MINUTES of a meeting of the Pension Committee held at County Hall, Lewes on 20 July 2022.
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PRESENT |
Councillors Gerard Fox (Chair) Councillors Ian Hollidge, Paul Redstone, David Tutt and Georgia Taylor |
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ALSO PRESENT |
Ian Gutsell, Chief Finance Officer Sian Kunert, Head of Pensions Russell Wood, Pensions Manager: Investment and Accounting William Bourne, Independent Adviser to the Pension Committee David O’Hara, ISIO Charles Pringle, ISIO Leah Worrall, ISIO Tim Gooding, Baillie Gifford Amy Anderson, Baillie Gifford Roisin McGuire, Barnett Waddingham Paul Freedman, Pensions Investment Analyst Mya Khine, Pensions Accountant Dillon Piggott, CIPFA Trainee Elitsa Iskrenova, Pensions Accounts Assistant Bekki Freeman, Solicitor Martin Jenks, Senior Scrutiny Advisor Thea Synnestvedt, Governance and Democracy Officer
Councillor Nick Bennett Ray Martin, Chair of the Pension Board
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20. Minutes
20.1 The Committee discussed disruptions at County Hall which had taken place the previous day. The Committee RESOLVED to allow press only into the meeting to avoid further disruptions noting that the meeting would be webcast to the public.
20.2 The Committee RESOLVED to agree the minutes of the meeting held on 17 June 2022 as a correct record.
21. Apologies for absence
21.1 There were no apologies for absence.
22. Disclosure of Interests
22.1 There were no disclosures of interests.
23. Urgent items
23.1 There were no urgent items.
24. Baillie Gifford - Growth Equities Presentation (training item)
25.1 The Committee received a presentation from Baillie Gifford regarding the place of growth equities in the current inflationary environment.
25.2 The Committee discussed a range of issues including:
· Exposure to China – Chinese regulation places limits on overseas ownership of Chinese companies. Foreign exposure to Chinese industries, such as the tech industry is therefore often done through Chinese Cayman Shell Variable Interest Entities which are traded by investors on US exchanges in a similar manner to American Depositary Receipts (ADRs), although they are not ADRs.. Recent Chinese regulatory measures had however been amended to facilitate further cross-border regulatory co-operation. It was noted that holding Chinese Cayman Shell Variable Interest Entities posed a risk due to the nature of the ownership and it was difficult to engage with companies regarding their stewardship processes when owning a stock through an offshore vehicle. The Committee noted that Bailie Gifford had previously had a high exposure to China, which had reduced in recent months, with current exposure totalling 6-7% of the portfolio. Bailie Gifford had recently opened offices in Shang Hai which enabled them to get better traction in the Chinese market.
· The Committee discussed Bailie Giffords position on volatility versus cumulative return and it was noted that Bailie Gifford would provide further information regarding their position.
25.3 The Committee RESOLVED to note the report.
25. Barnett Waddingham - Inflation and Funding position Presentation (training item)
25.1 The Committee received a presentation from Barnett Waddingham regarding the 2022 valuation assumptions.
25.2 The Committee discussed the potential impacts of increased inflation rates, including the impact of Brexit and the impact of climate change on life expectancy. The Committee discussed the assumptions that would drive contribution rates including pension increases link to CPI, Salary increase assumptions and the discount rate assumptions linked to anticipated investment performance and although the initial results had not yet been run it was noted that it the expectation was the Fund may reach 110 per cent funding level at a whole fund level, which compared favourably with other Funds. The Committee was supportive of the approach for stability of contributions, as the first three years’ experience would not necessarily reflect the average long-term assumptions due to high inflation experience and stability of contributions for employers is important in a period of financial pressure.
25.3 The Committee RESOLVED to note the report.
26. Investment Report
26.1 The Committee considered a report providing an update on the investment activities undertaken by the East Sussex Pension Fund.
26.2 The Committee discussed the progress made by the Fund over the last 6 months to reduce carbon emissions, with a greater focus on energy transition and sustainable investments. The Fund is currently in a market leading position for sustainable investment which would help drive long term performance. However, in the short term there had been a significant impact on the performance of the Fund, much contributed to by the situation in Ukraine due to the Fund’s limited exposure to fossil fuels and value stocks.
26.3 The following Motion was proposed by Councillor Taylor and seconded:
26.4 The Committee considered a number of arguments for the divestment of investments held in fossil fuel companies, including:
26.5 The Committee considered a number of arguments against the divestment of investments held in fossil fuel companies, including:
26.6 The Committee was advised that divestment was likely to have significant financial implications for the Fund and it was recommended that a detailed analysis be completed to review the implications of a potential divestment policy to ensure the Fund was able to comply with its fiduciary duties Early evidence suggested that divestment had not been an effective approach as this enabled ownership of oil and gas companies to move into private ownership, which could result in less scrutiny.
