Agenda item

The Committee will receive a presentation on this item at the meeting.

Faith Ward, Chief Responsible Investing Officer, Brunel addressed the Committee and gave a presentation on the Brunel Stewardship and Climate Stocktake. A copy of the presentation will be available as an online appendix to these minutes and a summary is set out below.

Faith Ward commented that engagement and stewardship was undertaken by underlying investment managers and via Brunel’s appointed voting and engagement provider, Federated Hermes at EOS. Brunel also engage directly with industry / investee companies.

Jackie Peel asked how can that level of collaboration and consistency take place if Asset Managers and Hermes are having talks separately with the same companies.

Faith Ward replied that Asset Managers will have talks with companies re: engagement priorities and processes about particular topics with Hermes potentially having separate meetings. She added that these meetings are monitored and that generally a level of consistency is found.

She stated that Hermes lead talks on our behalf with regard to £60 / 70 trillion pounds worth of assets.

Faith Ward took members through the engagement hierarchy which begins with thematic engagement and follows a predetermined path which retains selective divestment as an option if material progress is not made on a particular engagement.

Pauline Gordon asked if index fund voting alignment could be explained in any further detail.

Faith Ward replied that where there are segregated funds they are able to direct the voting, but this is significantly more complex in pooled passive funds where there is less flexibility in investors ability to direct votes.

She added that an agreement is in place with Legal & General (Brunel’s passive fund provider) so that for a limited number of times per year Brunel can direct voting thereby aligning voting with Brunel’s policy.

She informed the Committee that Brunel are supporting Legal & General in piloting an exercise with Tumelo who have a role to help investors express their views on voting decisions.

Councillor Shaun Stephenson-McGall asked how often could Brunel update the Fund in relation to companies that are not as engaged in working towards the net zero by 2050 target and whether selective divestment is required. He stated that he felt that more action within this area was required.

Faith Ward replied that this was an ongoing process and that selective divestment has taken place extensively across many of Brunel’s portfolios already. She added though that there is a difficulty in ascertaining from the Asset Managers if the divestment was purely in connection to climate change.

She acknowledged that this a challenge and that a judgement is needed as to when should a decision be made to say that enough is enough. She added that on one level the risk to the portfolio can be removed, but in doing so this would not change the company concerned.

She stated that in her view divestment would be seen as a failure as they have not been able to shift the company on its decision making.

She said that there is a struggle within the sector to decide what is the right course of action for an Oil and Gas company to take and that the work within the Stocktake is assessing how portfolios are working. She added that some portfolios are hitting their targets in terms of reducing emission levels, but that alignment overall was not as far forward as they would like as an industry. She said that they are using all of their possible levers.

Councillor Stephenson-McGall asked what happens in future years if companies continue to not be doing a good enough job with regard to their climate change actions.

Faith Ward replied that it needs to be made clear as to what is the methodology behind a transition plan for Oil and Gas companies and that this is being piloted currently by around six of them to establish what a fair and adequate transition plan looks like. She added that Brunel has a low exposure in the main to these types of companies in comparison to a normal pension fund.

Councillor Stephenson-McGall asked if the communications on this matter, in particular the Engagement Hierarchy were right, in terms of the message reaching as many people as possible on the work that is trying to be achieved.

Faith Ward replied that she felt that despite already doing quite a lot there was always scope to do more and that this would be one of the focus areas of the upcoming Brunel Investor Day due to take place next week on 28^th September.

She added that they will also look to use different forms of media such as podcasts and videos to engage as widely as possible.

Councillor John Cato commented that it can still feel like a bit of a struggle as the job of the Fund is to maximise the returns of our customers despite the acknowledgement that we would like to reduce our investment in fossil fuels. He added that the sustainability of the Fund was key and asked how the right balance can be found.

Faith Ward replied that in her view there is a fiduciary duty to serve the best interest of your beneficiaries and that this should be both holistic and long term. She added that the financial damages as a result of unabated climate change will be catastrophic to the economy and the world and that action must be taken.

She explained that a large number of the companies concerned do have the cashflow to reinvest and do redeploy capital funds, but not necessarily to the levels that we would like them to.

She gave an example of how Shell could produce aviation fuel in a different way so that it was then less damaging to the environment if regulations were changed and that they were engaging with the aviation industry to seek such changes.

Councillor Cato said that he would also like to see the communication of decisions carried out in such a way that a higher number of stakeholders and companies are informed about why they have been made.

Richard Orton said that he did not feel that a detailed approach to the Climate Stocktake had been carried out. He asked if it could be outlined in more detail and whether it concentrated solely on fossil fuel giants.

Faith Ward replied that respectfully she disagreed and said that the work that has been carried out with certain Banks and the focus on their primary capital flow for the fossil fuel industry is banks and bank loans. She added that in trying to change the way in which banks lend is systemically much more impactful than talking solely with energy companies.

She questioned what an appropriate climate transition framework for the banking sector was and how can a bank be judged whether it is doing a good enough job. She referred back to the presentation to give more information on the Climate Stocktake.

Two years into at least ten years of work. Delighted with our progress, but aware that there is so much more to do.

Alignment will be very key over the coming years.

Faith Ward then referred to some specific case studies of recent engagements including Berkshire Hathaway and the co-filing process Brunel went through with Hermes to target the company on climate disclosures.

Councillor Bruce Shearn stated that he was able to see the progress that Brunel have made and said that the Fund should be positive about its work.

Faith Ward then went on to provide detail of Brunel’s approach to human rights, social impact and biodiversity.

Steve Turner asked if it would be possible for Brunel to achieve the net zero target by 2040.

Faith Ward replied that targets are relevant to the agreed investment strategies and the level of risk that Funds are willing to take.

She added that through pooling it is the Funds who approve the strategic asset allocation.

She stated that they do have the ability to be more ambitious, but that this does rely on the cooperation of other parties, therefore if all were in agreement to be net zero by 2040 this could be achieved.

She added they have stated they would achieve the net zero target no later than 2050 and that they would be able to supply a product range for the target the Fund wants.

William Liew asked how the success of the work Hermes does can be gauged and whether it was through KPIs.

Faith Ward replied that they have a proactive engagement plan in place that does contain a number of KPIs. She said that they are judged on the milestones they achieve and their responsiveness.

The Chair thanked Faith for her presentation on behalf of the Committee and said that they would most likely invite her back in the early part of 2023 to discuss the Climate Change Policy and Stocktake Report.

The Committee RESOLVED to note the presentation.