Agenda item

The report covers periods to March 2024. Significant RI work has been undertaken over the year, building on the positive steps taken last year to enhance the Fund’s net zero climate targets and allocate capital to local impact investments.

The Group Manager for Funding, Investment & Risk introduced the report to the Committee. She thanked the Investments Manager and the Senior Investments Officer for their work on this subject and in compiling the report.

She gave the Committee a presentation. A summary of the main points are set out below and a copy of it will be attached as an online appendix to these minutes.

2023 Responsible Investing Annual Report Recap

•  Significant changes to the Fund’s responsible investment strategy took place in 2023, with a particular focus on climate change - “We commit to be Net Zero on financed emissions by 2045 across the whole Fund.”

•  To help achieve this, we have set clear interim targets:

•  By 2030 the Fund will divest from all developed market equity holdings in high impact sectors that are not achieving net zero or aligning to achieve net zero by 2050.

•  The Fund will reduce the carbon intensity of its listed equity portfolios by 43% by 2025 and 69% by 2030 (verses 2019 baseline).

Responsible Investing Annual Report 2024

The 2024 report:

•  Focuses on key areas where we have seen increased stakeholder interest and faced challenge through the year e.g. investing in conflict affected regions, sustainability in supply chains and local investment

•  Progress on climate targets

•  High profile engagement examples

•  Introduces forward look section to help readership get a sense of what the Fund will be focusing on next year.

Net Zero 20245 - Climate Metrics & Monitoring

•  Listed equity portfolio has delivered a 63% reduction in absolute emissions verses 2019 baseline year.

•  Ahead of interim decarbonisation targets of -43% by 2025 and -69% by 2030.

•  Going forward, reductions will be harder to achieve and will be driven by efficiency gains.

Private Markets – Renewables

•  Total Fund investments in sustainable infrastructure totalled just under £500m.

•  Well diversified portfolio across asset classes and investment funds.

•  Investments span established renewable assets:

-  £165m invested in solar (across GIF, Secured Income, Brunel renewable infrastructure & Wessex gardens)

-  £120m invested in wind

Wendy Weston asked why there currently was a lack of investment in Hydro.

The Group Manager for Funding, Investment & Risk replied that it hasn’t been an area of investment that has been highlighted by any of our managers. She added that it was an area that would likely need substantial capital investment and that a view on this should be sought from Brunel.

The Head of Pensions added that the bulk of the Fund’s renewables investment has been in the UK and Europe, where there were limited new hydro investment opportunities.

Councillor Robert Payne referred to page 52 of the agenda pack and asked if an explanation could be given as to what is covered by the term ‘Other’ in the chart.

The Group Manager for Funding, Investment & Risk replied that this covered areas such as providing energy to data warehouses and greenhouses using waste power, among many different projects. She added that it was a very broad variety of asset, difficult to define.

Councillor Mike Drew asked if any investment into research regarding renewables was taking place by the Fund.

The Group Manager for Funding, Investment & Risk replied that this would occur to some extent through listed equities and bonds, but the Fund does not directly invest to universities for example to carry out research.

Local Impact Portfolio – New for 2024

•  In 2023 we agreed to invest £170m into a Local Impact portfolio, initially comprising three core pillars:

•  Renewable Infrastructure (£50m)

•  Affordable Housing (£50m)

•  SME (Small and medium-sized enterprises) Funding (£10-30m)

•  Wessex Gardens – £50m commitment

o  £330m invested in 17 local solar assets (Avon £35m), 8% projected return

o  Contracted inflation linked revenues for 15+ years

o  Uplift in valuation (from £232m to £245m) reflecting below market acquisition price

•  Octopus Affordable Housing Fund - £50m commitment

1.  Co-invest structure which includes £10m Avon sleeve

2.  Will fund around 250 new homes for up to 1,000 people

•  Currently reviewing SME Funding managers

Councillor Joanna Wright asked if the new homes planned would be truly affordable and would the work be affected by National Planning Policy.

The Group Manager for Funding, Investment & Risk replied that there was a key worker / low-income family focus for the planned homes. She added that the Council has put Octopus in touch with local housing developers and that they should all be aware of any Government plans / policies.

Councillor Shaun Stephenson-McGall asked if there was a timeline for the delivery of the 250 new homes.

The Group Manager for Funding, Investment & Risk replied that they were hopeful of delivery in the next three years.

Councillor Joanna Wright asked if Octopus could attend a future meeting and provide us with a briefing as the issue of affordable / social housing was so important.

The Group Manager for Funding, Investment & Risk replied that this was a good idea and they could look to schedule something for the early part of 2025.

Stewardship

•  2023/24: 88% of material sectors’ financed emissions aligned or under active engagement.

•  Engagement and active ownership are central to the Fund’s approach to ESG

•  The report includes numerous case studies that demonstrates active engagement from both Brunel and EOS throughout the year 

Councillor Shaun Stephenson-McGall asked if in the 2025 Annual Report there could be further information relating to the sectors that are aligned or under active engagement.

The Group Manager for Funding, Investment & Risk replied that she would take that suggestion away for consideration.

Councillor Toby Simon stated that he had recently spoken at the Liberal Democrat Conference on the importance of energy transition and asked what metrics were available in that respect.

The Group Manager for Funding, Investment & Risk replied that this was currently difficult to gather data on energy transition and that the Local Authority Pension Fund Forum (LAPFF) and Brunel were working on how to address this.

Natural Capital – New for 2024

•  During 2024/5 the Fund will build on its existing natural capital investments, by making a dedicated allocation between £100-150m

•  Next steps:

-  Significant interest across several Brunel partner funds

-  Implementation options currently being explored via Brunel

-  Fund undertaking training session with Panel in November to discuss viable options / preferred asset classes.

The Committee RESOLVED to:

i)  Approve the Draft 2024 Annual Responsible Investment Report for publication.

ii)  Agree the 2025 RI priorities as set out in section 4.4.