Agenda and minutes

20.1       The Committee discussed disruptions at County Hall which had taken place the previous day. The Committee RESOLVED to allow press only into the meeting to avoid further disruptions noting that the meeting would be webcast to the public.

20.2       The Committee RESOLVED to agree the minutes of the meeting held on 17 June 2022 as a correct record.

21.1     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.

22.1     There were no disclosures of interests.  

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

23.1     There were no urgent items.

25.1       The Committee received a presentation from Baillie Gifford regarding the place of growth equities in the current inflationary environment. 

25.2       The Committee discussed a range of issues including:

• Bailie Gifford’s Paris-Aligned portfolio – The Committee discussed the inclusion of amazon.com, Rio Tinto and CRH in the Paris-Aligned portfolio. Tim Gooding, Baillie Gifford, updated the Committee that amazon.com were ahead of their target to become net zero by 2040, including scope 3 emissions. Rio Tinto and CRH produced materials essential for renewable energy, e.g., copper and so remained in the portfolio. However, it was noted that Bailie Gifford had recently voted against Rio Tinto’s climate plans. The portfolio had a two-stage screening process, with the first step being to exclude fossil fuel companies. Bailie Gifford noted that the portfolio did have a carbon budget, but they would not be investing in fossil fuel companies as this is a growth portfolio and they saw no long-term sustainable growth predicted in this industry.

• Engagement – The Committee discussed the efficiency of engagement noting that this will depend on the size and length of the holding.Bailie Gifford fed back that it was therefore beneficial to invest assets for a longer period of time and hold larger shares and that they generally hold around 10-20% of a share.

• Healthcare – The Committee discussed opportunities for healthcare investments, noting that many healthcare companies rely on patents, which lose value over time. However, many of these companies remain in business due to their reputational success, such as the success of the covid-19 vaccination created by Moderna. The majority of new healthcare companies also operated as data/software companies which enabled investors to better predict their future outcomes.  

36.           

·         Exposure to China – Chinese regulation places limits on overseas ownership of Chinese companies. Foreign exposure to Chinese industries, such as the tech industry is therefore often done through Chinese Cayman Shell Variable Interest Entities which are traded by investors on US exchanges in a similar manner to American Depositary Receipts (ADRs), although they are not ADRs.. Recent Chinese regulatory measures had however been amended to facilitate further cross-border regulatory co-operation. It was noted that holding Chinese Cayman Shell Variable Interest Entities posed a risk due to the nature of the ownership and it was difficult to engage with companies regarding their stewardship processes when owning a stock through an offshore vehicle. The Committee noted that Bailie Gifford had previously had a high exposure to China, which had reduced in recent months, with current exposure totalling 6-7% of the portfolio. Bailie Gifford had recently opened offices in Shang Hai which enabled them to get better traction in the Chinese market.

·         The Committee discussed Bailie Giffords position on volatility versus cumulative return and it was noted that Bailie Gifford would provide further information regarding their position.

25.3     The Committee RESOLVED to note the report.

25.1       The Committee received a presentation from Barnett Waddingham regarding the 2022 valuation assumptions.

25.2       The Committee discussed the potential impacts of increased inflation rates, including the impact of Brexit and the impact of climate change on life expectancy. The Committee discussed the assumptions that would drive contribution rates including pension increases link to CPI, Salary increase assumptions and the discount rate assumptions linked to anticipated investment performance and although the initial results had not yet been run it was noted that it the expectation was the Fund may reach 110 per cent funding level at a whole fund level, which compared favourably with other Funds. The Committee was supportive of the approach for stability of contributions, as the first three years’ experience would not necessarily reflect the average long-term assumptions due to high inflation experience and stability of contributions for employers is important in a period of financial pressure.

25.3       The Committee RESOLVED to note the report.

26.1       The Committee considered a report providing an update on the investment activities undertaken by the East Sussex Pension Fund.

26.2       The Committee discussed the progress made by the Fund over the last 6 months to reduce carbon emissions, with a greater focus on energy transition and sustainable investments. The Fund is currently in a market leading position for sustainable investment which would help drive long term performance. However, in the short term there had been a significant impact on the performance of the Fund, much contributed to by the situation in Ukraine due to the Fund’s limited exposure to fossil fuels and value stocks.

26.3       The following Motion was proposed by Councillor Taylor and seconded:

·         Note that the Fund has already made much progress as a climate friendly fund, and that several of the Fund managers are taking concrete steps to minimise exposer to fossil fuel assets, but more needs to be done.

·         To fully divest from the top 200 publicly-traded fossil fuel companies (including any commingled funds that include fossil fuel public equities and corporate bonds) within 5 years, and that officers and advisers will explore a safe and prudent pathway towards this divestment over the next five years, bearing in mind the Fund’s fiduciary responsibility to its members.

·         To develop a policy around engagement that sets out possible escalations if engagement is unsuccessful.

26.4       The Committee considered a number of arguments for the divestment of investments held in fossil fuel companies, including:

·         The Climate Act requires all Councils to reach net zero by 2050 and so the Fund should comply with the requirements the Act.

·         Engagement with fossil fuel companies is not progressing at the desired speed and the Fund is not investing in renewable energy on the scale needed. An engagement policy is required to ensure that clear policy objectives are outlined for when companies do not comply with the standards of the Fund.

·         Fossil fuel companies continue to extract oil as well as exploring new extraction opportunities. It would therefore be important to clearly demonstrate to the sector that this would not be tolerated and does not comply with the standards of the Fund. If the Fund were to publicly state its concerns regarding fossil fuels and global warming it would demonstrate a stand against the sector with the potential to generate wider action.

·         By making a commitment to divest over the next 5 years, the Fund can carefully consider its fiduciary duty and options for new investment pathways. Investing in sustainable growth funds would be essential to ensure positive returns over the longer term.

·         The largest impact of divestment would be now. The current inflationary environment and energy crisis has caused a rise in fossil fuel shares over the last years. The Fund has also made significant changes to its portfolio already which would mean divestment would be less of a risk now than previously.

26.5       The Committee considered a number of arguments against the divestment of investments held in fossil fuel companies, including:  ...  view the full minutes text for item 26.

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 RESOLVED to exclude the public and press from the meeting for the remaining agenda item on the grounds that if the public and press were present there would be disclosure to them of exempt information as specified in paragraph 3 of Part 1 of the Local Government Act 1972 (as amended), namely information relating to the financial or business affairs of any particular person (including the authority holding that information).

28.1     The Committee considered a report providing an update on the investment activities undertaken by the East Sussex Pension Fund that are considered exempt under the Local Government Act 1972.

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

28.3     The Committee RESOLVED to agree the recommendations as set out in the report.

29.1       The Committee considered a report providing a review on the investment managers’ Environmental Social and Governance activities.

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

29.3       The Committee RESOLVED to agree the recommendations as set out in the report.

30.1       The Committee considered a report providing an update on the Carbon footprint of the East Sussex Pension Fund’s liquid investments and the exposure to fossil fuel companies.

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

30.3       The Committee RESOLVED to agree the recommendations as set out in the report.

31.1       The Committee considered a report providing an update on the exposure and engagement activities in relation to investments within the occupied Palestinian territories.

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

31.3       The Committee RESOLVED to agree the recommendations as set out in the report.