Agenda item

 

Pension Fund Committee: Questions from town and parish councils and members of the public

 

Caz Dennett, Dorset Action on Pensions

 

Question 1 – Evidence of the effectiveness of an Engagement Strategy (412 words)

On 14 December 2021, a delegation from South West Action on Pensions (SWAP) and members of the Brunel Pension Partnership management team met together. During the meeting Brunel’s Chief Responsible Investment Officer, Faith Ward, strongly emphasized her commitment to their policy of ‘engagement’ with fossil fuel linked companies, rather than to divesting funds from them.

 

Although SWAP have a clear preference for rapid and total divestment (by the end of 2023), we are interested in how such ‘engagement’ with fossil fuel investments might lead to some climate positive or net zero outcomes. In a recent podcast*, David Vickers, Chief Investment Officer at Brunel, who was also present at the meeting which I attended said: “We believe in engagement, but there comes a point where, if you are not having an impact, you disinvest.”

 

In 2021 Dr. Ellen Quigley was commissioned by Cambridge University to research the advantages and disadvantages of fossil fuel divestment, and in doing so to understand the efficacy of engagement vs divestment in terms of de-carbonising the University’s Pension Fund. The Fund totalling £3.5 billion is the largest university endowment in Europe, and in 2019 2.8% was invested in the fossil fuel sector.

Her research found that regarding shareholder engagement “on the basis of its historic evidence it would not appear to be a sufficient tactic on its own for the scale and speed of change required to decarbonise the fossil fuel sector”**

Furthermore, “To be consistent with the Paris Agreement goal, a large majority of proven fossil fuel reserves would need to be left in the ground (a third of oil reserves, half of gas reserves, and 80% of coal reserves) between 2010 and 2050 in order to keep within a safe warming threshold. Research suggests that existing fossil fuel infrastructure, in addition to that which is currently planned, permitted, or under construction, would already exceed the carbon budget needed to retain a 66% chance of staying below 1.5˚C.”

 

Question: Given that engagement is very unlikely to work with fossil fuel companies when the core of their business is to extract and sell fossil fuels for financial gain, and that since 2018 all major gas and oil companies have approved projects that are not consistent with the Paris Climate goals, will the Pension Committee ask Brunel Pension Partnership to provide incontrovertible evidence that their policy of engagement is effective in altering the core business models of the oil 7 gas giants that are set to destroy our planet?

 

*David Vickers Podcast: https://www.brunelpensionpartnership.org/2021/12/14/net-zero-porfolios-not-enough-says-david-vickers-in-lgim-podcast-what-net-zero-means-to-brunel/

**University of Cambridge Report https://www.cam.ac.uk/sites/www.cam.ac.uk/files/sm6_divestment_report.pdf

Response:

The Dorset County Pension Fund conducts a major review of its long-term investment strategy every three years. This process begins with an analysis of our overall funding position conducted by our actuaries, Barnet Waddingham. It will be based on the value of our assets on March 31st 2022.

The results of this analysis will be forwarded to an independent advisor who will develop a strategy that best fits our long-term objectives. I would expect them to initially present a number of options including the balance between equities and fixed income, UK and global investments, public and private markets, active versus passive investments as well as taking into account the Climate Emergency.

In addition, Brunel are undertaking a ‘stock take’ of their approach to engagement and divestment. If this review concludes that companies are not taking appropriate action and sufficient steps to manage climate risks and to enable alignment with the Paris Climate Agreement then the Committee will need to reconsider its approach too.

All of these factors will be considered by the Pension Fund Committee as part of the debate that will inform the development of a new strategy by the middle of next year.

Question 2 – Decision making authority and investment decisions (236 words)

At the same meeting, SWAP asked Brunel to clarify where decision making authority lies in terms of investment strategies and requirements. Brunel stated that decision making power and outcomes rests with the pension funds themselves. Therefore, the Local Government Pension Scheme Committees are the ultimate decision makers.

We commend Dorset Council and the Pension Fund Committee for acting quickly and decisively to assess the morality of continued investments in Russian companies (likely to be predominantly oil and gas production companies), in response to their actions against Ukraine and its people.

If the Committee can do the right thing on this occasion, it demonstrates what can be done when moral obligation and political will come together.

Global heating and its impact on climate change, coupled with environmental degradation continues to be the greatest threat to our security, well-being, and even our very existence. It is an unenviable responsibility, but there is a moral duty as elected representatives to protect people and place to the best of your ability, within the powers that are at your disposal.

