Building a Brighter Future East Sussex Pension Fund Submission to the UK Stewardship Code Reporting date 31 December 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 


                                                                                         

Contents Introduction and Stewardship of the Fund Principle 1: Signatories purpose, investment beliefs, strategy, and culture Principle 2: Signatories governance, resources, and incentives support stewardship Principle 3: Signatories manage conflicts of interest to put clients and beneficiaries first Principle 4: Market wide and systematic risks to promote a well-functioning financial system Principle 5: Signatories review their policy, assure their processes, and assess the effectiveness of their activities Principle 6: Signatories take account of clients and beneficiary needs and communicate activities and outcomes of their stewardship and investment to them Principle 7: Signatories systematically integrate stewardship and investment, including material environment, social and governance issues and climate change to fulfil responsibilities Principle 8: Signatories monitor and hold to account managers and service providers Principle 9: Signatories engage with issuers to maintain or enhance the value of assets Principle 10: Signatories where necessary participate in collaborative engagement to influence issuers Principle 11: Signatories where necessary escalate stewardship activities to influence issuers Principle 12: Signatories actively exercise their right and responsibilities
How East Sussex Pension Fund addresses the Stewardship Code The Stewardship Code aims to enhance the quality of engagement between investors and companies to help improve long-term risk-adjusted returns to shareholders. The Fund defines the concept of stewardship in the same way as the Financial Reporting Council (FRC). ‘Stewardship aims to promote the long-term success of companies in such a way that the ultimate providers of capital also prosper. For investors, stewardship is more than just voting. Activities may include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration. Engagement is purposeful dialogue with companies on these matters as well as on issues that are the immediate subject of votes at general meetings” (Financial Reporting Council 2020).
 

 

 

 

 

 

 

 

 

 

 


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Introduction The East Sussex Pension Fund (the Fund or ESPF) is part of the Local Government Pension Scheme (LGPS), a statutory scheme, established by an Act of Parliament, the Superannuation Act 1972 and since April 2014 the Public Service Pensions Act 2013. The Local Government Pension Scheme Regulations 2013 came into force on 1 April 2014. Membership of the LGPS is open to all employees of local authorities except teachers, fire fighters and police, who have their own separate schemes. It is also open to employees of other employers specified within the legislation. The Fund is administered by East Sussex County Council and provides retirement benefits for East Sussex County Council employees, employees of Brighton & Hove City Council, the five borough and district councils, academies, universities, colleges, public authorities, and staff transferred to admitted bodies. The Fund has 140 employers within the Fund and over 80,000 members. The scheme is designed to provide financial security for the Fund’s members and dependants, both while they are working and during their retirement. The Fund’s asset value at the reporting date was £4,741m. The Fund recognises that Environmental, Social and Corporate Governance (ESG) issues can have a material impact on the long-term performance of its investments. ESG issues can impact the Fund’s returns and reputation. Given this, the Fund is committed to an ongoing development of its Statement of Responsible Investment Principles (SRIP) to ensure it reflects latest industry developments and regulations.
The Fund’s Investment Strategy Statement (ISS) states that the investment objective of the Fund is to achieve a return on Fund assets which is sufficient, over the long-term, to meet the funding strategy objectives on an ongoing basis. One of the Fund’s investment beliefs is that Responsible Investment (RI) can enhance long-term investment performance. The Fund recognises that through active shareholder engagement it can influence those companies it is invested in to improve their corporate behaviour. Improvements made by these engagements can lead to an increase in the long-term value of the Fund’s investments. The Fund believes that these can be maximised by collaborating with other like-minded investors to increase the pressure for change and encourage improvements to be made.
ESPF Stewardship Objectives The Fund Aims To: 1. Generate sustainable long-term investment with its asset allocation decisions made in consultation with its advisers. 2. Apply long-term thinking to deliver long-term sustainable returns. 3. Seek sustainable returns from well-governed assets. 4. We will use an evidence-based long term investment appraisal to inform decision-making in the implementation of RI principles and consider the costs of RI decisions consistent with our fiduciary duties. 5. We will evaluate and manage carbon exposure to mitigate risks to the Fund from climate change. 6. The Fund prefers a philosophy of engagement, which it believes to be a more effective approach in addressing ESG concerns and driving long lasting change. To be effective, it is best done in conjunction with other parties.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Principle 1 Signatories’ purpose, investment beliefs, strategy, and culture enable stewardship that creates long term value for clients and beneficiaries leading to sustainable benefits for the economy the environment, and society. Overview The East Sussex Pension Fund is part of the Local Government Pension Scheme The purpose of the Fund is to provide pension and lump sum benefits for members or their beneficiaries on a defined benefits basis - in accordance with the requirements of the LGPS legislation. There were approximately 80,000 members from 140 employer bodies in the scheme in December 2021. The Fund has a long-standing commitment to responsible asset ownership and believe that Responsible Investment supports the purpose of the Fund. Stewardship is an integral part of asset ownership and therefore of the investment code and requires the same commitment from investment managers. The Fund’s stewardship objectives and commitments are set out in the Fund’s Investment Strategy Statement. The Fund’s approach to stewardship is explained in detail in this document. The sections that follow show how our stewardship approach relates to the twelve principles of the UK stewardship code set out by the FRC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


As a PRI signatory the Fund have agreed to the PRI signatories’ commitment. “As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time).” We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following: • Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes. • Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices. • Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest. • Principle 4: We will promote acceptance and implementation of the Principles within the investment industry. • Principle 5: We will work together to enhance our effectiveness in implementing the Principles. • Principle 6: We will each report on our activities and progress towards implementing the Principles. The Principles for Responsible Investment were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social, and corporate governance issues to investment practices. The United Nations Secretary-General convened the process. In signing the Principles, we as investors publicly commit to adopt and implement them, where consistent with our fiduciary responsibilities. We also commit to evaluate the effectiveness and improve the content of the Principles over time. We believe this will improve our ability to meet commitments to beneficiaries as well as better align our investment activities with the broader interests of society. We encourage other investors to adopt the Principles.” Activity East Sussex Pension Fund beliefs underpinning the Stewardship Approach The Fund believes that investors with long-term time horizons are more exposed to certain risks and requires that its investment managers be aware of and consider these when making investments. However, long-term investors are also less susceptible to short-term volatility which means it can take on investments that require longer duration positions or where engagement activities can help influence a company to support a just transition. The Fund laid out its beliefs underpinning stewardship and RI in its Statement of Responsible Investment Principles (SRIP) within the Investment Strategy Statement. This document is reviewed annually. Within the SRIP the Fund details its stewardship approach through the lens of the Principles of Responsible Investment (PRI) six guiding principles. Approach to implementing and monitoring stewardship at External Management level The practical application of the Fund’s policy is achieved through a combination of activities including, but not limited to 1) dialogue and liaison with investment managers on key issues directly and through collaborative engagement groups, 2) engagement activity direct with underlying companies as is carried out through membership of the Local Authority Pension Fund Forum (LAPFF). LAPFF meet with the Board of Directors of many companies where Local Authorities are invested to discuss and challenge activity. The Fund is a signatory to the Principles of Responsible Investment (PRI) and Institutional Investors Group on Climate Change (IIGCC) and expects its investment managers to also be members of these organisations.

