Responsible Investment and climate change: Funds reveal their policies

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In June the Local Authority Pensions Fund Forum (LAPFF) reported that it had signed a deal with Project 50/50, a specialist research body, to provide data that will bolster the forum’s ability to challenge companies over climate risk disclosures. Room151 asked three LGPS funds to tells us about their climate change and responsible investment policies.

Greater Manchester Pension Fund (GMPF)

GMPF invests over 60% of its assets in well diversified portfolios of UK and overseas company shares. We have delegated the investment management of these portfolios to a small number of external professional fund management firms, who we give detailed guidelines within which to work.

A dedicated, specialist sub-committee oversees GMPF’s approach to environmental, social and governance issues (ESG), which includes the monitoring of the voting and engagement activity of the external managers.

In 2015, the sub-committee held a seminar specifically on climate risk, and a summary is available on the GMPF website.  Later in 2017, GMPF is holdings a stewardship event for a wide range of stakeholders, which will consult on our approach to ESG that we continually seek to enhance.

Another vital strand to our ESG approach is our membership of the Local Authority Pension Fund Forum, which provides a large investor base to influence companies’ corporate governance and social responsibility.  Councillor Kieran Quinn, chair of GMPF’s management panel is also chair of LAPFF.

LAPFF provides a unique, councillor led approach to company engagement, and considers the full spectrum of ESG issues, such as the transition to a low carbon economy, board diversity and executive pay.  The “social” aspect of ESG can often be overlooked, but over the last few years, the chair of GMPF has engaged with high profile companies such as Sports Direct and National Express, seeking improvements in their workplace practices.  These engagements can take many years to come to fruition, but as long-term investors looking to enhance shareholder value, it’s time well spent.
Tom Harrington, senior investments manager, Greater Manchester Pension Fund.

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South Yorkshire Pension Fund Authority

South Yorkshire Pensions Authority has been a long term advocate of responsible investment and considers that environmental, social and governance issues can have a material impact on the value and long term performance of investments.

Over the years a suite of responsible investment policies have been developed with a climate change policy being the most recent addition.  Best practice is encouraged at investee companies and the authority aims to influence companies by engagement and the use of voting rights.  It has been a long journey to get to this point with a seminar for elected members initially highlighting areas which needed strengthening. Reports followed on carbon and climate risk leading to the authority co-filing climate related resolutions at a number of AGMs.

COP21 was the real tipping point. Ahead of the conference, issues around climate change and sustainable investment were revisited with a number of decisions being made. The authority confirmed it would not directly invest in pure coal and tar sand companies; it became a signatory of the Carbon Disclosure Project (CDP); affirmed the policy of engagement over divestment and commissioned a carbon audit of its equity portfolios. Following this the climate change policy was published.

This is by no means the end of our journey. The authority continues to engage with fossil fuel and high emitting companies through its membership of LAPFF, the CDP, and also directly. We support climate change and environmental resolutions at AGMs and will co-file shareholder resolutions where appropriate and continue to look at climate related investment opportunities.

Jane Firth, principal investment manager, South Yorkshire Pensions Authority.

Environment Agency Pension Fund (EAPF) 

This year we have delivered on every aspect of our responsible investment objectives, from supporting positive change in pension regulations and guidance (our new LGPS regs, for example), challenging anti-LGBTQ legislation in the US to promoting diversity and renewable electricity uptake by corporates.

Climate change is a key focus: we set ourselves a global leading objective “to ensure that our fund’s investment portfolio and processes are compatible with keeping the global average temperature increase to remain below 2°C relative to pre-industrial levels, in-line with international government agreements.”

Our biggest achievement on climate risk this year has been the launch in January of the Transition Pathway Initiative (TPI).

TPI, co-founded by the EAPF and the Church of England National Investing bodies, is an asset owner-led initiative, supported by asset managers and owners worldwide.  The initiative assesses how companies are preparing for the transition to a low-carbon economy.  The TPI tool, which is freely available online, was developed with the Grantham Institute at the London School of Economics, which ranks companies by two measures:

1. How well their management is dealing with climate change risks.
2. How effective they are at achieving carbon reduction.

We have also made progress by getting up to 12.5% of the  fund invested  in low carbon, energy efficient and other climate mitigation opportunities.  This part of the £1.1bn in wider sustainable investments.  See our annual report published at the end of July for more details www.eapf.org.

Faith Ward, chief responsible investment and risk officer, Environment Agency Pension Fund.