 

Question: Is it now time to take a moral inventory of the Pension Fund portfolio and clean up our Dorset pension fund, not only to exclude those who wage war on other countries and their peoples, but also fossil fuel companies who persist with operations in the full knowledge that they are devastating life on earth, and if not now, when?

 

Response:

Yesterday the Dorset County Pension Fund conducted a training session with the Brunel Pension Partnership where they outlined their new Paris aligned passive portfolios and explained their rationale and objectives. This will undoubtedly inform part of the discussions that will take place when we design our new investment strategy.

A significant duty of the Pension Fund Committee is to ensure that the contributions of scheme members and their employers to the pension fund are invested appropriately to make returns sufficient to pay benefits to scheme members. As part of the pension fund’s next review the matters you raise will be taken into consideration to see whether they present a financially material risk to returns or do not risk material financial detriment to the

fund. This review is expected to take place over the next twelve months following the results of the next triennial valuation of the pension fund’s assets and liabilities by the fund’s actuary.

 

Julie-Ann Booker, Dorset Pension member

 

Rapid Reduction in Fossil Fuel investment (Approx. 360 words)

There is not a single justification to keep investing pension fund members' and council tax payers' money in planet-destroying fossil fuel companies. Divestment is morally, environmentally and economically the right thing to do. Even the likes of Blackrock have said there is no financial drawback to divesting from fossil fuels.

As a pensioner in the Dorset scheme, I feel terrible that my income is linked to these damaging companies. I want to see Dorset County Pension Fund do the only right thing; stop funding fossil fuel, invest in our future, a genuinely green future for our children and grandchildren. This will also create good jobs and provide energy security, which we need now more than ever.

 

On 8 September 2021, on behalf of Dorset Action on Pensions, I asked a question to Dorset Pensions Committee. My question asked how the committee would be amending their investment strategy in response to the Intergovernmental Panel on Climate Change (IPCC) report published on August 9 2021. UN Secretary General, António Guterres said that the report signalled ‘Code Red for Humanity’.

In answer to this question Cllr Andy Canning said that ‘pension funds by their very nature are long-term investors seeking returns that will cover the pensions of its members. It is not in their nature to respond to short-term events’.

 

On 22 February this year the IPCC published their next report and António Guterres said “I’ve seen many reports, but nothing like the new IPCC climate report, an atlas of human suffering and damning indictment of failed climate leadership. I know people everywhere are anxious and angry. I am too. It’s time to turn rage into climate action”.

 

These reports are not ‘short term events’. They are scientific predictions on long term disaster if significant action is not taken now. If action is not taken now there will be no long term to invest in.

 

Question: Does the Dorset Pension Fund Committee understand that strategic investment decisions taken now will affect the long-term sustainability of the pension fund, and therefore agree to more rapidly remove all remaining fossil fuel linked investments, i.e., faster than the planned 7% reduction each year?

 

Response:

We would be quite happy to ask the Brunel Pension Partnership to undertake a comprehensive analysis of alternative methods to achieve a long-term reduction in our exposure to fossil fuels and achieve a net zero carbon position before 2050.

The matters you raise will be taken into consideration following the conclusion of Brunel’s stocktake and as part of the next review of the investment strategy, but we believe that we have already made great strides in reducing the pension fund’s exposure to fossil fuels without putting financial returns at risk.

10% of the pension fund’s assets are now invested in Brunel’s Global Sustainable Equities fund, and all other actively managed Brunel funds are committed to a policy of a 7% year on year reduction in their carbon footprint.

 

A Friends of the Earth report estimated that Dorset had £128M invested in fossil fuel production in March 2019. By March 2021 this had fallen to approximately £41M (which is just 1.2% of total investment assets).

 

Moving Funds to PAB (94 words)

As a scheme member of the Dorset Pension Fund, I would like to know if the pension fund committee is considering the allocation of Passive funds in the Dorset scheme. I am aware that Brunel Pension Partnership announced last summer that it has made a new Paris Aligned Benchmark Passive Fund available to schemes within the Brunel pension pool.

 

Question: Will the Dorset pension fund committee discuss this new fund and make a decision on allocating funds to it, and if so at which committee meeting do you expect the decision to be considered?

 

Response:

Yesterday the Dorset County Pension Fund conducted a training session with the Brunel Pension Partnership where they outlined their new Paris aligned passive portfolios and explained their rationale and objectives. This will undoubtedly inform part of the discussions that will take place when we design our new investment strategy.

