Agenda item

14.1     The Head of Pensions introduced the report and provided an update on the ESPF risk register and highlighted the changes made since the last report.

14.2 The Committee discussed the risk register including:

• Ukraine - The Committee discussed the Ukrainian conflict and whether this should be included in the risk register. The Fund had limited exposure to the conflict and, after some discussion it was agreed that the broader risks were picked up under the risk of inflation. Investment managers are assessing the situation and utilising opportunities where possible, but as a specific risk it would be difficult to identify what mitigations to put in place.

• Environmental Social Governance (ESG) - the Committee asked for clarification on why corporate governance and corruption was reported within the ESG risk. The Head of Pensions clarified that corruption is a specific governance risk for all underlying companies and managers will assess labour standards and the risk of corruption when investing in geographies and companies, such as identifying areas where corruption is more prominent.

• Climate Change –

-       The Committee queried the climate change risk regarding increased capital cost and the Head of Pensions agreed that the risk was unclear and would be amended.

-       The Fund had an underrepresentation of fossil fuel companies as well as a disproportionate exposure to growth funds. There was a risk therefore, that this would result in loss of investment/underperformance due to the energy sector being one of the highest performing sectors as seen in previous months. All managers investing away from energy had underperformed, but it was noted that this would not necessarily be the case going forward. Diversification of investments remained the key strategy.

-       The Committee discussed engagement with partners regarding ESG priorities. The Fund engaged directly with managers, for example through The Institutional Investors Group on Climate Change (IIGCC), whom has a collaborative climate change engagement programme, as well as via the ACCESS pool. The Chair updated the Committee that he is the current ESG spokesperson for the ACCESS pool, whose documents correlate closely with the ESPF. Most local authorities were aligned regarding ESG priorities, but as the only Fund investing in climate solutions, the ESPF were working to request that these assets be approved by ACCESS as part of the pooling environment.

-       MBOS - The Committee agreed to update the risks relating to MBOS to focus specifically on risks related to the ESPF.

-       Cyber Security - The Committee agreed to include further mitigations on the risk of Cyber Security regarding the ESPF’s ability to recover from bare metal ransomware such as highlighting that bare metal restore capabilities are in place. The Head of Pensions updated the Committee that the cyber security project was currently ongoing.

14.3 It was agreed that Committee Members would share further questions and comments with officers following the meeting.

14.4 The Committee noted that in order to include a broader range of risks, the risk register could include risks with a set of adaptions rather than specific mitigations where specific mitigations cannot be determined, such as in the case of future climate change. However, it would be important to keep the risk register concise, and it was noted that officers would look to adopt a similar format to that being presented to the Audit Committee in future.

14.5 Given the inflation outlook, a training item would be included at the Pension Committee in July, covering the likely actuarial assumptions planned for the 2022 Triennial Actuarial Valuation.

14.6 The Committee RESOLVED to:

• Approve the removal of Risk A4 - Risk on Dissolution of Business Operations from Orbis to ESCC.

• Approve the removal of Risk A6 - Major Incident preventing staff access to office.

• Approve the increased risk rating of Risks I5 for Funding risk due to higher inflation and I10 - External Fraud.