Agenda item

·         Including response to the notice of motion from Lewes District Council's Cabinet

28.1     The Committee considered a report on the Statement of Responsible Investment Principles for the ESPF.

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

• An additional belief should be included in the Statement of Responsible Investment Principles to clarify the Fund’s belief that companies whose profits are derived from providing solutions to some of the World’s more serious environmental, sustainability, demographic and social challenges might be expected to exhibit above average long-term growth characteristics. 
• The Fund should carry out an annual review of its fossil fuel exposure starting from the baseline of March 2020. This will demonstrate the impact of the recent rebalancing of asset allocations that may reduce exposure from 4% to 2% of assets, as well as any future changes to asset allocation.
• The Fund – through the Investment Working Group – should consider the fossil fuel exposure of assets held in UBS regional equity funds to understand whether a particular region, e.g., North America, Japan, or emerging markets, has higher fossil fuel exposure than others.
• The Fund does not directly invest in companies but does so through investment managers offering passive index funds that invest in a range of companies that mirror the listings of a stock market. It cannot, therefore, choose to freeze further investment only in fossil fuel companies without divesting entirely from passive index funds (where 33% of the Fund’s value is held).
• Whilst transitioning to active asset managers may be one way of reducing fossil fuel exposure, not all active managers are able to provide a good return on investment, particularly for the additional cost. The Government also says Local Government Pension Scheme (LGPS) should invest some of their assets in passive index funds, particularly the assets that have been moved to pooled funds.
• The Fund has therefore agreed to alter its fossil fuel exposure by changing the weighting of its passive funds. This involves reducing holdings in existing UBS passive market-cap funds and increasing them in smart-beta passive equity funds – which favour stocks in companies with lower carbon exposure, such as technology companies, or companies that are making demonstrable efforts to decarbonise – and in Longview, which does not have exposure to fossil fuel companies. 
• The Fund continues to work with IIGCC and Climate Action 100+ to ensure investment managers, who are shareholders of companies on behalf of the Fund, lobby companies for action on climate change. Ruffer, one of the Fund’s active managers, takes a leading role in lobbying companies in this way.

28.3     The Committee RESOLVED to:

1) approve the Statement of Responsible Investment Principles (Appendix 1) subject to the addition of the following Responsible Investment Belief:

“ESG opportunities may be found in Impact Funds investing in companies whose profits are derived from providing solutions to some of the world’s more serious environmental, sustainability, demographic and social challenges e.g. cleaner products and processes, renewable energy, health, nutrition, sustainable agriculture, shelter, clean water and sanitation etc. Where successful, such companies might be expected to exhibit above average long-term growth characteristics”;

2) agree to amend the Investment Strategy Statement for changes outlined in
Paragraph 2.3. which are as a consequence of agreeing the Statement of
Responsible Investment Principles,

3) agree to receive an updated Investment Strategy Statement at the November Committee;

4) note the letters from Lewes District Council & Peacehaven Town Council;

5) agree the draft response to both letters contained in Appendix 5;

6) recommend that the Investment Working Group look at UBS regional equity fund holdings held by the ESPF and report back recommendations to the Committee; and

7) request an annual report on the Fund’s exposure to fossil fuels.