Agenda and minutes

1.1          The minute of the meeting held on 16th March 2020.

2.1       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.

3.1       Cllr David Tutt declared a personal interest in item 18 (minute 17) as the Leader of Eastbourne Borough Council and did not take part in the discussion or resolution of that item.

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

4.1       There were no urgent items.

5.1          The Committee considered the draft minutes of the Pension Board meeting held on 8 June 2020.

5.2          The Committee RESOLVED to note the report.

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

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

• The share value of oil companies such as BP, Shell and Exxon had declined by at least half in the past few months, although they were now recovering. This could demonstrate that they are becoming volatile investments when they had historically been safe investments. As their share prices recover, therefore, investment managers could be advised to sell them to protect against future price falls.
• On the other hand, the decline in value of BP’s shares could be explained by its decision to commit to 50-100% carbon reduction over 20 years, meaning the devaluing of its stock price is due to the market’s recognition of the capital costs BP will incur fulfilling this commitment.
• Keeping an eye on the value of fossil fuel investments is undoubtedly important. However, stability of the Fund is also important given the current economic climate and the recovery of equities as an asset class in recent weeks. Furthermore, the Fund needs to ensure it has sufficient cash flow during the economic downturn to pay pensioners and oil and gas companies have traditionally been a good source of cash for the Fund through their dividends.
• The decision to disinvest in the short term is not consistent with the Fund’s stated Investment Beliefs that include that long term investing provides opportunities for enhancing returns; and that influencing companies as a shareholder is more effective way of changing behaviour of companies, for example, shareholder pressure, including by Ruffer, one of ESPF’s investment managers, on BP has had a major effect on BP’s decision to aim to decarbonise.
• The work undertaken by the Environmental, Social and Governance (ESG) consultant, PIRC, appointed following the notice of motion by Full Council, is complete. It has published a number of recommendations for how the East Sussex Pension Fund (ESPF or the Fund) might further integrate ESG considerations, including those relating to its approach to fossil fuel exposure, into its investment strategy. The ESG working group has also undertaken a lot of work in recent months, including around the Fund’s asset allocation. The next steps include, subject to agreement by the Committee, to develop the Fund’s investment beliefs to better set out how it may become a more proactive responsible investor; respond to PIRC’s recommendations; and to adjust the Fund’s asset allocation, which are currently overweight in passive equities and so more exposed to fossil fuels than they could be.
• The exposure to fossil fuels is likely to decline as strategic asset allocation is reviewed and the allocation of the Fund’s value in passive index equity funds or holdingsis reduced in favour of either more active managers, or smart beta funds that are weighted against carbon intensive companies. Fossil fuel exposure is likely to halve from 4% to 2% once the asset  ...  view the full minutes text for item 6.

7.1          The Committee considered a report on the review of the Environmental, Social and
Governance (ESG) arrangements of the East Sussex Pension Fund conducted by PIRC in response to the notice of motion passed by East Sussex County Council.

7.2          The Committee discussion included the following key issues:

• The Fund has 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.
• The Fund will be issuing a responsible investment statement to all employers and scheme members over the summer. It may also bring reports for consideration to the ACCESS Joint Committee to speed up the development of a consensus view on ESG amongst the 11 member Funds.
• An ESG working group helps to ensure that there is time and space dedicated to considering ESG matters. However, delivering on ESG commitments takes significant time and resources, for example, ensuring investment managers have signed up to the new UK Stewardship Code, and monitoring the carbon footprint of companies both require considerable officer time. The Fund is expected to develop a larger team in the next few months that should have sufficient resources to carry out the work.

7.3         The Committee RESOLVED to note the report

8.1          The Committee considered a report providing an update on the Good Governance review, seeking endorsement of the Terms of reference of the Pension Committee, terms of reference of the Pension Board, and revised Council Scheme of Delegations; and agreement of the Communication Strategy and Breaches Policy and log.

8.2          The Committee RESOLVED to:

1) endorse the:

• Pension Committee Terms of Reference (appendix 2)

• Pension Board Terms of Reference (appendix 3)

• Revised Council Scheme of Delegations to incorporate Pension Fund management(appendix 4); and

2) agree the:

• Communication Strategy (appendix 5)

• Breaches Policy and log (appendix 6)

9.1          The Committee considered a report seeking approval of the Internal Audit Strategy
and Plan for Pensions for 2020/21.

9.2          The Committee RESOLVED to approve the East Sussex Local Government Pension Scheme Internal Audit Strategy and Plan 2020/21, attached as Appendix 1.

10.1       The Committee considered a report outlining the draft Training Strategy and planning for the East Sussex Pension Fund.

10.2       The Committee RESOLVED to:

1) Agree the draft Training Strategy as set out in appendix 1 of the report; and

2) Review and endorse the deliverables and timetables of the Training Plan.

11.1     The Committee considered a report providing an update to the Pension Committee on matters relating to Pensions Administration activities.

11.2     The Committee RESOLVED to:

1) note the updates;

2) Note the progress of management in implementing the agreed actions arising from
the two internal audit reports (appendix 5); and

3) Note the areas for which no actions have progressed (appendix 5).

12.1     The Committee considered a report providing updates on the 2020/21 business plan at Quarter 1 for the East Sussex Pension Fund.

12.2     The Committee RESOLVED to:

1) Note the updated business plan; and

2) Note the new workstream for ill health retirement planning.

13.1     The Committee considered a report on  the East Sussex Pension Fund’s External Audit Plan for 2019/20, together with the fees for 2020/21

13.2     The Committee RESOLVED to:

1) approve the External Audit Plan for the East Sussex Pension Fund for 2019/20

2) note the Public Sector Audit Appointments (PSAA) Fee Scales 2020/21 letter.

14.1     The Committee considered a report on the Fund’s Risk Register.

14.2     The Committee RESOLVED to note the report

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).

15.1     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).

16.1     The Committee considered a report on the East Sussex Pension Fund Strategic Asset Allocation refresh.

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

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

17.1     The Committee considered a report on the COVID-19 Policy on the deferral of employer contributions.

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

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

18.1     The Committee considered a report on the Fund’s breaches log.

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

19.1     The Committee considered a report on pension administration system procurement.

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

19.3     The Committee RESOLVED to note the report.

20.1     The Committee considered a report on employer admissions and cessations.

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

21.1     The Committee considered a report providing an update on the East Sussex Pension Fund Team.

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