Minutes:
Questions
from Caz Dennett, South West Action on Pensions (SWAP)
Dorset Council’s C&EE Strategy outlines how the Council
will deliver a realistic and achievable approach to ensuring a carbon-neutral
Dorset by 2040, with the aim to reduce the bulk of its carbon emissions before
this date. It states to achieve this there will be a need for “imaginative and
innovative solutions”. The draft
strategy makes no mention of accounting for the carbon emissions produced by
Dorset Pension Fund’s fossil fuel investments (currently 7.3% of the pension
pot).
Question 1: When will Dorset Council include
the carbon emissions from fossil fuel investments made by Dorset Pension Fund
in its calculated carbon footprint, to ensure an accurate and truthful
measure?
Response: Responsibility for all matters relating to the administration of the
Local Government Pension Scheme (LGPS) in Dorset is delegated to the Pension
Fund Committee which comprises five Dorset Council councillors, three BCP
Council councillors and one scheme member representative nominated by the trades
unions. We believe that it is more informative to consider the carbon
emissions consequences of the pension fund’s investments separately from those
of the Council.
Question 2: Can Dorset Council imagine
divesting the Pension Fund from fossil fuels and adopt this as a solution that
helps achieve a net zero-carbon Dorset?
Response: A review of the pension fund’s investment strategy has just concluded
and will be considered later on the agenda of this meeting. This review has considered how the pension
fund’s investment strategy can help the transition towards a low carbon future
whilst still ensuring there are sufficient assets to pay pensions as they fall
due.
Questions from Len Herbert on
behalf of Extinction Rebellion
Extinction
Rebellion has three asks. The first of these is to ‘Tell the Truth’ about the
climate and ecological emergency by communicating the urgency for change. This
includes that policies and actions are communicated widely and openly to allow
for stakeholder and public engagement.
When
South West Action on Pensions (SWAP) formed to cover the Brunel Pension
Partnership area, attempts were made to compare divestment progress between the
partners. It is striking that Dorset is the partner with the least, easily available,
information. Many of the others allow an understanding of the overarching
policy, the relative amounts invested in high and low carbon funds, the target
carbon intensity decrease and the monitoring process.
The
Annual Report 2018-19 contains only brief references (in the Appendix p.153 )
to engagement with companies on climate risks.
The Investment Strategy Statement (March 2018) makes no reference to
climate. The section on ‘Responsible
Investment’ on the Pension Fund website dates back to 2015.
Some
information can be gleaned from the minutes of Sep 2019 and March 2020 in the
responses to public participation questions and the reported presentations and
discussions. It is clear that the committee is indeed beginning to engage with
the climate emergency issues but that the communication has some way to catch
up.
One
piece of information that has proved particularly elusive is the amount
invested in the fossil fuel industry through the Dorset County Pension Fund. In
September 2019 Medact suggested that that the figure was £141 Million. The
Vice-Chair asked officers to check this figure ‘as it was necessary to have an
agreed baseline to inform future discussions’. A resolution was made to this
effect. In March, in response to Extinction Rebellion questions, the figure
‘was not recognised’ but a renewed resolution was made ‘to confirm the current
value of investments in the fossil fuel industry by the next meeting at the
latest’. Further conversations have failed to elicit this figure.
Question 1: Can we expect the communication shortcomings highlighted
above to be rectified in the November Annual Report (2019-20) and the
Investment Strategy Statement and to see the website updated?
Response: There is a review of the investment strategy on the agenda
for today’s meeting. Following this
review the Investment Strategy Statement will then be amended accordingly and
the updated version published on the pension fund’s website. We will also review the content of the
Pension Fund Annual Report 2019-20 prior to publication, and all other
documents on the website to ensure they reflect the most up-to-date
information.
Question 2: Can we finally see the baseline figure for the Pension
Fund’s exposure to fossil fuel investments?
Response:
As at 31
March 2020, the pension fund had direct ownership of assets valued at £6.6m in
companies in the oil and gas sector. In addition, the pension fund owns
units in a number of pooled funds which have underlying holdings in companies
in the oil and gas sector, with Dorset’s ‘share’ of this indirect exposure
estimated to be a further £53m. In total, therefore, £60m of the pension
fund’s assets are invested in the oil and gas sector, 2.2% of total assets.