 

 

 

 

 

 

 

 

The Pension Committee meets with investment managers for engagement and training activities. Officers of the Fund meet managers regularly to challenge investment approach in relation to complimenting the Fund’s investment beliefs. Officer and advisers can discuss relevant developments in detail with Investment managers to cover all stewardship and RI activity. All investment managers are required to report on a quarterly basis to the Fund, including details of votes cast on corporate resolutions and company engagement for holdings in relevant portfolios. These activities are then published quarterly on the website for beneficiaries and stakeholders to access. The Fund challenges managers to ensure voting activity is aligned with the Fund’s priorities and that all relevant risks have been considered. The Fund has appointed investment consultants to provide specialist expert advice to decision makers. In addition, the Fund has an Independent Adviser who supports the Pension Committee to deliver the investment strategy in the interest of pension beneficiaries. This combination delivers effective returns with a social and environmental consciousness. The Fund believes that professionally managed companies with awareness and focus on governance, resource efficiency and robust people systems, provide long-term value creation and that the Fund’s stakeholders will benefit from these investments as strong investment returns improve the Fund’s overall funding position. Which keeps the pension scheme affordable in terms of employer contribution rates. The Fund appointed an external consultant to conduct an ESG assessment of the Fund where a number of recommendations were set out in 2020, many of which have been implemented to improve stewardship. Outstanding recommendations continue to be reviewed and implemented where possible. Monitoring, and reporting Performance of all investment are monitored and reported quarterly. Investment Managers are expected to report on performance, engagement and voting activity quarterly to the Fund and its advisers.
ESPF Stewardship Beliefs The Fund Believes that: 1. ESG and Climate Risk (CR) can present material financial risks to asset values and returns. 2. Implementation of effective RI policies can reduce risk and has potential to enhance returns. 3. Engagement with investment managers (“IMs”) and investee companies can be effective in protecting and enhancing the long-term value of investments. 4. Collaboration with other asset owners and IMs will help improve the effectiveness of engagement on ESG and CR issues. 5. Effective oversight of RI requires monitoring of ESG and CR metrics and the actions of IMs and investee companies. 6. RI is aligned with ESPF’s fiduciary responsibilities in the management and oversight of ESPF’s investments.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


                                                                                                                                                                                                                                          

 

 

 

The Fund then consider: • How managers have integrated ESG in their investment activities • How managers have exercised the Fund’s voting rights and to explain where there is deviation from voting guidelines or voting alerts • What engagement activities have been completed in the quarter • What RI policies are in place. The Fund meets with investment managers in addition to the ongoing review and engagement that the investment consultant conducts for the Fund. This is to ensure the managers are complying with the requirements on them set by the Fund and ability of the manager to invest in the best interests of the Fund beneficiaries. During direct manager meetings with officers an area of the agenda always includes ESG for discussions on holdings, activities, polices and developments. The Fund report the stewardship activity of the investment managers and of the Fund in a quarterly report which is published on the website. The Fund also publish an implementation statement within its annual report to show how its RI beliefs have been embedded within the Fund’s investment activities during the year. The Fund’s investment consultant carry out an annual impact assessment on all the investment managers where they are allocated an ESG score with an action plan set out for each manager (updated annually as part of the review). The Fund invests through investment managers who conduct detailed research on the prospects for individual companies and industries. Due to the scale of investment under management, the managers have access to underlying company management teams including their executive boards. Dependant on asset class the investment manager has a seat on the advisory board of the underlying company. On selection of an investment manager the Fund ensure the manager is aligned with our stewardship beliefs through a detailed set of evaluation criteria for ESG and Stewardship. Screen print of Fund website showing section on Stewardship code and quarterly ESG reporting

 

 

 

 

 

 

 

Embedding beliefs Training opportunities are provided to Committee Members and Officers to ensure decision makers and those that implement and monitor investment activity understand how their stewardship responsibilities can be implemented and to understand risks and responsibilities. Training is laid out in the Fund’s training strategy which is reviewed every two years supported by a training coordinator. The Fund has a training and strategy day embedded into the annual meeting plan in addition to standard Committee meetings. New Committee members are given an induction programme to help develop knowledge understanding of all their responsibilities. Training links and details are provided at least monthly by the Fund’s designated training officer. Training is picked up at all Pension Committee and Pension Board meetings through the work plan and a report on training is covered twice a year.
 

 

 

 

 

 

 

 

 

 

 

 

 


Image to reflect the extent of training completed by decision makers in the year to enable effective decision making.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Fund was able to report against the implementation of its beliefs in the annual report and accounts 2020/21 where it identified integration and gaps to build on in the next year. Progress will continue to be made and tracked. All the Fund’s investment managers have aligned with the Fund’s stewardship expectations and are PRI and IIGCC signatories with several joining in 2021. Many managers and Fund advisers have also reported under the Stewardship Code with more expected in 2022. The Fund’s development of its Statement of Responsible investment Principles (SIRP) has been assessed against the Fund’s LGPS pool colleagues, with the ESPF process scoring highest in its peer group. As a result, the Fund has been recognised as a leader within the pool on ESG issues and the chair of the Committee was nominated as ESG spokesperson for the pool. The Fund has identified areas where it can improve its SIRP and will continue to evolve and embed principles over time. The Fund has been competitive in its return performance both before and after implementing strategic changes, which ensure mandates are more aligned with the Fund’s beliefs and remain continually aligned with the investment strategy. The Fund has consistently outperformed the benchmark on a 3-month, year to date and 1 year basis until 31/03/2021, while increasing its exposure to investment funds looking at opportunities from the energy transition. Throughout the Fund’s activities there has been underlying and essential objective to ensure return on investments for the best interest of beneficiaries. The Fund was announced winner of LGPS Fund of the year 2021 (over £2.5bn) at the LAPF investment awards highlighting the strong governance, performance, and actions of the Fund in the year; and was highly commended for its Climate Strategy.

Snapshot from the RI implementation statement published in the Annual report and accounts 2020/21 Commitment Progress Further Action To continue to measure and report on carbon-equivalent emissions throughout the equity portfolios The Fund has undertaken an analysis of the Equity and Fixed Income investments with a third-party provider Vigeo Eiris for the second year. Develop understanding of the different metrics. Continue using a third-party provider to evaluate carbon emissions of equites and develop other asset classes. To continue our work with IIGCC and Climate Action 100+ The Fund has been an active participant in the IIGCC corporate program. The Fund is looking for more options within the IIGCC to support further development and implementation of IIGCC research into the Fund’s strategy. To continue to research and support the deployment of new impact capital into projects set to benefit from the transition to a low carbon economy Invested 10% of the Equity program into impact managers 10% into climate risk passive product. Looking to work with ACCESS to develop suitable solutions within the Pool.
 

