Agenda item

The Committee will receive a presentation from Brunel on this matter at the meeting.

Laura Chappell, CEO Brunel Pension Partnership and Vaishnavi Ravishankar, Head of Stewardship addressed the Committee. A summary of their presentation is set out below and a copy of it will be attached as an online appendix to these minutes.

Brunel update Q2 ‘24 - Part 1 – Laura Chappell

Brunel is a flagship organisation with an industry leading reputation that is 100% committed to the needs of its client pensions funds.

85% of assets have climate change targets and Brunel aims to align stewardship across all of our work areas. Brunel has implemented a new approach to Human Rights in terms of our investing and Artificial Intelligence (AI) has recently been introduced at Brunel.

A series of metrics and targets for our investment in Private Markets are in progress.

We are happy where the company is in totality, responsible investing is our focus and we have a long-term view towards investing.

2024-5: Priorities ahead

·  Responsible Investment Performance

·  Strategic Objectives

·  Governance

·  Pooling

Pooling – Likely to be no Government money in the pot. Discussions ongoing with representatives of both the Conservatives and Labour. Can we invest in the UK and align with our priorities? Our members remain our priority.

Jackie Peel asked for further details in relation to cost savings and how they benchmark against the aims set out when Brunel began.

Laura Chappel replied that when they submitted their business case 7 years ago they stated that they would seek to outperform what the Fund was already achieving and that they have succeeded in doing so by saving £41m over this period. She added that over the past year a further £2m has been saved on investment fees.

Jackie Peel asked if they had any further targets in mind to achieve.

Laura Chappell replied that they have to be mindful to not squeeze managers too much, but said that there is a shift of funds investing passively as opposed to active. She said that they had actively embarked on an engagement process regarding fees that had led to the savings achieved.

Councillor Kate Kelliher asked if they could define what they see as long-term investing.

Laura Chappell replied that she sees this as a 25 – 50 year timeline and even performance over a 5 year period is not so relevant unless it can be sustained. She added that they obviously need to be aware of blips that may occur and how to manage them.

John Finch asked if during her recent discussions with the political groups she was able to gain what their views are on pooling.

Laura Chappell replied that Labour are not showing for much of a push on consolidation and are more interested in investment into the UK. She added that she acknowledges that the Fund will need to continue to grow, but are not able to accommodate this currently and will need to find a balance point to do so in the future.

Councillor Mike Drew asked what the set-up costs were for Brunel and would there be further if consolidation was to take place.

Laura Chappell replied that in terms of set-up costs they broke even around a couple of years ago and that all funds agreed to put in £1m to enable Brunel to begin their work. She added that if a new fund were to be added some costs may increase, but she felt that they would be able to manage this and that overall they should remain fairly stable.

Councillor Toby Simon said that he would be interested to hear more details about their approach to Human Rights.

Laura Chappell replied that this would be picked up in the second part of the presentation. She added that they do feel that a long-term view is required and to not make knee jerk decisions to disinvest. She said that they will also lobby when they feel that a company’s behaviour is wrong.

William Liew asked in terms of the balance of power what was not working well between the Pension Funds and the Brunel Board.

Laura Chappell replied overall things were working really well, but they are not so ready to handle the smaller issues, such as Local Investing and these matters are therefore handled outside of the pool. She said that as things progress some clarity would be needed on who can make decisions, the Board or the funds, if not all the funds in the pool agree.

The Head of Pensions added that he felt that now Brunel was mature and up and running, that the governance could be simplified to enable a slicker decision-making process.

Councillor Fi Hance referred to the possible investment in Sizewell C and asked what governance measures would be needed for such a decision.

Laura Chappell replied that decisions such as this need to be clearly defined on their investment potential rather than a political stance. She added some Councils do have a policy that includes no nuclear investment and that would potentially be a barrier should Brunel feel that an investment is worth making.

Stewardship – Vaishnavi Ravishankar

Approach to Stewardship

·  Asset Managers

·  Service Provider

·  Collaborative Initiatives

·  Direct Engagement

We rely on our asset managers to be aware of risks associated with ongoing conflicts around the world. We will always ask if Human Rights due diligence has been carried out – this can be a difficult area to approach at times.

