Agenda item

This paper reports on the investment performance of the Fund and seeks to update the Committee on routine strategic aspects of the Fund’s investments and funding level; and policy and operational aspects of the Fund.

The Investments Manager introduced this report to the Committee. On the issue of Responsible Investment Activity he explained that Brunel was one of 16 institutional investors that co-filed a climate change resolution at HSBC, co-ordinated by ShareAction. It called on HSBC to publish a strategy and targets in order to reduce its exposure to fossil fuel assets on a timeline consistent with Paris climate goals.

He added that in March there was intensive engagement with HSBC in the lead up to its AGM that resulted in Brunel and all co-filers withdrawing the resolution on the understanding that HSBC would put forward their own resolution that includes commitments to set, disclose and implement a strategy with short- and medium-term targets to align its provision of finance across all sectors with the goals and timelines of the Paris Agreement, to phase out the financing of coal-fired power and thermal coal mining by 2030 in the European Union and by 2040 in other markets and to produce an annual report on the progress of the strategy.

Steve Turner, Mercer added that the funding level increased from 93% to 95% over the quarter to 31^st December 2020. He said that based on investment returns and net cashflows into the Fund, the deficit was estimated to have reduced over 4Q20, from £376m to £272m.

He informed the Committee that the currency hedging programme is in place to manage the volatility arising from overseas currency exposure, in particular to protect the Fund as sterling strengthens and returns from foreign denominated assets reduce in sterling terms.

He explained that the Fund’s Equity Protection Strategy declined in value over the quarter, as markets rose further from the protection levels in place and that this detracted from the overall fund return over the quarter.

He added that officers, acting on advice from Mercer, considered a tactical

opportunity to restrike the protection levels given the significant increase in the

underlying equity markets, which would allow further upside participation. He said that due to unattractive pricing and the potential losses incurred under a downside scenario, officers agreed to take no action but to keep the prospect of closing out the structure ahead of time - and moving to a dynamic approach sooner - under review.

Councillor John Cato asked if the 3.2% net investment return mentioned in section 5.1 of the report was due to new contributions or performance of the fund.

The Group Manager for Funding, Investment & Risk replied that there were no monthly contributions to invest so the return was due to asset performance.

Councillor Steve Pearce commented that he had responsible investment concerns with regard to human rights abuse in China. He proposed that the Committee should receive a general report on the Social element of ESG (Environmental, Social and Governance).

The Group Manager for Funding, Investment & Risk replied that Brunel have been addressed on this issue and that it was difficult to assess the potential exposure. She added that officers could try to analyse and report back.

The Committee REOLVED to note the information set out in the report and appendices.