To note the report from Damien Pantling, Head of Pension Fund

Damian Pantling introduced the report on Responsible Investment but explained that two colleagues from LPPI were present for questions on the reports. It was emphasised the portfolio's current green-to-brown ratio with 3.4 time more green than brown and consistently better ESG score compared to the benchmark. Damien Pantling noted an outstanding action regarding climate training and the setup of a task and finish group, ensuring it remains on the radar despite resource challenges, with plans to address it in the new financial year.

 Councillor Da Costa expanded on Damien Pantling’s point regarding climate change training, highlighting its dual purpose of educating Pension Fund Committee members and shaping a responsible investment policy and strategy. This endeavour aimed to align investment objectives with emerging opportunities in green assets and other climate-friendly solutions. Councillor Da Costa emphasised the long-term nature of this project, acknowledging the complexities involved and the need for extensive information and collaboration to formulate a strategy that maximises growth while addressing challenges and opportunities in the changing environment.

Alan Cross noted a point for the benefit of LPPI colleagues regarding the comparison of changes over time, particularly in areas like diversity on boards. He raised the question of whether these changes were driven by shifts in investments or by alterations in board compositions, possibly influenced by actions taken by partners collaborating with these boards. Alan Cross emphasised the importance of delineating between changes resulting from investment shifts and those stemming from board dynamics to better understand progress.

Richard Tomlinson, LPPI, spoke on the difficulty in attributing outcomes to specific actions, especially within a public equity portfolio, it was noted that multiple managers often claim responsibility for the same outcome due to various engagements. This made it challenging to determine whether changes were driven by shifts in composition or in the assets themselves. While efforts were made to analyse these factors, it remained complex as changes were influenced by both portfolio adjustments and advocacy for change. Richard Tomlinson emphasised that preferences for certain types of investments can shape future decisions and engagements to align with desired characteristics. He noted that transparency was encouraged, with a reminder to acknowledge actions taken when attributing outcomes.

The Chair queried the involvement of various organisations mentioned in the report, all of which appeared commendable and committed to effecting change. The International Investors Group on Climate Change (IIGCC) was highlighted for its admirable work over the past decade. The Transition Pathway Initiative (TPI), initiated with the support of organisations like the Church of England, was also noted for its dedication to responsible investment. The Task Force on Climate-related Financial Disclosures (TCFD), championed by Mark Carney, was recognised for its influence in driving change. Mention of the Nature Action 100 initiative on biodiversity was particularly welcomed. The Chair requested additional context on the initiative, particularly regarding the founding participants and other key stakeholders involved.

Richard Tomlinson clarified that the Nature Action 100 initiative is an organisation being supported, with biodiversity and nature emerging as key themes not only for the group but also within broader discourse, as evidenced by increased content on nature and biodiversity in recent COP conferences. Richard Tomlinson discussed the ongoing development of a climate opportunities vehicle with a specific focus on nature and biodiversity, indicating the significance of this theme in the organisation's investment strategy moving forward. Richard Tomlinson emphasised the interconnectedness of addressing biodiversity alongside the transition to Net Zero, viewing them as integral components. He noted while the initiative extends beyond the organisation, they had taken the lead in engaging with three companies, with expectations for momentum to grow over time.

Councillor Da Costa questioned Richard Tomlinson regarding his mention of a new green fund. He inquired about the fund's basis, asset selection criteria, and considerations for transitioning funds into it. Richard Tomlinson suggested discussing these details in part II of the meeting, emphasising the organisation's serious consideration of creating solutions for clients to invest in climate and nature-based initiatives.

Aoifinn Devitt made an inquiry about the level of satisfaction with engagement efforts and their efficacy, particularly given the global portfolio context and regional dynamics around ESG and activism. Richard Tomlinson emphasised the nuanced nature of engagement strategies, differing between internal and external management. He said internal portfolio engagement involves detailed, granular conversations with specific outcomes tracked, while broader engagement with external partners operated at a higher level, representing a larger pool of capital. Richard Tomlinson acknowledged regional differences, noting pushback in the US compared to a more receptive attitude in Europe. Despite these variations, the organisation remained committed to its engagement efforts, with plans to enhance and broaden activities rather than retreat.

Councillor Da Costa noted insights from discussions with investors at the LAPF Forum conference, where some attributed ESG pushback in the US to political motives, questioning its reflection of genuine value amidst significant investments spurred by the Inflation Reduction Act.

Aoifinn Devitt responded that the ESG debate was maturing beyond election-year politics, undergoing robust testing and interrogation, which ultimately strengthened it while revealing instances of greenwashing. She said stakeholders were becoming more demanding, seeking evidence of continuous improvement rather than mere engagement. Aoifinn Devitt then asked Richard Tomlinson whether the report demonstrated this progression towards achieving goals?

Richard Tomlinson responded that progress was seen within the internal portfolio, with direct control allowing for continuous improvement. While broader engagement progress was less directly observable, aggregate analysis revealed significant annual improvement in responsible investment practices. He noted that political dynamics vary by country, influencing dialogues on decarbonisation, yet a clear long-term trend towards decarbonisation persists.

AGREED: That the Pension Fund Committee notes the report;

i)             Approves the Fund’s RI dashboard, RI report and Active Engagement report for publication;