 


Activity Decision making The Pension Fund is managed by East Sussex County Council, the Administrating Authority (Scheme Manager) on behalf of all the relevant employer bodies in the Fund; currently 140 scheme employers. The Pension Committee is the main decision-making body for the Fund. The Pension Committee has delegated authority to exercise the powers of the County Council in respect of all powers and duties in relation to its functions as the Scheme Manager and Administering Authority for the East Sussex Pension Fund. It is responsible for agreeing and overseeing an appropriate investment strategy or strategies, selection of investment managers, setting of performance benchmarks and regular monitoring of performance. The Pension Committee are responsible for agreeing the Investment Strategy Statement, climate change strategies, the responsible investment of the Fund, and report on these activities. The Pension Committee receive assistance in performing these functions via: • Pension Board – help with effective governance and ensuring compliance with the regulatory requirements. • Chief Finance Officer – Scheme administration, including governance and investment implementation. • Head of Pensions – ensuring committee decisions and regulatory requirements are implemented. • Investment Consultants – provide expert investment advice in line with regulatory requirement for proper advice. This is an FCA regulated firm. • Independent Advisor – provides challenge to the Investment recommendations and supports the Committee in understanding of Investment activities. Principle 2 Signatories Governance, Resources, and Incentive’s support Stewardship. Overview East Sussex County Council is the administering authority for the East Sussex Pension Fund and has delegated the responsibilities of administering the Pension Fund to the Pension Committee, this is set out within the Councils constitution. The Pension Committee is supported by the Pension Board and Fund Officers in fulfilling its duties. The Pension Board role is to assist the committee in complying with the LGPS rules, overriding pensions legislation and guidance from the Pensions Regulator. The Pension Board is made up of equal numbers of employer and member representatives with an independent chairman. The governance structure of the ESPF is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Governance Structure The Fund is structured in line with the Local Government Pensions Scheme 2013 Regulations and the Public Services Pensions Act 2013 which introduced a new framework for the governance and administration of public service pension schemes. As a result of the Public Services Pensions Act, the Pensions Regulator introduced codes of practice covering specific areas relating to public sector pension schemes which the Fund are required to comply with. The Fund conducted an independent Governance review in 2019 and 2020 where changes were implemented to enhance the governance of the Fund including the development of a conflicts of Interest policy to ensure beneficiaries pensions are managed appropriately. The Terms of reference for both Pension Committee and Pension Board were amended to ensure the Fund structure and responsibilities aligned with best practice as advised by the Scheme Advisory Board (SAB) who had initiated a Good Governance project. In addition, delegations and Team structure were also changed to provide more comprehensive governance arrangements for all aspects of the Fund. As a result of the work the Fund has done since 2020 to implement the recommendations (including making key appointments to the Officer team in 2021), the Fund have had a substantial assurance for regulatory compliance with no recommendations from the internal audit team.
 

 

 

 


                                                                                                                                                                                                                     

 

Responsibilities of the Pension Committee • The Pension Committee is established as the Fund’s scheme manager and is responsible for arrangements for the investment, administration, funding, communication, risk management and the overall governance process surrounding the Fund. • The Pension Committee is responsible for setting all Fund policies including the setting of the appropriate funding target for the East Sussex Pension Fund. • The Pensions Committee will exercise its functions in accordance with fiduciary duties, safeguarding the interests of the beneficiaries of the Fund. • Committee Members must take decisions in accordance with their public law obligations, including the obligations of reasonableness, rationality, and impartiality. • Committee Members are required to be rigorous about conflicts of interest and potential conflicts of interest, actual or perceived, as laid out in the Conflict-of-Interest Policy. • The Committee is subject to the statutory obligation of political balance in the membership of the Committee. • Whilst all Committee Members bring with them their own knowledge and experience, political views should form no part of the consideration of issues or of the decision-making process.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Team structure

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Diversity and Inclusion The Fund has a policy of inclusion and is working towards increasing the diversity of its workforce, to more closely represent the communities we serve. Staff provide equality data, and we are working to reduce ‘unknowns’. We will make comparisons with the Census 2021 data, when it is available. Due to the small number of staff working for the Fund and the risk of identifying individuals, details cannot be provided here, but ongoing analysis will inform interventions based on ESCC’s positive equality and inclusion practice. Stewardship activities Officers involved with investments are all involved in stewardship activities from the Head of Pensions ranging down to the Trainee apprentice post and attend Investment management meetings, challenging voting activity and manager engagements. In addition, all officers involved in the investment team participate in Fund reporting to ensure it is complete and comprehensive on stewardship activities. This includes production of the ESG quarterly reports, TCFD report, Stewardship code preparation and other collaborative project work.
Investment in systems As investments are managed by investment managers rather than internally, spending in systems is limited. However, the Fund do investigate and challenge data received and has invested in carbon foot printing services as well as look though systems and analysis. This enables the Fund to see the underlying investment holdings of external investment managers. When investing in real assets the Fund also challenge prospective managers over their quality assurance processes and systems to ensure investments are being governed to a high standard with full oversight of the investment boards. The Fund invest in performance management and specialist investment accounting systems from the Fund’s custodian. In addition, the Investment consultant provides numerous investment analytical services such as EGS and Climate impact reporting which the Fund uses.
 

 

 

 

 

 

 

Performance management and incentivisation As a local authority Pension Fund, the ability to use performance management and incentives are limited, however the Fund is aware that resources are important, It has offered a flexible approach to locality and working hours to ensure the correct people are in place and the interests of beneficiaries are considered with stewardship activities prioritised. The Fund is restricted to alignment with the ESCC local government pay grading to ensure equality of roles across the Council. Passion of the Fund management team and the ability to put team members own mark on stewardship tasks such as production of new reporting requirements mean staff feel empowered to carry out their work. Resources and external contracts / collaboration In addition to the internal resources of the Fund, the Fund use external experts such as the Investment Consultant, Carbon footprinting provider, independent adviser, and Investment managers to ensure the breadth of resources and range of tools to administer the Fund are available and ensure effective stewardship without having to have a large team of specialists directly employed. This helps the Fund to benefit from major research teams in all asset classes and industries across different sectors. This would not be possible to do directly. In addition, with collaborative partners such as LAPFF, IIGCC and PRI the Fund has the power of those engagement partners and weight of resources to help direct policy makers or influence companies in which the Fund may be invested. Outcome The Governance structure in place is dictated by the legal frameworks in which the Fund must comply, however the Fund has made many steps to ensure it is effective in managing beneficiaries’ money and being an active steward of its investments. The team structure has been designed to deal with the increased requirements of a pension fund, in particular the increasing regulatory reporting requirements for climate risk and stewardship. The Fund is well resourced and had a supportive decision-making framework through the Pension Committee and Pension Board who are conscious of the resources required to administer the Fund and consider adaptations of the team structure as required where there is a business need. This use of collaboration and use of expert advisers means that the Fund has better resources available to assist its beneficiaries. External support from Isio, ACCESS and Investment managers mean greater capabilities to manage risk in the Fund’s investment portfolio and allows for large research teams to feed into decisions and analysis that could not be achieved within the inhouse team structure. This has resulted in higher levels of scrutiny of the Fund’s investment managers stewardship activities on the Fund’s behalf. Routine reporting from managers on engagement activity are expected by the Fund on a quarterly basis. Isio expect reports on investment managers activities before Investment Working Group Meetings and for each quarter’s performance reporting; these resources all help the Fund with effective stewardship. Training is key to the governance structure of the Fund and the Fund has initiated a decision-making matrix to be compiled to ensure all parties within the Governance structure are clear on their responsibilities and where accountability for activities sit. As the team structure is quite new the Fund will continue to evaluate its effectiveness and make improvements where relevant, having a designated ESG or RI officer is a possible adaptation for the future.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


                                                                                                                                                                                                                 

 

 

 

 

 

 

 

 


