the stability of the Fund in any way. He added that the formal decision of the Gwynedd Fund was to engage and not disinvest, because there was greater influence to be had through investment. He also noted that he was aware that some funds were practising disinvestment, and that more information could be found about this. If a situation arose where we could invest less, e.g. in fossil fuels, this would be considered; the Gwynedd Fund was aware of the direction that had been set, and was therefore working towards this.

The Chair of the Pensions Committee added that the Committee had a responsibility to ensure a balance between their legal duty to act as trustees in others' best interests, and consider their environmental responsibilities and changes to the climate. The intention was to make small steps through engagement rather than disinvestment, using the logic that investors can influence companies and drive change as their interest changes. In response to a comment regarding the advice from Hymans Robertson, it was noted that the company had a duty to present the best and correct advice to the fund's trustees, and should a situation arise where there was no confidence in their advice, then it would be possible to find new advisors. 

RESOLVED to accept the information