Agenda item

1.1.        This item was introduced by Ola Owolabi (OO).

1.2.        In reference to Item 9 Petition – Divest East Sussex Pension Fund from fossil fuels Councillor Brian Redman (BR) said that during his time as a member of the Pension Fund Investment Panel, the Panel had worked actively to ensure that investment managers working for the East Sussex Pension Fund (ESPF) influenced the companies in which they had invested ESPF funds to behave in an ethical way.

1.3.        BR said that he had been to a Local Authority Pension Fund Forum (LAPFF) meeting in December in Bournemouth and had been reassured that the issue of ethical investment for Local Government Pension Schemes (LGPS) was being taken seriously by the Forum – a considerable amount of the meeting was spent on the matter. BR was confident that ethical behaviour would benefit the companies themselves as they could absorb the costs of behaving more ethically whilst being reassured that investors would still be willing to invest in them. He recommended that other Board members attend the next LAPFF meeting in December.

1.4.        Councillor Kevin Allen (KA) welcomed the appearance of the issue of fossil fuel disinvestment on the Pension Committee’s agenda. KA informed the Board that the issue of fossil fuel disinvestment had been debated at the Brighton & Hove City Council (BHCC) Full Council meeting. He speculated that had the notice of motion been as straightforward as the one that passed at Hastings Borough Council it would have been passed (in the event, it was not). He said that individual councillors will continue to receive requests to endorse disinvestment and the Board should take disinvestment seriously, provided that it does not interfere with the ESPF administering authority’s fiduciary duties. KA added that it was important that the petitioners were informed of this fiduciary duty. Marion Kelly (MK) said that the issue of disinvestment was higher on the priority list of LGPSs than it had been 10 years ago.

1.5.        Sue McHugh (SM) recommended that any analysis of the value in fossil fuel disinvestment ought to include a quantified cost to the ESPF of disinvestment – be it over the short or long term. SM felt that only presenting the argument that investment allowed the ESPF to influence the ethical behaviour of companies was unlikely to be sufficient to convince people of the value of investing in those companies. OO confirmed that the ESPF’s investment consultant (Hymans Robertson) had been approached to provide analysis of the costs of disinvestment for the Pension Committee meeting in September. MK added that it was a complex task to calculate the financial outcome of disinvestment.

1.6.        The Chair said that it was right that the ESPF embraced the principle of ethical investment. However, he cautioned that a policy of disinvestment was complicated by the need to ensure that employers and council tax payers were not adversely affected; the fact that the Fund invests in large multinational companies that may produce products considered by others to be unethical – such as alcohol and tobacco; and the fact that large multinationals may have a complex web of subsidiary companies, some of which may behave unethically. The Chair added that pension fund members in Canada were involved in an $18bn class action law suit for lost earnings through tobacco disinvestment.

1.7.        Councillor Richard Stogdon (RS) the Chair of the Pension Committee said that the Committee would consider the issue of disinvestment carefully, but he cautioned that it would be difficult for the Committee to justify to the 69,000 members in the ESPF the underperformance of the Fund compared to its neighbouring pension funds – should that be an outcome of disinvestment. RS reiterated the Chair’s concern over the difficulty in deciding what is and is not an ethical company; and he added that disinvestment carried the additional risk of reducing the spread of investments and making the Fund more susceptible to market fluctuations.

1.8.        KA said that he understood analysis had been undertaken, and was available online, of the extent to which the LGPSs invested in fossil fuels. KA said that the website showed that some funds have performed well despite reducing investment in fossil fuel, in particular Lancashire County Pension Fund.

1.9.        In reference to Item 10 – Statement of Investment Principles, the Board was satisfied that there had been no major changes to the Statement of Investment principles over the last year.

1.10.      The Board RESOLVED to note the report.