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Liquidity risk represents the risk that the Fund will not be able to meet its financial obligations as they fall due. The Fund therefore takes steps to ensure that the Fund has adequate cash resources to meet its commitments. This will particularly be the case for cash from the cash flow matching mandates from the main investment strategy to meet the pensioner payroll costs; and cash to meet investment commitments. Refinancing risk is that the Fund will be bound to replenish a significant proportion of its pension Fund financial instruments at a time of unfavourable interest rates. The Fund does not have any financial instruments that have a refinancing risk as part of its treasury management and investment strategies. Climate change risk is identified as a risk to assets and liabilities through both physical and transition risk. As risk mitigation the Fund have a clear set of principles on beliefs and objectives that are considered for all decision making and monitoring of managers. Equity portfolios have been restructured to remove fossil fuel companies in a decision to avoid risk from high emitting companies but to also exploit opportunities in modern technologies and industries that are looking to find solutions to climate risk. As part of the changes in equities also include the removal of traditional passive indexes that track the market with no exclusions or tilting as there is a lag in these indexes and the Fud does not want to bear risk of holding high emitters without an active decision and the ability to move quickly.
Managing systematic risk Day-to-day responsibility for managing our investments is delegated to our appointed investment managers. The Fund expects managers to monitor companies, intervene where necessary, and report back regularly on activity undertaken. This includes monitoring of global macro-economic trends, and key themes in equity, private debt, and infrastructure markets. Major market risks are discussed during quarterly Committee meetings, as well as with investment consultants. The Fund has regular meetings with investment managers and assesses their effectiveness in their monitoring of investee companies as part of formal portfolio reviews either amongst Officers or the Pension Committee and, as part of the manager analysis that is carried out by the investment consultants research team. The Fund also receives quarterly reports from managers detailing their voting and engagement with companies, which will affect the sustainability of investments. This information is published quarterly and provides a basis for the officer team to challenge investment managers on what risks they are focusing on through engagement activity and where their priorities lie. Key market and systemic risks form the basis for the training plan for committee members and officers with focus on items such as climate change and inflation being crucial areas for decision makers to understand.

 

 


Collaboration The Fund participates in collective action, use of resources and knowledge share through a number of collaborative routes which lead to ESG and policy improvements, which promotes better functioning markets. These include, but are not limited to: • Intuitional Investors Group on Climate Change (IIGCC) The IIGCC collaborates with policymakers and stakeholders to strengthen policy that supports a low carbon, climate stable world. Their mission promotes progress to 2030 net zero goals and a resilient future responding to systematic risk by defining public policy, investment practise and corporate behaviour. • Pensions and Lifetime saving Association (PLSA) The PLSA discusses long term investment horizons with the acknowledgement that long term risk adjusted returns comes from responsible investment approaches. As a member the ESPF uses their resources and practical advice to support stewardship. • Local Authority Pension Fund Forum (LAPFF) LAPFF promotes high standards of corporate governance, enhancing Fund ability to transition to net zero targets. LAPFF has identified the FRC as vital to a well-functioning market. LAPFF work to ensure members can align investment and stewardship goals. LAPFF promotes well-functioning financial systems through collaborative experiences and knowledge sharing engagement.
• Principles for Responsible Investment (PRI) PRI is a UN led principle that supports a duty to act in the best interest of beneficiaries and supports well-functioning financial systems through using their fiduciary role to promote how RSG issues cam affect performance of investment portfolios. By aligning with the PRI principles, the ESPF identifies systematic risk by incorporating ESG into investment analysis and decision making, as well as disclosure on issues, and implementation of the principles in investment activities. • Pensions For Purpose Pensions For Purpose is a bridge between asset managers, pension funds and advisers, to encourage the flow of capital towards impact investment. Pensions For Purpose provide high quality expertise and training to funds on ESG issues. The Fund joined as an affiliate member in September 2021. The Fund utilise various research materials from these collaborate groups to help manage it activity and systems and draws upon the expertise within these groups to help address its processes and controls to reduce risk and improve systems.

Principle risk outcomes include: Risk Process Outcome Systemic risk: A diversified portfolio means exposure to a range of asset classes, of both passive and active management. Detailed quarterly reporting mitigates this risk and areas of concern are discussed and reported to committee. The ACCESS Contracts Manager supports the officers through pooled resources, knowledge, and support. The ACCESS pool offers a range of exposure and helps limit systemic risk through pooled resources and a strong governance framework, with the outcome of more efficient deliverance of value for stakeholders and beneficiaries. Funding risk: Risk that investment strategy fails to result in performance required to meet the needs of the Funding strategy discount rate. This is overcome through independent investment consultants and advisors, triennial valuation ensuring funding rates are known, quarterly performance monitoring and link for ACCESS sub funds, annual review and interim rebalancing, compliance with ISS. This allows for better transparency and balance advisory to The Fund, ensuring performance is reviewed on a regular basis. This has led to successful audits and better reporting of funding risks, such as missed contribution payments and support offered to employers. We provide revision of the asset liability model to support a viable strategic asset allocation for the new valuation.
Regulatory risk: Failure to comply with regulations, legislation and guidance from an accounting and investment perspective. This is managed through maintaining accordance with CIPFA code of practises, IFRS and ESCC financial regulations, Internal and external audit and mapped and reported breaches policy. Outcomes here include better communications with employers on changing legislation, as well as increased internal resources to help manage employers through regulatory changes. Investment pooling risk This is managed through ACCESS support units, KPI’s introduced with revised operator agreements, consultants analysing sub funds and transitioning using scenario analysis, opportunities to transfer securities in specie, due diligence completed by legal advisors and regular meetings between officers and access. This is demonstrated in risk adjusted returns being competitive, for example portfolio standard deviation is currently 10.62% which is a competitive risk tolerance level.
 

 

 

ESG Risks: within Investment strategy and implementations on investment decisions. This is managed through our statement of responsible investing, investment working group and ESG working group consolidated into a single group, Trim unconscious exposure to companies with poor ESG rating through agreed removal of traditional index funds ensuring active managers have a strong conviction in the underlying companies including on ESG matters and less traditional passive indexes / smart beta funds have robust screening processes in place to ensure. Challenging managers on their holdings with regard ESG issues, Introduction of an ESG assessment for all managers reported in July 2021 including improvement actions for each manager on ESG methodology, reporting or collaboration This will be updated and reported annually, engaging via managers and investor groups including LAPFF with companies and driving them forward to comply with key ESG concerns using the greater voice by combined investment power. Climate change: risk on assets and liabilities associated with Climate Change Statement of Responsible Investment Principles outline investment beliefs within ESG, implementation of decisions and monitoring of EGS factors and has a strong focus on climate change, restructuring of the equity portfolio to avoid high risk companies and exploit opportunities, including decision to invest in impact fund in September 2020, The Fund carry out annual carbon foot printing to better understand the carbon exposure and energy transition plans within the portfolio. The Fund continue to have some occasional exposure to high carbon emitting or fossil fuel sector companies from a tactical perspective to use its vote to help drive the sector forward through engagement and voting using the power of a collective voice. A number of Fund managers are Climate 100+ engagement partners leading on this work with top emitting companies, while all managers are IIGCC members for collaborate weighting of AUM to influence action.
Outcome Risk management policy and approach is demonstrated in risk adjusted returns being competitive, for example portfolio standard deviation is currently 10.62% which is a competitive risk tolerance level. The Fund has a designated annual strategy day for Pension Committee on top of the regular quarterly meetings. This allows a focus onto market and system risk without all the other Fund management and decision-making activity. As part of the strategy day, Committee members are also able to receive training on the key topic, they are making decisions on to ensure they understand the full repercussions of their decision making. The Fund has made fundamental changes to its investment strategy because of its concern on climate change risk with 10% of the portfolio invested in climate solutions and 20% in resource efficient or Paris aligned funds. These decisions were made during 2021 however not fully implemented until 2022. The Fund has also increased its exposure to infrastructure and have taken ESG credentials as a key differentiator in the manager selection process. All manager selections include a detailed set of ESG criteria to ensure the longevity of the investment portfolio.
 

