Agenda item

The Investments Manager introduced this report to the Committee.

He stated that Brunel are our strategic partner for developing, implementing and monitoring our Responsible Investing policies and priorities. He added that for the year ending December 2019 Brunel have published a Responsible Investing and Stewardship Outcomes Report.

He explained that the report sets out the Responsible Investing and Environmental, Social and Governance (ESG) issues that have been taken into account and how these were addressed through strategic decision making.

He informed the Committee that some of the major strategic updates during the year were as follows:

·  The climate change modelling work undertaken by the Fund as part of the 2019/20 investment strategy review leading to a series of climate change objectives and asset allocation changes

·  Transition of assets to Brunel and further policy development in

collaboration with Brunel and its strategic partners

·  Monitoring, reporting and scrutinising investment managers Responsible Investing activity

·  Active participation in several industry initiatives including Local Authority Pension Fund Forum (LAPFF) and ClimateAction 100+ (CA100+). This year the Fund joined the Institutional Investors Group on Climate Change (IIGCC) and post period-end has been working with IIGCC and Brunel to help develop a framework for investors’ asset allocation to meet the Paris Agreement goal of becoming <2°C aligned

Wendy Weston commented that at the next Committee meeting she would like to hear any progress on the Barclays AGM shareholder resolution and referring to the LAPFF Quarterly Engagement Monitoring Report, how other financial institutions are dealing with Responsible Investing.

Laura Hobbs, Responsible Investment Manager, Brunel gave a presentation to the Committee, a summary is set out below.

Brunel overview

Brunel Pension Partnership is one of the eight national Local

Government Pension Scheme (LGPS) pools, bringing together circa £30 billion investments of 10 likeminded funds.

Brunel formally began its operations on 18 July 2017 upon the execution of the current shareholders agreement and its subsequent annexes, such as the

services agreement.

Covid-19 / Responsible Investment (RI)

The Covid-19 pandemic has had a profound impact on the economy and employment and has fired up Responsible Investment activity by putting a spotlight on ESG investing.

Policy makers are being urged to step-up with the growing likelihood of possible future pandemics.

Covid-19 has heightened almost every area of our work and uncovered important new topics. Climate change remains a focus.

Climate Change – Barclays update

Brunel co-filed the first ever shareholder climate resolution at a major European bank in December 2019. 23.95% of votes supported the resolution at the Barclays AGM in May 2020 demonstrating clear shareholder backing for the bank to become net zero by 2050.

Climate Change – Blackrock update and TCFD (Task Force on Climate-related Financial Disclosures)

Following extensive engagement with Blackrock, we welcomed their public stance over voting against 53 companies and putting another 244 on ‘watch’ for inadequate action over climate risk

TCFD could be embedded in UK pensions law

Net Zero Framework – IIGCC project to pilot new tools to assess

our portfolios’ alignment with climate goals

Climate Change - Net Zero Investment Framework

The framework has been developed with over 70 global investors, representing more than $16 trillion, through the Institutional Investors

Group on Climate Change (IIGCC)

Aims to maximise investor contribution to decarbonisation, helping to keep global temperature rises below 1.5ºC

Brunel is among a group of 5 investors that are testing the framework, by

modelling the impact of real-world portfolios

Working with Avon, we submitted three portfolios for modelling:

• ‘Benchmark Portfolio’ – passive portfolio with no climate considerations integrated

• ‘Current Portfolio’ – the listed portion of Avon’s current investment portfolio

• ‘Future Aligned Portfolio’ – hypothetical portfolio applying the Net Zero methodology to Avon’s portfolio

We look forward to sharing the results of the modelling with analysis and the final framework before the end of 2020.

Climate Change – how do we measure our progress?