 

We conduct a major review of our long-term investment strategy every three years. This process begins with an analysis of our overall funding position conducted by our actuaries, Barnet Waddingham. It will be based on the value of our assets on March 31st 2022.

 

The results of this analysis will be forwarded to an independent advisor who will develop a strategy that best fits our long-term objectives. I would expect them to initially present a number of options including the balance between equities and fixed income, UK and global investments, public and private markets, active versus passive investments as well as taking into account the Climate Emergency.

All of these factors will be considered by the Pension Fund Committee as part of the debate that will inform the development of a new strategy by the middle of next year.

 

Cllr Ken Huggins - Hazelbury Bryan Parish Council

 

Question on De-carbonising Pension Fund Members’ Finances (approx. 440 words)

Both Dorset Council and Bournemouth, Christchurch and Poole Council clearly understand there is a climate and ecological crisis, and have plans in place to tackle this on a local level.

 

In an emergency everyone must play their part. Some more than others. Key drivers of climate change are the fossil fuel companies and the financial industry that supports them. And yet, fossil fuel companies and their shareholders still seek to profit from the destruction of our planetary systems.

 

Dorset Pension Fund Members are contributing to this destruction because their Fund continues to invest their money in the fossil fuel industry, despite the two Councils making efforts to ease the climate crisis by all other means available to them.

It is no longer acceptable for the industry, banks or investors such as Local Government Pension Schemes to pass responsibility to each other or to the markets. Each participant must take full responsibility for the effects of their investments.

Divestment also increasingly makes financial sense. Continued investment in fossil fuel is putting the Pension Fund at risk, that’s members’ money, and council taxpayers’ money that is at risk.

 

However, the biggest risk that we must mitigate is the continuous increase in CO2 emissions from oil & gas extraction and consumption.

 

A report by Make My Money Matter (October 2021) states that the UK pensions industry enables more CO2 than all UK carbon emissions. The report says:

“Pension schemes fund an estimated 330 million tonnes of carbon emissions every year. If the pensions industry were a country, it would find itself in the top 20 carbon emitters globally.

 

Making your pension green is 21x more powerful than giving up flying, going veggie and switching energy provider. It is calling on people to tell their pension providers to go green. It’s the most powerful thing you can do for the planet.”*

 

Dorset Action on Pensions have looked closely at the research commissioned by Make My Money Matter in partnership with Aviva. It shows that Pension Fund divestment will effectively help de-carbonise the personal finances for approximately 80,000 Dorset pension fund members. The positive impact in terms of CO2 reduction is immense.

 

For every £1 invested in sustainable financial products instead of fossil fuels, a CO2e saving of 0.64Kgs is made. It is an easy calculation to determine the tens of thousands of tonnes of carbon savings that will be made if DCPF divested: 0.64kgs x £s invested by DCPF in fossil fuel industry.

 

* Climate Action: https://www.climateaction.org/news/new-report-finds-pension-funds-enable-more-co2-than-the-entire-uk-carbon-fo

 

Question: Will the Committee now help Pension Fund members to de-carbonise their finances by divesting from fossil fuel companies, releasing them from the heavy responsibility of contributing to huge carbon emissions?

 

Unfortunately I will not be able to attend the meeting in person, and I therefore ask for my question to be read out on my behalf.

 

Response:

The Dorset County Pension Fund is supportive of the declarations of a Climate Emergency by both Dorset Council and Bournemouth, Christchurch and Poole Council.

 

Significant decarbonisation has been, and will continue to be, achieved through the transition of assets to the management of Brunel Pension Partnership, the pension fund’s LGPS investment pooling manager. 10% of the pension fund’s assets are now invested in Brunel’s global sustainable equities fund and all other actively managed Brunel funds are committed to a policy of a 7% year on year reduction in their carbon footprint.

 

A Friends of the Earth report estimated that Dorset had £128M invested in fossil fuel production in March 2019. By March 2021 this had fallen to approximately £41M (which is just 1.2% of total investment assets).

 

We conduct a major review of our long-term investment strategy every three years. This process begins with an analysis of our overall funding position conducted by our actuaries, Barnet Waddingham. It will be based on the value of our assets on March 31st 2022.

The results of this analysis will be forwarded to an independent advisor who will develop a strategy that best fits our long-term objectives. I would expect them to initially present a number of options including the balance between equities and fixed income, UK and global investments, public and private markets, active versus passive investments as well as taking into account the Climate Emergency.

All of these factors will be considered by the Pension Fund Committee as part of the debate that will inform the development of a new strategy by the middle of next year