 

Principle 5 Signatories review their policies, assure their processes, and assess the effectiveness of their activities Overview The Fund has policies that are regularly reviewed and tracked through a tracking document to ensure all documents are assessed within the agreed timeframes. All documentation can be found on the website www.eastussexpensionfund.org.uk. Activity Policies and review As a minimum, all policies are reviewed every 3 years. Where there is a change in law or major event, policies are reviewed early. In 2021/22 the Fund reviewed most of its governance policies and processes. All documentation is reviewed in line with the governance review processes, where documentation is logged by its review date. In 2021/2022 reviews included the Funding Strategy Statement, Investment Strategy statement, Communications policy, UK stewardship code, Abatement Policy and Statement of Responsible Investment Principles and can be found on the website.
Investment Strategy Statement – reviewed annually and updated at least every three years or immediately after significant changes Statement of Responsible Investment Principles – reviewed annually Conflicts of Interest - reviewed every 3 years Breaches Policy - reviewed every 3 years Funding Strategy Statement – reviewed every 3 years. Review process includes consultation with scheme employers Administration Strategy – reviewed every 3 years. Review process includes consultation with scheme employers Risk Management Policy - reviewed every 3 years Training Strategy – reviewed every 2 years Governance and Compliance Statement – updated annually Communications Strategy – reviewed annually and updated at least every three years
 

 

 

 

 

 

 

 

 

 

 

 

 

 


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Audit and Assurance Management of LGPS investments is conducted in accordance with relevant governing legislation and regulations. Internal Audit assess the governance of the Fund and provides assurance that best practise is followed. The Fund commission 100 days of internal audit work per year and the audit strategy is agreed annually by the Pension Committee. Within the audit plan for 2021 the internal audit covered, Compliance with Regulatory Requirements, Governance, Investments and External Control Assurance, Administration, and Information Governance. Each internal audit report including actions agreed by the Fund’s management is presented and discussed at both the Local Pension Board and Pension Committee. External audit, provided by Grant Thornton, provides the Fund with scrutiny on governance, decision making and transparency of reporting. External Audit issue an annual audit plan that is reported to Pension Board and Pension Committee and an Audit Findings report including the audit opinion. In addition to the audits, the Fund completes an annual scheme return to the Pensions Regulator.
Governance Review In November 2019, the Pension Committee approved the undertaking of a governance review of the Fund, the results of this review were presented to Pension Committee in June 2020. Key changes to the Fund’s purpose and governance implemented from June 2020 and through 2021 were: • Revision of Pension Committee Terms of Reference • Revision of Pension Board Terms of Reference • Revised Scheme of Delegations to include Pension Fund management • Implementation of a Communications Strategy • Implementation of a Breaches Policy and Log • Pension Fund Team structure and resourcing proposal • Pension Administration Strategy • Conflicts of interest policy and log • Pension administration service standard agreement • Responsibilities and relationship map for Pension Fund; Pension Administration and Employers At the same meeting in June 2020 the Pension Committee received an independent review on the ESG arrangements for the Fund which was conducted by PRIC in response to a motion passed by ESCC full Council responding to a petition on divestment of the Fund from fossil fuels. As part of the discussion of this review the Committee acknowledged that the Fund had undertaken a lot of work, via the ESG working group, to develop an understanding of ESG matters and how they can be included in the Fund’s strategy, but it is recognised that more work needs to be done consulting with stakeholders on ESG matters. These include ACCESS, the Fund’s investment managers, employers, and members.

 

It was also acknowledged delivering on ESG commitments takes considerable time and resources. For example, ensuring investment managers have signed up to the new UK Stewardship Code, and monitoring the carbon footprint of companies, TCFD reporting, and the Fund’s own Stewardship Code submission all require considerable officer time. In recognition of the work and resources involved in stewardship activities and from a wider governance consideration the Fund put in place a new team structure to ensure a larger team to enable greater capacity to carry out the increasing requirements on asset owners. The team structure was approved in late 2020 and appointments made throughout 2021 with the last governance and investment position filled in February 2022, allowing for further developments in activities of the future in future years.
 


 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


                                                                                                                                                                                                                            

 

 

Activity Communications The communication from the Fund is an area where extra specific resource has been allocated to improve the way the Fund engages with its stakeholders. It has set up a communication working group (CWG) responsible for improving communications following a review by the East Sussex County Council Head of Communications of how well the Pension Fund communicates. The CWG consists of Pension Board members (representing the Fund’s employer and member stakeholders) and Fund officers. To complement and progress the initiatives generated and monitored by the CWG the Pension Fund has recruited a Communications Manager to set a new Communications Strategy and implement recommendations from the formal review and from the CWG. The Fund publish its Communications Strategy on the website and the strategy will have a detailed overhaul in 2022. To further complement this the Fund has a specific business plan and will be setting aside budget to enhance the communication of the Fund when the budget goes for approval in February 2022 to cover the areas identified in need for short term implementation and improvement including the costs of the new communications manager. Areas that are specifically being targeted are the Fund’s digital communications software, surveys, setting out a cohesive investment story, website evaluation and refresh, support for business projects and media responses.
Consultation with beneficiaries All active members receive newsletters twice a year and Pensioner members once a year. These newsletters update on pension issues, especially on any changes affecting benefits. The Fund conducts an annual survey with active and pensioner members to seek their views on the administration of the Fund. In 2022 this survey will also lightly touch on investment strategy. Consultation with scheme employers All employing bodies are kept informed of current pension issues, such as proposed changes in the regulations and their implications, by quarterly newsletter. They are encouraged to get in touch if they have questions. In addition to these electronic briefings, the Fund holds an annual Employers’ Forum to which all scheduled and admitted bodies of the Fund are invited. This was held virtually in 2021, due to the Covid-19 pandemic, but is expected to be re-instigated as a physical event in 2022. This annual meeting covers both actuarial and investment issues and always contains a presentation from the Fund’s Actuary. In 2021 Employers received information about new software being implemented by the Fund and the onboarding process, the importance of protecting members from fraud and other topics. Employers can raise topics of interest for this forum and ask questions of officers and advisers as required at the event. An annual survey is conducted with employers to get input into the administration of the Fund.

 

