Agenda and minutes

21.1     The minutes of the meeting held on 22^nd June 2021 were agreed as a correct record.

22.1     There were no apologies for absence.

Disclosures by all Members present of personal interests in matters on the agenda, the nature of any interest and whether the Members regard the interest as prejudicial under the terms of the Code of Conduct.

23.1     There were no declarations of interest.

Notification of items which the Chair considers to be urgent and proposes to take at the appropriate part of the agenda.

24.1     There were no urgent items.

25.1     The Committee considered a report requesting approval of the East Sussex Pension Fund’s (ESPF or the Fund) investment strategy and direction of travel for the Fund.

25.2     The Committee’s discussion included the following key issues:

·         The Fund requires a rate of return of 3.7% to maintain its current size, but to maintain the current funding levels and account for future accrual of benefits, as more pensioners reach retirement age, it requires an increase of 5.5% per annum. In 2019 the funding rate was 107% and the primary employer contribution rate was 18%. By March 2021 it was 106% but the primary employer rate has increased to 21%. This is because the expected return in 2019 was 5.7% and best estimate now is 5.3%, as result of long term interest rates coming down and making opportunities to find other return-generating assets harder to achieve. The Fund therefore has less chance of achieving its targets relative to 2019, however, by making the proposed changes the Fund can improve its rate of return without increasing the risk to the Fund, i.e., it will provide a better risk adjusted return than the current strategy. This should help reduce pressure on employers to make up the funding gap.

·         Inflation poses a significant risk to the Fund. Infrastructure investments will help mitigate against this risk, as income from infrastructure tracks inflation well and provides greater returns than index linked gilts, which is why it is the focus of the strategy review.

·         The proposals include a reduction in the allocation of the Fund in the diversified growth funds – currently held by Ruffer and Newton – as this allocation is overweight. It is proposed that strategic reduction is made in the Newton allocation, as Ruffer provide capital preservation and protection against inflation, which is in keeping with the plan to protect against inflation.

·         Under the proposed plan, the diversified credit allocation will be taken from the corporate bonds allocation as it will maintain capital preservation during poor market conditions. This increase in diversified credit could either be an increase in the allocation to the M&G Alpha Opportunities Fund or to a diversified credit sub-fund in the ACCESS pool.

25.3     The Committee considered a number of arguments for the sale of equities held in fossil fuel companies.

·         Whilst inflation is a considerable risk to the Fund, it was argued that climate change is the greatest risk and limiting global warming to 1.5C is the only way to protect the Fund long term. The Fund’s fiduciary duty should compel it to take all possible actions to mitigate against this risk and there is no more than nine years left to reduce carbon emissions before the 2C warming scenario can no longer be prevented.

·         Shareholder engagement has had little impact on changing the behaviour of fossil fuel companies to date and many are still discovering new oil and gas fields. Even though the Fund’s exposure is now low, which is to be commended, fossil fuel companies play a  ...  view the full minutes text for item 25.

26.1     The Committee considered its work programme.

26.2     The Committee discussed the benefits of reducing the number of items on future agendas, particularly where they relate to areas of focus of the Pension Board, such as governance and employer engagement; or where they are being presented to the Committee ‘to note’ and could instead be circulated by email for information. The Committee was also in favour of using the call-over function for reports that require agreement but are not controversial, for example, policy documents that regulations require a new version is agreed every three years or when changes are made to it. This would enable the Committee to focus its time on more complex or controversial issues.

26.3     The Committee agreed to:

1) agree its work programme; and

2) agree to let officers advise which reports currently listed as standing items should be considered less often by the Committee in future.

To consider excluding 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).

27.1     The Committee RESOLVE 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).

28.1     The Committee considered a report containing a review on the investment managers’ Environmental, Social and Governance (ESG) activities.

28.2     A summary of the discussion is set out in an exempt minute.

28.3     The Committee RESOLVED to  agree actions which are set out in an exempt minute.

29.1     The Committee considered a report providing an update on the investment activities undertaken by the Fund that are exempt in nature.

29.2     A summary of the discussion is set out in an exempt minute.

29.3     The Committee RESOLVED to  agree actions which are set out in an exempt minute.