Agenda item

To present members with an update on engagement activity undertaken by the Local Authority Pension Fund Forum (LAPFF) on behalf of the Fund.

George Patsalides (Finance Analyst, Brent Council) introduced a report from the Corporate Director Finance & Resources which detailed the Local Authority Pension Fund Forum (LAPFF) Engagement Update.

In presenting the update, members were advised that the LAPFF had been established to promote the highest standards of corporate governance in order to protect the long-term value of local authority pension funds and engage directly with companies in which investments were held in order to affect change, understand views on company behaviour and risks with engagement being member led and designed to advance corporate responsibility and responsible investment on the basis of collaboration strengthening the voice of Pension Funds.

In noting the summary of key engagement work undertaken by the LAPFF during Q3 2024 (as detailed in Appendix 1 of the report) the following key areas of activity were highlighted:

• Continued engagement with Shell and BP, to push oil and gas companies beyond their current decarbonisation efforts based on existing business models attempting to challenge the viability of current business practices. The expectation, based on LAPFF policy, was that the demand for hydrocarbons would reduce in aggregate terms and that demand would be met by lowest cost producers.  Whilst BP was regarded as being located at the better end of the sector in recognising climate change as an issue, it was also facing competitive and structural pressures from what was regarded as a disruptive transition due to alternative technologies with some push back on carbon reduction targets since 2023 and substantial threats identified to its business model regarding the scope of no-carbon products that would fully replace the scale of the fossil fuel business.  Members were advised that a meeting with the Chair of Shell was also pending confirmation, with LAPFF continuing to challenge whether Carbon Capture and Storage could be made to work as a line of business given the costs involved if no cheaper substitute energy sources were available.

• The engagement which had been focussed on the use and potential elimination of zero-hours contracts in the UK with companies using them as part of their core operation and LAPFF continuing to monitor developments relating to the Employment Rights Bill and engage with investee companies regarding their exposure to the practice.

• Ongoing engagement with water utility firms to address failures in supply infrastructure and concerns regarding pollution, with LAPFF working to ensure that water utilities companies were making progress in reducing overflow incidents while ensuring that upcoming business plans were cost efficient and included both environmental and social commitments aligned with any final determinations by the regulator.

• The efforts being made to ensure energy companies and airlines were making tangible efforts in seeking to decarbonise their industries in the transition to net zero including the use of fuel supplies and emissions.

Having noted the viability and advantages available through the sustained collective effort and pressure that could be applied through the LAPFF, rather than by single Pension Funds acting individually, the Chair thanked George Patsalides for presentation of the report, and then invited members to raise any questions or comments, with queries and responses summarised below:

• Further details were sought on any assessment regarding the impact of the US Election on the global economy, particularly in relation to the energy markets and net zero.  In response officers felt this would need to be considered on both a shorter and long term basis.  The US election result was recognised as creating a divergence in expectations in terms of investors based in the UK and Europe and US, where some investment funds had begun to distance themselves from previous carbon reduction targets and collective lobby groups which, members were advised, had highlighted the importance in avoiding overexposure to any particular sector.

• Raising the subject of using the power of the Local Government Pension Scheme to promote local economic development, members were keen to explore what action the LAPFF could take to promote such an approach.  In response, officers advised that the main role of the LAPFF was focussed on promoting good corporate governance and stewardship amongst those companies in which the LGPS was invested and in enacting change through shareholder action rather than promoting investment decisions.  The investment decisions would therefore need to align with the strategies agreed by individual Funds who were members of LAPFF, or pooled collectively.  Whilst the approach towards investment would therefore be matters for each Fund to determine the LAPFF provided a means to target shareholder activity collectively on behalf of the LGPS, focusing on the issues concerning the majority of LAPFF members.

• Addressing communication with LAPFF, members inquired how LAPFF could be approached with their concerns.  In response, members were advised this would be arranged through officers or by attending the LAPFF business meetings on which further details could be provided, as requested, for members of the Sub Committee.

With no further questions or comments, the Sub Committee thanked officers for the update and RESOLVED to note the report.