26.7 William Bourne, Independent Adviser to the Pension Committee fed back that it remained important that the Committee is consistent with their fiduciary duty and have considered proper advice from investment advisors before making decisions. A full divestment policy would not be consistent with the Committee’s fiduciary duty as the Fund’s portfolio should remain diversified, with the opportunity to invest in fossil fuel companies if required. Investment managers are responsible for driving engagement and it is down to the managers to divest if the engagement process is unsuccessful. A Motion passed by the Committee to divest would need to evidence that the implications do not include any financial detriment and would require majority support from members of the Fund, neither of which could be evidenced at this point in time.
26.8 The following amendment was proposed by Councillor Fox and seconded:
26.9 The Committee resolves to ask officers and the Fund’s external advisers to conduct a piece of work concurrent with the completion of the triennial valuation which:
26.10 The amendment was put to the vote and the Committee RESOLVED to agree the amendment. The Committee noted that it would be essential to look at a range of different sources when reviewing evidence in relation to divestment. The report should be completed in line with the triannual valuation and reported to the Committee in quarter 2 of 2023.
26.11 The following amendment was proposed by Councillor Tutt and seconded:
In principle, propose to divest from all fossil fuel companies excluding utility companies and to use that money to invest in green infrastructure funds subject to advice from the Fund’s professional advisers.
26.12 The amendment was put to the vote and LOST.
26.13 The Committee RESOLVED to:
1) note the Investment Workplan (appendix 1);
2) note the Quarterly Investment Report from the Investment Advisor, Isio (appendix 2)
3) note the investment strategy review (appendix 3) and agree the following amendments to the implementation plan for the investment strategy:
· maintain the absolute return mandates until the infrastructure equity mandate is drawn;
· to continue using the corporate bonds to fund the new diversified credit mandate;
· retain the index-linked gilt allocation over the short term;
· trim the core property exposure and hold this in index linked gilts until decision made on inflation-linked property;
· re-visit the case for inflation-linked property in the current environment ahead of implementing the strategic allocation.
4) note the equity performance and investment outlook considering investment style and exclusions;
5) note the update on the Carbon footprint of the Fund;
6) note the Q1 Engagement Report (appendix 4);
7) approve that officers make a submission of the Stewardship Code to the Financial Reporting Council (FRC);
8) note the External Assurance report update;
9) note the ACCESS update;
10) delegate authority to the Chief Finance Officer to take all necessary actions to give effect to the implementation of the above recommendations; and
11)to ask officers and the Fund’s external advisers to conduct a piece of work concurrent with the completion of the triennial valuation which:
· assesses the fiduciary and legal consequences of fossil fuel divestment for the Fund;
· examines how such a move aligns with relevant guidance and advice;
· explores how practical an act it would be within the context of the ACCESS pool; and
· reviews evidence on the efficacy of such an approach in promoting the energy transition.
27. Exclusion of the public and press
27.1 The Committee RESOLVED to exclude the public and press from the meeting for the remaining agenda item on the grounds that if the public and press were present there would be disclosure to them of exempt information as specified in paragraph 3 of Part 1 of the Local Government Act 1972 (as amended), namely information relating to the financial or business affairs of any particular person (including the authority holding that information).
28. Investment Report
28.1 The Committee considered a report providing an update on the investment activities undertaken by the East Sussex Pension Fund that are considered exempt under the Local Government Act 1972.
28.2 A summary of the discussion is set out in an exempt minute.
28.3 The Committee RESOLVED to agree the recommendations as set out in the report.
29. ESG Impact Assessment
29.1 The Committee considered a report providing a review on the investment managers’ Environmental Social and Governance activities.
29.2 A summary of the discussion is set out in an exempt minute.
29.3 The Committee RESOLVED to agree the recommendations as set out in the report.
30. Climate Change and Carbon Footprint
30.1 The Committee considered a report providing an update on the Carbon footprint of the East Sussex Pension Fund’s liquid investments and the exposure to fossil fuel companies.
30.2A summary of the discussion is set out in an exempt minute.
30.3 The Committee RESOLVED to agree the recommendations as set out in the report.
31. Occupied Territories Report
31.1 The Committee considered a report providing an update on the exposure and engagement activities in relation to investments within the occupied Palestinian territories.
31.2A summary of the discussion is set out in an exempt minute.
31.3The Committee RESOLVED to agree the recommendations as set out in the report.
The meeting ended at 4.45 pm.
Councillor Gerard Fox (Chair)