Agenda item

To present an update on the Fund’s net zero road map and updated London CIV responsible investment policy.

Sawan Shah (Head of Finance – Pensions and Companies, Brent Council) introduced the report, presenting an update on the Fund’s net zero road map and London CIV's Responsible Investment Policy. The Pension Fund Sub-Committee was asked to note the update.

Officers highlighted the risks and opportunities for pursuing net zero, explaining that a pension fund's primary responsibility was to ensure it could make payments to its members, and having a balanced and diversified investment strategy was key to that. However, it was highlighted that decarbonising a portfolio which invested in multiple funds globally across many different sectors was a considerable challenge. Whilst “net zero” portfolios were noted to be hard to invest today they were also noted to open up new opportunities in time. For example, a transition to Net zero provided the opportunity to invest in companies leading the way in the climate transition. The report detailed the achievements of Pension Funds so far in relation to the transition to net zero, with Brent’s Fund having developed and invested approx. £40m so far into the LCIV Infrastructure Investment Fund, of which 40% was allocated to the renewable sector.

The Pension Fund had also introduced an allocation into BlackRock’s Low Carbon equity fund in 2021, and this formed a core part of the Fund’s equity allocation, which was seen as the first step in the evolution of the fund's strategy to make more responsible investments and to actively reduce the overall carbon intensity of the Fund. ESG and Climate Risk considerations were also noted to play a significant part in LCIV’s manager's selection and monitoring process. LCIV had recently strengthened ESG elements of the Multi-Asset Credit Fund. These changes exclude corporate issuers with the weakest ESG credentials or omit issuers that generate 10% or more of their revenues from thermal coal mining, oil and gas extraction, or power generation from thermal coal or liquid fuels.

Officers stated that they were reviewing Global Equities, which made up one of the asset classes with the highest carbon intensity, meaning reducing carbon emissions for this holding would be significant. In the previous year, the Sub-Committee had considered desirable and undesirable characteristics and key areas and how it would want any potential new mandate to be shaped in the area and officers were now reviewing different fund options from 3 fund managers against those characteristics with the recommendations to be presented to the next meeting.

Before moving on to questions, the Chair wished to note a paper circulated to the previous Committee in relation to the review of global equities, and asked for this to be circulated to all councillors to give them an understanding of the net zero journey the Fund was going on.

Having thanked Sawan Shah for the overview, the Chair invited questions and comments from members, summarised below:

·             Regarding responsible investment, the Committee highlighted that the LCIV report focused heavily on climate and felt there was a lack of clarity in relation to other ESG issues such as human rights. Officers noted that the London CIV was a collective vehicle of 32 London boroughs, meaning resources needed to be targeted wisely as it would not be possible to target every ESG issue and risk spreading the focus too thin. It was stated that responsible investment strategies for most London local authorities had seen climate risk as their top priority in recent years, which had taken priority over other investment areas, with other areas not having received the same level of focus.

·             Relating to ESG disclosures, the Chair asked officers to explain the meaning of ESG disclosures for the benefit of the committee's new members. Sawan Shah explained that they were initiatives taking place across industries. These initiatives created frequent reports, and these were provided to clients like Brent from London CIV which were in turn presented to the Sub-Committee.

With no further questions or comments, the Chair thanked officers for their work in delivering the road map and the Committee RESOLVED to note the update.