Where there are proposed changes to the Administration Strategy or to the Funding Strategy Statement, employers are consulted prior to implementation of the revisions. The Fund created an Employer Engagement team to specifically focus on improving the information sharing and support to scheme employers. Investment As a long-term investor, the Pension Fund can set its strategy over a long-term investment horizon. The average life expectancy of the Fund’s members range between 21 and 25 years depending on gender and status. There was a 75% likelihood that the Fund’s investments will return at least 4.0% over the next 20 years based on a stochastic asset projection of the Fund Actuary at the 2019 valuation. The Fund is transparent with its Funding strategy with strategy and performance reports being primarily published and discussed in public sections of Pension Committee meetings. Confidential items are held in private, which include the specific holdings by a manager or detail of a change in manager or sale of assets that could be impacted by knowledge of the market. In addition to the public nature of reports and meetings the Fund have a newly created section on the website for investments where we provide information on strategy and areas of specific interest of our members such as fossil fuel exposure and climate activity and other engagement areas. This area of the website will continue to be developed in 2022. The Fund have made a number of changes in the Investment strategy partially due to insights into member views on areas such as climate change from the engagement received and areas of focus from questions to the Fund, but also because of the focused work by the pensions committee in determining their Responsible Investment Principles.
Major changes in the Investment strategy in 2021 include a move away from traditional passive investments into climate aligned, resource efficient or assets looking at climate opportunities. This was not fully implemented by December 2021; however, the decisions had been set in motion by the reporting date. In addition to changes in equities, the Fund also made an investment into a liquid infrastructure fund which assesses various climate scenarios before inclusion in the investment portfolio to reduce risks to beneficiaries and asset value resulting from climate change.
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Membership of the Pension Board includes employer and member representatives. These representatives can input into and comment on the Fund's stewardship and investment approach through governance oversight of the Fund and access to policies, or through the Communications working group. The Fund is happy to engage with employers and scheme members on an ad-hoc basis to provide additional information on Stewardship matters and regularly includes a training item at the employer engagement forum on responsible investment. There are a number of improvements recognised in this area for the Fund, including the enhancement of surveys with members to get views on wider areas such as investments and engagement and this will be implemented in 2022. In addition, the Communications strategy will be refreshed and for the first-time budget will be directly set for communications improvements. In the 2021 annual report and accounts, published 1 December 2021, the Fund has publicly reported against the Taskforce for Climate-related Financial Disclosure (TCFD) criteria for the first time. As part of this disclosure the Fund notes are there are areas of improvement and further detail required, which will be incorporated in future years as more data becomes available. The Pension Fund publicly reports on the carbon footprint of its investments which show a reduction between the first and second year of reporting in intense carbon emitters within the portfolio as well as improvement in energy transition plans.
Outcome Scheme beneficiaries received regular updates through newsletters and information on the website and can contact the Fund and attend public meetings so we can assess their views and incorporate them where possible. The evaluation of the effectiveness of engagement with scheme members is through the volume of correspondence received and the topics covered. It is rare that the scheme received follow up questions when responding to a member question on RI matters following detailed responses. The Pension Board and Committee have agreed that it wants to increase the level of engagement and communications that it has with scheme members further and will agree a budget for additional work on communications and is in the process of developing its communications strategy. This is likely to include enhancements like further development of the Pension Fund’s website, better use of Plain English and accessible content, and the consideration of how member views can be sought. The Fund will also be expanding the coverage of Responsible Investment in its Annual Report for the reporting year 2021/2022 and will use this document as another means to seek feedback and input from scheme members. Over the year the Fund has responded to a number of requests from scheme members and other interest groups on RI related matters, in the main these relate to exposure to fossil fuels in light of the climate emergency and investment in companies that conduct business in the occupied territories in Palestine. Many of these questions come through as Full Council questions where an answer is provided on behalf of the Fund and published in advance of the meeting. Where questions come through directly to a member of the Committee or Board or even directly to the Fund team, a direct response is provided to these questions which also signposts to information available on the website.
 

 


 

 

Principle 7 Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change to fulfil their responsibilities Overview Environmental, Social and Governance is a crucial part of the investment process. Climate change risk and opportunity has been the primary driver for changes in the investment strategy throughout 2021, however other EGS issues have played a key role in the stewardship of the existing investments and manager selection processes especially around human rights issue and management systems in place as part of the governance controls in underlying investments. In addition, the Fund have focused on the control structures in place of our manager for real assets looking to evidence sufficient control for a board seat and that there is effective oversight and governance at the board level of companies. Activity The Journey The Fund has integrated ESG and RI into its investment strategy from 2018 and continues to make changes and improvements today and considers stewardship and integration of ESG and RI as a continual journey. The Fund has made a number of changes and carried out reviews during the past few years.
2018 Allocation to UBS Climate Aware Fund
August 2019 IPCC report – public attention to investors triggers various actions to focus on ESG and climate change September 2019 • Statement of Investment beliefs agreed • ESG position report and actions produced by consultant October 2019 • Council petition to divest Pension Fund • Committee seek independent review of ESG • Committee publish an ESG Statement including views on climate change
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


                                                                                                                                                                                                                            

 

June 2020 • ESG report back from PRIC with various recommendations • Carbon foot printing reports on listed managers received • Agreed to investigate climate opportunities • Agreed to change the active passive split September 2020 Statement of Responsible Investment principles approved 2 climate impact managers selected Passive Paris aligned manager selected Listed Infrastructure manager selected December 2020 Launch of two Sustainable Equity Impacts Fund – 10% allocation ,February 2021 Agreed approach to removal of all traditional passive indexes – 5% to move to resource efficient index and 5% to move to pool core manager Paris aligned fund
June 2021 2nd Carbon foot printing report with same supplier including transition pathway scores November 2021 First TCFD report produced and published in Annual Report and Accounts ,October 2021 • Fund shortlisted for the 2021 LAPF Investment awards for climate change strategy and LGPS Fund of the year (over £2.5bn) – award ceremony held in March 2022 • Head of Pensions appointed to LAPFF Executive Committee
July 2021 ESG implementation statement published against RI principles ESG impact assessment on all managers Fossil Fuel exposure analysed Statement published exposure to occupied territories companies with possible human rights concerns

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 


 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reporting and review The Fund conduct annual Carbon Footprint reporting of the Fund and has two years of assessment from the same provider. This looks at where the Fund’s managers have amended the portfolio and how that is affected carbon footprint impact. So, it is easier to identify where managers portfolios are reducing in carbon emissions. The reporting also identifies where the underlying companies within the mandates are on their transition pathway reporting, this is particularly important for challenging Investment managers where the company held is an intense emitter but also deemed to have a poor energy transition plan in place. As part of the Fund’s production of its quarterly engagement and voting report, the Fund engages with managers on their activity for the quarter and this can lead to additional challenge at manager review meetings to dig further into approaches and considerations for the portfolio construction. ESG impact assessment The Fund receive an annual report from its investment consultants analysing the Investment managers over a range of assessment criteria to capture the ESG capabilities of the managers. There are additional sustainability criteria for the managers that have a specific sustainability mandate. The assessment criteria cover • Risk Management • Approach and framework • Voting and Engagement • Reporting • Collaboration Outcomes The Fund pushes for meetings with external managers and consultants in a way that adds value to its members. Most managers we believe are integrating ESG and ESG risk mitigation to have a positive impact. We continue to review our external managers policies to ensure alignment with our own position. We have high expectations for our managers and their prioritisation of ESG standards. The Fund’s Statement of Responsible Investment Principles sets out how we expect external managers to function as well as how the Fund will approach decision making, RI and stewardship. The Fund’s ESG impact assessment in July 2021 identified that 10 Investment managers satisfied the assessment criteria set by the consultant, while 9 were above satisfactory (the highest ranking). Within sustainability mandates 3 of the 5 were above satisfactory and 2 satisfied requirements. Each manager was set proposed actions for the consultant to work with the managers to seek improvement in their ESG integration regardless of their scoring which will be revied in the 2022 refresh. In addition, in the 2022 review the consultant will include an additional consideration of climate risk integration by managers.
2021Example of the Fund holding a manager to account The Pension Committee expressed concern over sewage discharges resulting in fines to a water company, held within one of the infrastructure mandates. The Committee engaged with the investment manager on this issue through letters and a meeting in January 2022. The investment is an illiquid close ended investment, so more restrictive to exit its position, however the Fund took comfort in the lessons learnt by the manager in the control structure of later investments but continues to monitor and assess its investment.