As at
31 March 2020, the pension fund had direct ownership of assets valued at £7.3m
in companies in the ‘mining’ or ‘basic materials’ sector but this covers mining
for all materials such as precious metals and minerals as well as coal.
In addition the pension fund owns units in a number of pooled funds which have
underlying holdings in companies in the mining sector, with Dorset’s ‘share’ of
this exposure estimated to be a further £60m. In total, therefore, £67m
of the pension fund’s assets are invested in the mining sector, of which we
estimate approximately one third relates to fossil fuels, c. £25m or 0.9% of
total assets.
Questions from Val
Potter, Dorchester Churches Together Ecology Group
We
understand from the minutes of the Pension Committee meeting on March 12th that
discussion is at present mainly around the pursuit of a policy of engagement
with fossil fuel companies rather than a clear divestment policy. A distinction
is made between ‘good’ and ‘bad’ companies and the phrase ‘engagement with
teeth’ is used.
We
would like to be clear where the committee draw the line. For instance: a fortnight ago Storebrand, a
Nordic fund worth £70 billion, dumped its stocks in a string of the world’s
biggest extraction companies. Storebrand decided that the fact that these
companies were using their lobbying power to block climate policies had crossed
their line. They decided that spending large sums undermining action related to
‘the greatest threat facing humanity’ is ‘simply unacceptable’.
Question: Given your argument that you are
using “engagement with teeth” when dealing with fossil fuel companies, have
you, at any point, divested from a fossil fuel company or made a decision to
divest? What actions would it take on the part of a fossil fuel company to
prompt a decision to divest and how quickly would it happen?
Response: The minutes quoted refer to a presentation
given by Brunel Pension Partnership, the pension fund’s investment pooling
manager, on their climate change policy.
Brunel believe that some fossil fuel companies will be part of the
transition to a low carbon economy and that it was important to distinguish
between companies, such as Repsol and Shell who were looking to engage and
change, and companies, such as Chevron and Exxon who, to date, were not
Brunel have
provided the following summary of their approach together with some examples of
engagement that directly and indirectly relate to investment in fossil fuels:
“We are glad that
you share our concern for Responsible Investing and welcome engagement on the
issue.
Following extensive
engagement with partner funds and many of their stakeholders we, the Brunel
Pension Partnership, launched our Climate Change Policy in January 2020.
Our Policy is clear
that the financial system is not fit for purpose to deliver a world that limits
global warming to well below 2°C, ideally not higher than 1.5°C. Our policy clearly states our commitment to support achieving Net-Zero
well before the 2050 deadline.
The policy sets out
a five-point plan to build a financial system which is fit for a low carbon
future. This is essential as Brunel and
all the Partnership funds operate within a regulatory framework – a framework
very different to that in which charities, endowments or, indeed, asset owners
and managers in other countries operate. It
is essential we change the system, not just our portfolios.
To support making
fundamental changes in our financial system, our strategy includes policy
advocacy. We advocate mandatory climate disclosures, challenging fossil fuel
subsides and asking for positive policy to encourage actions that assist with
decarbonising our economy, including via a price on carbon and incentivising
green investment.
However, we are not
waiting on incentives. We already invest extensively in renewable energy as well energy
efficiency, public transport, smart grid and other technologies that support
transition.
It is critical that
we do not just focus on the supply side – the fossil fuel companies – but also
on the demand side, looking at fossil fuel consumption, and at the wider
financing of projects. When it comes to climate risk, we assess the whole value
chain and engage with companies to take responsibility for their product
throughout its usage, not just in its manufacture. (The examples below
demonstrate the breadth of our engagement.) This issue is wider than climate
change, hence our Responsible Investment Policy includes Supply Chain issues as one of its
core themes.
We have also been
very active in seeking mandatory climate disclosure. For example, Faith Ward,
Chief Responsible Investment Officer, sits on the Pensions Climate Risk
Industry Group, which was established by various government departments, including
the DWP and Pensions Regulator. This year, the Group launched a consultation on a new guide to
climate-related financial risks for pension schemes.
