Agenda item

This report seeks to review the fund’s low carbon equity holdings, with a view to considering the potential to reduce the fund’s carbon exposure.

This report, introduced by Thomas Skeen, Head of Pensions, invited the PCB to review the fund’s low carbon equity holdings, with a view to considering the potential to reduce the fund’s carbon exposure.

The following was highlighted to the PCB:

• The Fund had always given serious consideration to Environmental Social and Corporate Governance (ESG) factors.
• A report would be brought before the July 2019 meeting to reflect the outcome of the PCB’s discussions and a strategy change could be agreed at that meeting.
• There had been regular equity reviews in recent years and approximately half  of the fund’s developed market equity is currently invested in a low carbon fund.
• This report focussed on the Fund’s overall allocation of 6.66% to emerging market equity.
• The exempt appendix produced by Mercer, outlined three potential options which the Fund could explore utilising in the future to reduce carbon exposure within its emerging markets portfolio.

Following questions by the PCB, it was noted:

• The PCB had made a decision in 2017 to have a 50% low carbon allocation in the developed market equity (everything that was not in an emerging market). 
• The emerging market equity was index tracked but not within a low carbon fund.
• The Fund’s Investment Consultant, Mercer, informed the PCB that emerging markets made up 15% of the Fund’s equity allocation, which contributed to 40% of its overall carbon exposure. Mercer had reviewed whether it was viable for the Fund to retain the same level of emerging market exposure but through a low carbon approach. 
• The PCB was not able to make a decision at the meeting regarding moving assets due to the ongoing negotiations with the fund manager, Legal and General. It was not possible to change the Fund’s strategy when it was not clear what the available options were or the costs involved. The PCB were invited to consider making a decision in principle and formalise that decision in July 2019, pending all information being disclosed. 
• It was not possible for the Fund to have zero carbon exposure. The PCB could seek to divest from fossil fuel companies but it would still have investments with other organisations, such as supermarkets, which, in the daily course of their operations, would produce carbon emissions. Low carbon indexation reduced the Fund’s exposure to the largest carbon emitters and, consequently, increased exposure to lower carbon emitters. The low carbon index had been effective at reducing overall carbon footprints.

(The PCB next considered the exempt appendix to this report in private, as per item 262. Members of the public were cleared from the meeting.

Following the conclusion of discussions in private, members of the public were invited back into the meeting room and the following was announced.)

The Chair thanked the Tottenham and Wood Green Friends of the Earth for waiting. The Chair then informed that the PCB had considered the exempt report and that, following discussion, it was minded to move existing funds from emerging markets into a low carbon version of the fund that would be set up for the London Borough of Haringey’s Pension Fund. However, the PCB was not in a position to formally make that decision as all of the costs and details of the deal had yet to be negotiated. Once all of the details were available for consideration, the PCB would be able to formally declare its decision at its July 2019 meeting. 

Resolved

1. That the Committee consider the report, and information outlined by Mercer in Confidential Appendix 1.

2. That the Committee agrees to commission a further report on this topic for the next meeting of the Pensions Committee and Board, reflecting the views expressed by members at this meeting.