 

Principle 9 Signatories engage with issuers to maintain or enhance the value of assets Overview The Fund invests through a range of Investment Managers rather than through direct investments, as a result, much of the Fund’s engagement to underlying companies is allocated to Investment Managers or is conducted though collaborative engagement groups such as LAPFF. The Fund carries out its responsibilities of engagement by challenge of the Investment Managers over their engagement activities on assets within the portfolio or investment rational for specific holdings. Activity The Fund meet regularly with Investment Managers and discuss RI topics and specific holdings to ensure the value at risk of investments is an inacceptable range and the value of beneficiaries’ investments are secure through these investments. If we believe an investment managers strategy is not aligned with our values, we will raise it with the investment managers for rational and further details and take action to ensure our values are better incorporated. The Fund currently uses mostly active investment managers to facilitate effective engagement with underlying holdings and to ensure the types of investments in the portfolio are aligned with the Fund’s investment beliefs. Significant due diligence is carried out on an investment managers methodology and integration of EGS issues - including engagement activity before an investment is made.
Both active and passive managers, have a requirement to be responsible investors and are expected to act as good stewards for the companies they invest in. The Fund expects managers to sign up to the Stewardship Code or other local equivalent for Investment managers outside the UK. The fund requests information from its managers on a quarterly basis on engagement activity, whether this is in a formal published document or as an update to the Fund specifically. The Fund is talking to all managers to encourage them to publish this information quarterly for increased transparency to investors and interested stakeholders. At meetings with the Fund managers, discussions take place on a range of engagement topics including carbon emissions, physical and transitional climate risk, biodiversity, diversity of boards, mining risks, holdings in defence companies, holdings in occupied territories, retrofitting of properties and many others. Challenge on holdings to managers is targeted from a number of activities including companies with intense or high carbon emissions or limited transition plans as identified through the annual carbon foot printing reporting; companies within industries covered by the Transition Pathway Initiative (TPI) where companies Management Quality score is low or Carbon performance is not aligned with the Paris agreement; companies where beneficiaries or stakeholders identify a possible concern based on an ESG principle such as human rights; or companies that have been highlighted by the LAPFF on poor practices.

 

Investment Manager Engagements The Fund publish a quarterly report on the engagement of the Fund’s Investment managers and has started to comment on engagement activities of the Fund directly. These Manager Engagements reports can be found on the Fund's website.  


 

The Fund also engaged with Investment managers regarding Israeli settlements and discovered extremely limited exposure to companies listed on the UN A/HRC/43/71 list. The Fund challenged the rational for these holdings and were satisfied that the holdings in travel companies with property within the localities were held in an index-based strategy due to their position in the MSCI World Benchmark rather than through an active decision and none of these companies appeared in the screening from the managers data provider. The manager advised the exclusionary parameters of the mandate had not been reached as exclusion is applied in severe cases, as defined by international law, in circumstances where companies provide security or surveillance equipment to be used in occupied territories, exploit natural resources in those territories without consent of occupied people, explain the settlements or finance the projects. The Fund have published a statement on its website outlining its position on the Occupied Palestinian Territories. The engagement with an Investment manager relating to a holding in a water company have identified a number of lessons learnt from the situation by the manager and for the Fund to take forward in future activities. This has formed the basis for additional scrutiny of prospective real asset managers, particularly around the scale of investments in a portfolio and the controlling share of any investment added to a new portfolio. Example of Company Engagement - Manager - Storebrand ESG Issue: Human rights in conflict zones Objective: Ensure that companies with operations in Myanmar conduct human rights due diligence so that they do not contribute to severe human rights violations Type of engagement: Collaborative and direct, proactive Collaborative initiative of 77 asset managers led by SAM, with the Investor Alliance for Human Rights, Domini, and the Heartland Initiative. We call on companies across all sectors with business activities or business relationships in Myanmar to: Immediately map their business activities, relationships and/or investments across their value chain in Myanmar to identify and assess human rights risks and harms that they may have or are causing, contributing to, or are linked to including: any and all business relationships, activities and communications involving the Myanmar military, or military owned, controlled or affiliated entities; any revenues from such business relationships and activities that may enrich military owned, controlled, or affiliated business and/or provide funding or support to the Myanmar military made before or after the February 1 coup. Assess and address all identified actual and potential human rights impacts of their business activities and relationships and take steps to mitigate and prevent them. Design and implement processes to enable the remediation of adverse human rights impacts including those impacts on their in-country staff and local stakeholders. Regularly publicly report on such due diligence efforts and procedures in place to cease, prevent and mitigate those negative human rights impacts. Provide support to in-country staff and employees to ensure their physical safety and do not retaliate against employees for strikes. Use leverage and participate and initiate collective action by business in support of human rights. We urge companies and their Boards to consider this call. While we acknowledge that companies are facing substantial safety risks, to both workers and assets in the current situation, this is an opportunity for the private sector to show its leadership in navigating and assisting Myanmar’s transition to peace, justice, and democracy.

 

Principle 10 Signatories, where necessary, participate in collaborative engagement to influence issuers Overview Although the Pension Fund has delegated investment management activity to its external investment managers. The Fund believes that Collaboration with other asset owners and Investment Managers is an effective way to help improve the effectiveness when exercising their rights and responsibilities on engagement with the invested companies; to this end the Fund are members of the LAPFF, IIGCC and the PRI. The Fund also encourages all its Investment Managers’ to be signed up to these collaborations and to demonstrate effective stewardship through adherence to the UK Stewardship Code 2020, however they can sign up to any collaboration entitative that they believe to benefit the Fund. The Fund is a member of the ACCESS pool, which it uses to access more than half of its investments. The 11 partner funds in ACCESS have collectively pooled £33bn. ACCESS are collaborating on RI activities through unified RI guidelines which set the framework for the investment managers and enable them to use the combined weight of capital of the ACCESS authorities to positively engage with the companies they invest with.
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Activity Collaborations The Fund seeks to collaborate with like-minded institutional shareholders to maximise the influence that it can have on individual companies. Intuitional Investors Group on Climate Change (IIGCC) IIGCC has the collective weight of over €35 trillion from 275 members and is leading the way on a global stage for investors to help realise a low carbon future. IIGCC helps shape sustainable finance policy and regulation for key sectors of the economy and supports members in adopting active ownership and better integrated climate risks and opportunities into investment processes. The Fund’s Pension Committee Chair is currently a representative on the IIGCC Corporate Programme Advisory Group. The corporate programme focuses on supporting investors to engage with companies to align portfolios with the goal of net zero by 2050. In addition to the Fund’s own membership of IIGCC, the Fund asks its managers to also be members providing a double lock on engagement. .                                                                                                                                                                                                                                            

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IIGCC and Investor Agenda As a member of IIGCC the Fund were among a record number of signatories to a joint global investor statement calling on governments to urgently ramp up their efforts to address the climate crisis. The Fund signed up to the e Investor Agenda’s 2021 Global Investor Statement to Governments on the Climate Crisis contains the collective views of 587 investors from around the world, managing a total of more than US$46 trillion in assets - which is around 40 per cent of global assets under management. All 587 signatories have agreed to a set of policy recommendations that must be implemented swiftly to manage climate risk and channel trillions of dollars to address the climate crisis. The 2021 Global Investor Statement urges governments to raise their climate ambition to limit global warming to no more than 1.5 degrees, implement meaningful emissions reduction policies, mandate climate-related financial reporting in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), and deliver COVID-19 economic recovery plans that support a just transition to net-zero emissions by 2050 or sooner.
IIGCC and Climate Action 100+ As a member of the (IIGCC) the Fund is exposure to Climate Action 100+, in addition a number of the Fund’s managers are members of Climate Action 100+ and lead on various engagements. Climate Action 100+ investors have committed to engage with the world’s largest corporate greenhouse gas emitters to improve their climate performance and ensure transparent disclosure of emissions. The group is made up of more than 615 investors, responsible for over $65 trillion in assets under management, are engaging companies on improving climate change governance, cutting emissions, and strengthening climate-related financial disclosures. Climate Action 100+ is focused on companies that are key to driving the global net-zero emissions transition. 167 focus companies have been selected for engagement, accounting for over 80 percent of corporate industrial greenhouse gas emissions. .

