Thursday's Brent Pension Fund Sub-Committee will be considering the Brent Investment Strategy Statement LINK. The Investment Strategy is an opportunity for the Fund to commit to positive action over what are known as ESG (Environmental, Social and Governance) aspects of its investments. Environmental includes investments in fossil fuels such as oil and gas which contribute to the global climate crisis. Brent Labour has a manifesto commitment to phase out such investments in the light of its Declaration of a Climate Emergency and has been lobbied by the campaign Divest Brent to move more quickly on its commitment and establish a timeline.
This is the relevant extract fom the statement:
Where appropriate, the Committee considers how it wishes to approach specific ESG factors in the context of its role in asset allocation and investment strategy setting. Taking into account the ratification in October 2016 of the Paris Agreement, the Committee considers that significant exposure to fossil fuel reserves within the Fund’s portfolio could pose a material financial risk. As a result, the Committee has committed to undertaking a Carbon Risk Audit for the Fund, quantifying the Fund’s exposure through its equity portfolio to fossil fuel reserves and power generation and where the greatest risks lie.
Once this audit has taken place the Committee intends to develop a plan to reduce the Fund’s carbon exposure. The plan will be periodically reviewed to ensure that it remains consistent with the risks associated with investment in carbon assets and with the Committee’s fiduciary duties.
A key consideration in developing this plan, including the setting of any intermediate targets, will be the London Collective Investment Vehicle’s own plans to reduce the carbon exposure of the funds it oversees. Currently, c30%of the Fund’s assets sit directly with the London CIV this percentage is expected to grow over time. Once passive investments through LGIM and BlackRock are included, c90% of the Fund’s assets can be pooled.
At this stage, the Committee has not set a target timeframe for the Fund to become carbon neutral. This will be considered in more detail as part of the plan to reduce the Fund’s carbon exposure. Some flexibility may be appropriate to allow the Fund to adjust the pace of the transition in the light of changing financial conditions or technological advances in certain sectors.
The Committee considers exposure to carbon risk in the context of its role in asset allocation and investment strategy setting. Consideration has therefore been given in setting the Fund’s Investment Strategy to how this objective can be achieved within a pooled investment structure and the Committee, having taken professional advice, will work with the London CIV to ensure that suitable strategies are made available.
Where necessary, the Fund will also engage with its Investment Managers or the London CIV to address specific areas of carbon risk. The Fund expects its investment managers to integrate financially material ESG factors into their investment analysis and decision making and may engage with managers and the London CIV to ensure that the strategies it invests in remain appropriate for its needs.
The Committee consider the Fund’s approach to responsible investment in two key areas:
·Sustainable investment / ESG factors–considering the financial impact of environmental, social and governance (ESG) factors (including climate change) on its investments.
·Stewardship and governance–acting as responsible and active investors/owners, through considered voting of shares, and engaging with investee company management as part of the investment process.
In light of the latest investment strategy review and the Fund’s increased focus and importance of responsible investment, the Fund has bolstered its beliefs in this area, specifically:
·Ongoing engagement and collaborative investment practices will affect positive change through the powers of collective influence.
·We must act as responsible owners
·The Fund’s investment managers should embed the consideration of ESG factors into their investment process and decision-making
More detail on these beliefs can be found in the appendix.
The Committee takes ESG matters very seriously. Its investment beliefs include explicit statements relating to ESG and climate change. The ESG criteria of its existing investment investments are assessed on an ongoing basis and ESG is a key consideration when assessing the relative merits of any potential new Fund investments. The Fund also conducts an annual review of its:
·Policies in this area,
·Investment managers’ approach to responsible investing; and
·Members’ training needs and implements training to reflect these needs.
At the present time the Committee does not take into account non-financial factors when selecting, retaining, or realising its investments. The Committee understand the Fund is not able to exclude investments in order to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries.
The London CIV itself is committed to responsible investment and duly recognises the role of ESG factors in the investment decision making process, evidenced by its own ‘responsible investment policy’. The Fund is supportive of this and will monitor the policy on a regular basis as more assets transfer into the pool to ensure consistency with its own beliefs. Details of the investment managers’ governance principles can be found on their websites.
Asked for a comment on the Statement, Simon Erskine of Divest Brent said:
When Divest Brent presented its 1,400-strong petition on divesting the Brent Pension Fund (i.e. getting rid of the Fund’s fossil-fuel investments) to the Cabinet of Brent Council back in April, the Deputy Leader of the Council pledged to develop a clear roadmap towards progressing the divestment strategy. It was therefore heartening to read the Council’s updated Investment Strategy Statement which is going to the Pension Fund Sub-committee for approval at its meeting on Thursday (June 24). The Council has not made any specific commitment to divest by any specific date but as a step towards the promised “clear roadmap” it is an encouraging start. Key points include:
· Commitment to a Carbon Risk Audit for the Pension Fund followed by
· Development of a plan to reduce the carbon exposure of the Fund
· The timeframe for this decarbonisation would be considered as part of the roadmap
· The Fund will engage with its investment managers to address specific areas of carbon risk
· Climate change and the expected transition to a low carbon economy is a long term financial risk to Fund outcomes
Unsurprisingly the updated investment strategy does not deliver all we would like to see. Notably the Council has retained its stance, shared with many other local authorities, that engagement is preferable to divestment – in other words asking oil companies nicely if they could kindly stop producing so much oil – rather than simply jettisoning their shares. They do now, however, say that if, after a considered period, there is no evidence of a company making visible progress towards carbon reduction then divestment should be actively considered.
Ironically the Pension Fund Sub-committee will also be considering a report from LAPFF, the local authority group tasked with engaging with companies, featuring a piece on their engagement with Shell. From the report it was clear that Shell were uninterested in the point made by LAPFF that their net zero commitment would require developing a new, mature forest the size of Washington State (one of the US’s biggest states). LAPFF also pointed out that their plans to decarbonise involved carbon capture and storage (CCS) centres equivalent to 10x that of the world’s largest current CCS centre, which itself is mired in problems. Shell reckons that these steps will actually enable them to increase gas production and burning! It is perhaps no surprise that the Council officers’ introduction, for the Pension Fund Sub-committee, to the LAPFF report omitted to mention the piece on Shell…
In conclusion there is much to welcome in the updated investment strategy statement – but let’s wait and see what the promised roadmap comes up with in terms of detail and time-table.
There is a section of the Statement that may well be challenged by other campaigners when it states:
The Committee understand the Fund is not able to exclude investments in order to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries.
In April 2020 Palestine Solidarity Campaign defeated the UK government in the Supreme Court, overturning guidance that advised Local Government Pension Funds against taking ethical investment decisions that contravened UK government foreign policy, restricting the ability of funds to remove investments from companies complicit in Israel’s violations of international law and Palestinian human rights.
The Campaign's research shows that Brent has £6,846,096 invested in companies in 'grave breach of international laws carried out by the Israeli government towards Palestinians'.
Details of the companies involved can be found HERE.
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