We aim to have all of our material holdings on TPI (Transition Pathway Initiative) level 4 or above by 2022

We aim to reduce the carbon intensity of our Portfolios by 7% each year vs the benchmark

PAII Project will help us to define what a Paris Aligned Portfolio looks like and inform how we progress towards alignment

Covid-19 has created a spotlight on the ‘S’ of ESG

Racial inequality – Talk About Black blog

Labour standards and modern human slavery

Workplace mental health

We have been engaging across all of these topics, both directly with companies and through our asset managers, working collaboratively with other investors in the industry.

Racial inequality – Talk About Black blog

Helen Price, Stewardship Manager, Brunel led on this area of the presentation as she had published the blog

We are members of the Diversity Project and contributed to guidance around how asset owners can integrate diversity into the selection process

We are seeking to improve the amount of data available around diversity and inclusion, working with data and engagement providers

Migrant Labour and Modern Human Slavery

Covid-19 has created a migrant labour crisis, particularly in the Middle East. Alongside 38 other investors, comprising $3 trillion we have written to 54 companies who have operations in The Gulf, focusing on high risk sectors of hospitality, construction and oil and gas.

We are asking companies to:

• Engage independent specialists to perform exit interviews

• Commit to reimbursing recruitment fees and adopt the ‘employer pays principle’

• Perform best practice due diligence on labour outsourcing companies

Workplace Mental Health

We wrote to all FTSE 100 companies alongside a coalition of investors with £2.2 trillion.

Urging companies to develop a specific ‘mental health during Covid-19 action plans’, with items such as:

Training for all line managers on how to spot signs of poor mental health and assist vulnerable employees

Increased flexibility in job design and performance appraisals

Clear details for employees on how to access support

Brunel’s PRI (Principles for Responsible Investment) Assessment

We are very pleased with our results as our score was above the median score for all modules.

Sustainable Investment Awards

2020 Winner – Pension Fund of the Year

Councillor Paul May praised their good work and commented that it was good  to be better than the benchmarks that have been set. He asked if targets for improvement on climate change / ecological emergencies could be agreed. He also suggested a local focus on additional housing concerns.

Laura Hobbs replied that Brunel do have a target to reduce the carbon intensity of their portfolios by 7% each year vs the benchmark.

She said that they would be happy to work with the Committee on specific climate change goals. She added that they will have input into the 2022 stocktake and that RI covers many areas such as deforestation and water quality.

Councillor Shaun Stephenson-McGall asked if in the stocktake of 2022 will the fund start to divest from laggard companies. With regard to human capital he also asked how Brunel would engage with companies such as Wells Fargo following comments made by their CEO.

Laura Hobbs replied that they were aware that some clients were discussing divestment internally and it was something that could be fed into the 2022 stocktake.

Helen Price added that unfortunately comments like that are still heard a lot across our industry as an excuse for not employing staff from BME backgrounds. She added that the comments are not acceptable and that Brunel have feedback to many companies on this issue through their work on the Diversity Project to try to ensure that diverse talent is sought.

She explained that a specific piece of work was currently ongoing with local universities to recruit 100 black interns to work within Asset Management companies.

Richard Orton said that in 2022 the Fund must divest from those companies that do not the matter of climate change seriously enough and that if it did not the Fund would look weak.

The Group Manager for Funding, Investment & Risk said that work was already underway with regard to future stocktakes and that a great deal of progress had been made over the past 12 months. She added that it would be welcome to have better and more appropriate benchmarks to measure our investments against.

John Finch asked if Covid-19 has moved us towards being better ESG citizens.

Laura Hobbs replied that she felt that it has highlighted to people the ecological and environmental importance of where they live. She added that it was important for companies to look after their employees and have a sustainable approach to their work. She said that it has made people more aware of the need to have a more sustainable economy.

Pauline Gordon said that she was very pleased with the progress that Brunel has made on the issues and felt that they were leading the way on Climate Change and Responsible Investing.

The Committee RESOLVED to:

i)  Approve the Annual Responsible Investment Report for 2019/20 for

publication

ii)  Agree the RI priorities for 2020/21