Issue - meetings

48.1     The Committee considered a report providing an update on Environmental, Social and Governance (ESG) matters.

48.2     The Committee’s discussion included the following issues:

·         Fossil fuel equities have traditionally benefited the fund by providing a stable income stream to the Fund, which helps to ensure the Fund has sufficient cash to pay out people’s pension entitlements. Any plan for disinvestment from fossil fuels would need to consider how this income would be replaced, as well as any potential risk to the Fund caused by reducing the diversity of assets it holds.

·         Whether the fossil fuel investments had become riskier over time, particularly in those oil companies that were continuing to invest in new potential exploration sites, and whether a similar return could now be achieved by disinvesting from fossil fuels without increasing the risk to the Fund.

·         Whether there is value in rebalancing the Fund’s portfolio away from passive index funds and towards either active equity funds that may not invest in fossil fuels or titled passive index funds that favour low carbon equities, taking into consideration the considerable additional cost to the Fund of both alternatives.

48.3     The Committee was advised that the ESG consultant would carry out a cost-benefit analysis of the Fund’s fossil fuel exposure.

48.4     The Committee RESOLVED to:

1) note the motion agreed by Full Council attached as Appendix 1;

2) agree the draft ESG Statement of the East Sussex Pension Fund attached as Appendix 2;

3) agree the proposed specification for investment consultant advice on ESG investments attached as Appendix 3; and

4) agree to consider the progress of the investment consultant’s work on ESG Investments as a standing item on future agendas.

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23.1.      The Board considered a report on Environmental, Social and Governance (ESG) matters.

23.2.      The Chair asked when the specification for an investment consultant’s advice on ESG investments would be put out to tender.

23.3.      Michelle King (MK) explained that the specification would need to be agreed by the Pension Committee first and would go out to tender after it had been agreed. It was clear that this specialist advice would be needed to produce a quality report, but it was not clear what companies were available on the market and there was no one company who officers had in mind to take on the role. 

23.4.      DP agreed that it was a good idea to seek the advice of a consultant and it sent a clear message that the Fund was taking the matter seriously. She suggested the service specification could include a requirement to advise the Fund how best to communicate its approach to ESG matters.

23.5.      The Chair of the Pension Committee explained that he had recently met with Divest East Sussex to provide them with an update on what the Fund was doing in relation to ESG matters. He spoke about the difficulties inherent with ensuring the Fund is performing well in relation to ESG matters, including that there is inconsistent and varying quality of data held by investment managers, or available from companies in which they invest; and the definition of what constituted ‘good’ in relation to ESG standards continues to change. ESG considerations would also need to be balanced against the fiduciary duty of the Fund to make a sustainable return on investment. He said that the Fund’s statement of investment beliefs in relation to ESG should not be too prescriptive, to avoid needing to be amended regularly, but clear to investment managers with regards to how the Fund expects its assets to be invested.

23.6.      LW welcomed the Pension Committee Chair’s presentation at the Full Council on 15 October – in response to a debate on fossil fuel disinvestment triggered by a petition of over 5,000 signatures – as a helpful and concise way of setting out how the Fund is one of the leading LGPS in terms of its action on climate change. She said ESG was an important and emotive subject that was increasingly attracting the interest of scheme members, their unions, and local councillors. It is therefore important that information is made available to scheme members so that they can both recognise the importance of ESG issues, but also the fact that the Fund is investing money in order to provide for their pensions and needs to be kept in a healthy and sustainable state.

23.7.      The Chair of the Pension Committee thanked IG and MK for their assistance in drafting the speech he made at Full Council.

23.8.      Stephen Osborn (SO) asked whether the 5,000+ signatures were from ESPF members.

23.9.      LW explained that they were collected from the wider public. The  ...  view the full minutes text for item 23