To consider the report.

Damien Pantling introduced the report which encompassed ESG (environmental, social and governance), net zero and carbon emissions. Referring to appendix two and three, he explained that the main conclusion was that the Pension Fund had strong ESG credentials whereby it had more Green (renewable energy generation, clean technology, and decarbonising activities) than brown investments (extraction, transportation, storage, supply, and generation of energy from fossil fuels) as well as a generally better ESG score.

Regarding appendix one, Damien Pantling informed that the Pension Fund was required to consider climate risk relating to its ability to pay pensions in the future. The main focus was on short-term transition and long-term physical risk the Fund was facing as a result of climate change. The conclusion from the report was positive, whereby the Pension Fund would be resilient enough in all scenarios based on its current asset allocation to get the returns needed to pay pensions in the future.

Due the complexity of this, Damien Pantling informed that a training session had taken place for Committee members earlier in the day.

Damien Pantling concluded that Berkshire Pension Fund was positively going beyond as required by legislation.

Councillor Tisi asked for confirmation that deficit contributions were required due to the funding level being under 100%. Damien Pantling replied that the Pension Fund would ask scheme employers for deficit recovery contributions within an 18-year maximum deficit recover period to help get back to 100% funding. While this was not tested, it was based on assuming only the primary contributions, looking at the Pension Fund’s assets, and the value of liabilities in the present and projected to 2050. Damien Pantling added that the Pension Fund was confident in getting the funding back to over 100%.

Councillor Tisi then asked about the graphs in the report on green and brown investments, namely asking why green investments had increased while brown investments had decreased. Chris Rule, Chief Executive of LPPI, replied that green investments had increased because LPPI had (on the Fund’s behalf) been making investments in this area, such as renewable energy in infrastructure, alongside increasing strategic allocation into some private market allocations. As for why brown investments had remained the same, this was because there were no new investments as well as investments holding up due to traditional energy sources performing relatively well in an energy crisis.

Councillor Da Costa commented that the report had scenarios set by the Bank of England, and these scenarios were not stringent enough and were not reflective of the real world. He stated that this was a concerning, and it needed to change. He then commented that the LPPI report did not correlate or align with the Pension Fund’s Responsible Investment (RI) policy, and this was problematic. He then asked how this could be changed to reflect the Pension Fund’s RI policy and decisions.

Damien Pantling responded that since the Pension Fund Committee meeting in late-2021, the report had considerably developed with every meeting. He stated that he would take this as an action to ensure the LPPI report was in line with the Pension Fund’s RI policy.

ACTION: Damien Pantling to change the LPPI report so that it was in line with the Pension Fund’s Responsible Investment policy.

Alan Cross commented that the actuary’s view of the risks which the Pension Fund was facing were reviewed and it was established that the actuary had taken a general view rather than a view specific to the Fund’s investment when giving the advice. He added that that RI policy would likely change over the years and that the Pension Fund was in a good position to deal with this.

Adding to what Damien Pantling had stated, Chris Rule explained that the LPPI report was designed to be reasonably homogenous with the reports produced by other funds, which then allowed comparisons and contrasts. This, he explained, was considered a reasonable industry standard for this kind of metrics. He then added that metrics were difficult to derive from responsible investment activity. Chris Rule stated that report had been evolving over time and would continue to work with Berkshire Pension Fund to continue this over time.

Aoifinn Devitt, Independent Advisor to the Committee, believed that the LPPI report conveyed the Pension Fund’s RI policy adequately and there was not a large gap between the report and RI policy; adding that if changes needed to be made, this could be done. She also stated that independent advisors do not just take the data at face value, but also interrogate it and review the effectiveness of the engagement.

Bob Swarup, Independent Advisor to the Committee, commented that the RI policy was quite innovative which other Pension Funds do not possess. He stated that the policy included a principle of continuous improvement and that this was an area of fast development. The risks, he explained, were understood from a macro-level but were poorly articulated and measured on a micro-level. From this, as the data came through and became more understood, the policy would likely be reviewed and altered.

AGREED: That the Pension Fund Committee notes the report;

i)               Approves the Fund’s RI dashboard, RI report, active engagement report for publication; and

ii)             Acknowledges the Climate Risk Analysis report as provided by Barnett Waddingham for discussion.