 

 


 


In addition to being a member of LAPFF the Head of Pensions at the Fund was appointed to the LAPFF Executive Committee in October 2021. As result the Fund is much more involved in the focus of the engagement group and the Head of Pensions has already started attending engagement calls with target companies.
Outcomes Collaborative engagement has meant that the Fund is able to engage with companies who would not otherwise be willing to speak directly to the Fund, using its collective power the Fund’s engagement partners have made some maked progress in mining companies in relation to tailings dams and across oil and gas sectors. All these oil and gas companies have high level targets for being net zero by 2050 although short and medium term plans are less clear, and they are still adrift of alignment to the Paris agreement. Examples of progress in this can be seen in Royal Dutch Shell and their commitment to their net zero targets and partnership with offshore wind, in addition to allowing shareholders and advisory vote on their transitionary plans. The Fund anticipates some major shorts with the development in the Say on Climate initiative and further outcomes in relation to climate issues. The Fund has been able to increase its exposure to engagement in the year by active participation in collaborative groups rather than just being a member or signatory.  

 

Principle 11 Signatories where necessary, escalate stewardship activities to influence issuers Overview We expect investment managers to take responsibility for day-to-day interaction and take the appropriate action when operating on the Fund’s behalf while engaging in stewardship activities, this includes actions to escalate their approach when appropriate. The Fund discuss emerging issues and priorities at the Investment Implementation Working Group, alongside the Investment Consultants and Independent Adviser. These issues then form the basis for discussions with the investment managers where it has felt issues needed to be called into question or challenged. Activity As laid out under principles 9 and 10 then Fund meet regularly with Investment Managers and discuss RI topics and specific holdings to ensure the value at risk of investments is an in acceptable range and the value of beneficiaries investments are secure through these investments. Within the Fund’s Statement of Responsible Investment Principle’s the Fund seek to influence companies through engagement. The Fund will engage with the investee companies and appointed managers, either directly or via their collaborative partners. Where material risks remain following engagement activity, we retain the ability to divest, since the failure to engage destroys value in the longer term. The issue of engagement is a vital aspect of ownership. Escalation of action can take place through voting where management of companies are not engaging or making adequate changes.
 

 

 

 

 

 

 


                                                                                                                                                                                                                                           

 

 

 

 

 

 

 

 

 

 

 

 

Escalation will Collaborative Partners LAPFF engaged with 171 companies during 2021, but had numerous engagement meetings with companies such as ArcelorMittal, Shell, and the five major mining companies. LAPFF issued 18 voting alerts in 2021, these voting alerts are issued to members when it is felt that engagements need to be escalated. The chart below contains the companies and resolutions for which LAPFF issued voting alerts over the course of the year. Companies where a voting alert was necessary due to inaction of Investee companies were Amazon, Barclays, BHP, Booking Holdings, Delta Airlines, Expedia Group, ExxonMobil, Facebook, Frasers Group, Glencore, HSBC, Mitsubishi UFG, National Grid, Oracle Corporation, Rio Tinto, Royal Dutch Shell, SSE and Tripadviser. ,Escalation process of Ruffer – Diversified Growth Fund Investment Manager of the Fund  

 

 

 

 

 

 


 


Outcomes Escalation and divestment can work together for escalation, where managers engagement activities with investee companies are deemed ineffective the Fud expect the manager to escalate through voting or sale of that company. Engagement is a long process however the Fund expects managers to have time limits on when engagement is not working or the ability to acknowledge when Boards of companies are not interested in engaging with investors. The failure of engaging suggests there are other governance and other risks within the underlying company. Example Escalation At the Annual General meeting of ExxonMobil shareholders expressed their discontent with the current board members and the response of the company to climate change. By voting against the reinstatement of board members and replacing them with directors who have “experience in successful and profitable energy industry transformations” which can help turn the challenge of the climate crisis “into a long-term business plan, not talking point”. East Sussex were represented by two Investment Managers in voting with the proposals for this change in Board membership. One of the Fund’s managers was actively engaged with ExxonMobil, however due to limited response to the engagement, the manager dramatically reduced the holdings. A small position was later built back into the portfolio to restart engagement and to better understand the direction of travel in disclosing new short, medium and long term targets and priorities in addressing net zero benchmarks. The manager voted in the Fund’s behalf in favour of three independent directors proposed by the activist investor Engine 1 to accelerate change at the company. Active engagement will continue with the company to improve governance, climate disclosures and overall strategy. Since this change in Board membership ExxonMobil are no longer planning to increase oil production in the years to 2025 and has started to invest in decarbonization strategies with targets for greenhouse gas emission reductions. There is still a long way to go but this shows a marked change in the company as a result of this active ownership.

Close-up of stairs by escalator
 

 


                                                                                                                                                                                                                                           

 

 

 

 

 

 

Vote against: • The Report and Accounts are not considered to present a true and fair view of the company’s financial position. • The re-appointment of the auditors where the fees for non-audit work are material and exceed the fee for audit work. • The election of an executive director, who is not subject to re-election by rotation at least every three years. • Election of a chairman where the candidate combines the roles of Chairman and Chief Executive, unless there are exceptional circumstances e.g., a temporary arrangement, pending separation of the posts • Proposed dividend and special dividends which are not covered by earnings and the company offers no explanation of policy. • Annual report, where significant environmental risks in relation to the company’s activities are not disclosed or reported on or reporting is considered poor or inadequate.  


 


 


Stock Lending The Fund can take part in stock lending through its global custodian (Northern Trust). The Fund has not permitted stock lending in their segregated mandates since 2008. The manager of pooled funds may undertake a certain amount of stock lending on behalf of unitholders. If a pooled fund engages in this activity, the extent to which it does so is disclosed by the manager. The Fund has no direct control over stock lending in pooled funds. However, the arrangements within the ACCESS pool require that the stock is recalled in the event of a company meeting which the Investment manager wishes to ensure all voting rights can be utilised. Outcomes Active stewardship through exercising voting rights have benefited Fund beneficiaries through the expertise of the investment managers research team and research analysis feeding in from LAPFF to ensure that all votes are used, and votes applied based on engagement discussions and clear priorities of our investment managers in ensuring the underlying companies are well managed, and well positioned from a risk perspective to generate return to the Fund and hold companies with robust valuations with the objective of preserving and enhancing long term shareholder value. The Fund expects and monitor’s that investment managers vote on all the shares they hold. Engagement with the Investment Managers’ governance teams has proved successful in building relationships with companies in their transition to net-zero. Managers are required to report their stewardship activities to the Fund and to seek direction where required. As described above, each manager’s approach is assessed by the Fund via each manager’s written report, in monitoring meetings, and at Committee meetings. The Fund assesses the approaches taken by managers alongside each other and guidance provided by the LAPFF, for consistency and alignment of interests. Its important that voting and engagement work hand in hand, so the Fund can influence the underlying companies in making improvements thought the selection and monitoring of the Investment Managers. The Fund have identified some weaknesses in its approach with exercising rights and responsibilities, in that improvements can be made to challenge the robustness of reasons in voting against the ACCESS voting policy. In addition, the Fund has recognised that it needs to create its own voting policy for non-pooled managers to vote in line with or explain deviations where the investment is in a pooled fund. The Fund also acknowledges that the exercising of rights is focused to equities and will work to establish how it can widen this into other asset classes within the Fund’s portfolio. World map formed by people united