We are mindful that systemic risk can’t always be avoided.

2023 – At a glance

·  805 companies engaged.

·  115 companies featured engagements with the CEO or Chair.

·  401 companies featured engagements with senior management or board members.

·  121 public policy interactions including consultation responses, letters, meetings and discussions.

·  1,331 meetings instructed.

 Co-filed three resolutions:

·  Charter Communications on diversity – New female director appointed.

·  Barclays on financing new oil and gas infrastructure – Updated policy

·  Shell on scope 3 emission reduction targets – Very defensive. Disappointed, but good basis for future discussions.

The Head of Pensions commented that Shell had recently seen a change in shareholder base from Europe to USA.

Vaishnavi Ravishankar said that some funds had taken the decision to disinvest which has made it more difficult to engage than previously. She stated that Brunel were committed to continuing their work with Hermes to pursue change.

Voting process

•  Full voting rights in segregated active accounts – implemented by Hermes EOS

•  Overrides of Hermes’ recommendations part of the process

•  Passive index tracked investments – Brunel can exercise split votes in some circumstances. For e.g. Exxon Mobil

Climate

•  CA100+ companies

•  decarbonisation strategy (incl. ambition and targets)

•  TCFD or equivalent climate disclosure

•  Companies scoring below TPI Level 4

•  select sectors

•  Greater scrutiny on climate lobbying, capex and climate accounting disclosures

Voting guidelines –  implementation on tax

•  Engage with companies on tax transparency – aligned with Global Reporting Initiative (GRI) tax standard.

•  Votes against Chair of the audit committee or other relevant directors in 2025.

Example on deforestation

•  Engage on improving disclosure and management of deforestation risks.

•  Votes against the re-election of the company chair where:

•  Companies score below 20 on the Forest 500 ranking

•  Financial institutions that score 0 on Forest 500 ranking

Next steps

Climate change

•  Escalate climate alignment expectations with managers.

•  Champion the disclosure of scope 3 emissions.

Human rights and social issues

•  Develop our human rights strategy.

•  Empower PMs with tools and frameworks to enable manager monitoring.

Biodiversity and Nature

•  Data integration and assessment needed to progress TNFD reporting in 2026.

•  Work with EOS to ensure that the topic remains a priority for policymakers.

Cyber and AI

•  Continue to use AI to enhance stewardship.

•  Participate in RLAM engagement on cyber security.

The Chair referred to the subject of Biodiversity and Nature and asked how they were looking at the impact of the health of our river systems and the health and welfare of the seas around our country.

Vaishnavi Ravishankar replied that they do not have specific measures for those areas currently, but could discuss that further with their asset managers and Hermes as part of their Biodiversity Strategy.

Laura Chappell added that it will help that they have the Environment Agency as a client as she was aware that they have been engaging extensively on the issues raised recently.

Councillor Mike Drew asked how successful the votes against the Chairs are.

Vaishnavi Ravishankar replied that they need to ask if they are being effective in the way they implement their stewardship and said that she believed that they are. She added that the votes send a clear message to the company that says we are not seeing the progress we would like to.

She said that the votes do depend on who else might support them and that it is important to explain to the company why we have taken the decision to vote this way.

Laura Chappell added that this was hard to define, but said she believed that they do have a large voice and feel that their opinions are heard. She said that disinvestment was an option, but in doing so you lose the ability to influence real-world change.

Councillor Robert Payne commented on the poor engagement from Shell and asked at what point would any further action be considered.

Vaishnavi Ravishankar replied that a bit of a roadblock had been reached with Shell, but said they have been talking with them about how they can influence their clients regarding a transition to net-zero. She said that the focus remains on engagement to try to achieve decarbonisation.

Laura Chappell added that they recognise that the Fund has net-zero targets in place and so disinvestment may occur at some point, but that they will try to work for as long as possible to establish a real-world change.

The Chair commented that he would the Committee to receive a future report on Artificial Intelligence so that they can understand more about the risks and rewards that come from using it.

The Chair, on behalf of the Committee, thanked Laura Chappell and Vaishnavi Ravishankar for their presentation.