Our policy also
identified the need to develop and decarbonise the products we offer. It is
important to note that Brunel does not select companies to invest in itself.
Instead, stock-specific decisions are made by the asset managers we employ. Our
Partnership does, however, set the investment guidelines under which they
operate. These guidelines are
co-developed with all ten Brunel clients, which means we can create products that
meet the requirements of pooling, most specifically on cost savings.
As background, our
active portfolios have a very low exposure to fossil fuel companies, as
evidenced in our Carbon Metrics Report. Standard practice is to use mainstream
indices to gauge many aspects of our performance – the trajectory of these
indices is well over 3°C. This is an industry-wide issue that arises from
carbon not being consistently priced into assets – we know we need better
solutions to make meaningful measurements. The Partnership is now working on a
project to identify solutions that meet all client investment objectives,
specifically long-term investment returns, in a cost-effective manner.
On the issue of
divestment, Brunel supports divestment from specific fossil fuel and other
carbon-intense companies if they present a material investment risk – such as
due to ‘stranded assets’ – but this is based on analysis by our asset managers.
Brunel expects managers to take these decisions independently.
In addition, we
have committed to review this approach and, indeed, the holdings themselves,
and to evaluate whether companies are taking steps to manage climate risks and
to enable our overall alignment with the Paris Agreement. Brunel set out clear
expectations for its asset managers and a deadline of 2022 for reviewing
companies – our climate stock take is due in 2022. The criteria to evaluate companies and
managers is being developed with clients. It will take into account different
investment mandates and starting points, but always with reference to Paris
alignment.
We chose not to use
exclusion lists with our active managers.
Instead, we have challenged them to think carefully and critically about
the companies and other entities they invest in, and to justify their
investments in those companies with higher greenhouse gas emissions. We will
not issue exclusion lists because what is needed is change in the way
investment managers work. Simply stating exclusions or requiring divestment
from specific stocks or sectors will not compel investment managers to develop
their capacity on climate change or to drive change in the companies in which
they are invested. Climate then becomes a technical operational matter, not an
investment priority.
However, while we
will not instruct managers to exclude certain stocks, we do expect their
portfolios to have materially reduced climate exposures. We also expect them to
justify any climate-controversial holding. If investment managers are not able
to explain their investment strategies robustly and credibly, and to lay out
how they have managed climate risk, we will look to replace them.
If we find that our
investment managers’ engagement with companies is ineffective – and that the
companies’ trajectory is therefore not Paris-aligned – we will consider whether
to remove those managers or introduce specific exclusion criteria to the
companies concerned.
As we take steps to
address climate change – in all its facets – we are transparent about our
holdings, the climate intensity and fossil fuel exposure of our portfolios, and
the outcomes of engagement. These are
consistent with the expectations of the Financial Reporting Council’s 2020
Stewardship Code and Taskforce for Climate Related Financial Disclosure –
indeed, in many places, we exceed them.
·
Our
Carbon Metrics Report gives greater detail on how we assess
the carbon footprint of our portfolios
·
Our
Responsible Investment & Stewardship
Outcomes Report
analysed our performance on a range of RI issues, from climate change to tax
transparency. It showed that all active portfolios had achieved more than 7%
carbon intensity improvements against their benchmarks and provide case studies
of our engagement outcomes
More recently, we
helped to develop and launch the IIGCC Net Zero framework, the first practical framework to guide
asset owners and managers seeking to become Net Zero investors. While we are
pleased with this progress, we also acknowledge that both climate change
policies and findings from investment data continue to evolve and, in line with
this, we continue to review our own policies.
We recognise that
the arguments for immediate divestment from fossil fuel companies can appear
compelling. But we believe that engagement, with the threat of divestment, can
be more effective at putting pressure on both companies and investment managers
to bring about change. We have provided some examples of engagement that
directly and indirectly relate to investment in fossil fuels.
It is important to
note that the commitments made by BP, Shell and Glencore include scope 3
emissions, to one extent or another. This means that commitments we are seeing
coming through are getting closer to meeting our need to cover the complete
supply chain of the product e.g. the consuming, purchasing and then burning of
fuel.
BP
·
In February 2020, BP announced new
ambitions to be a ‘net zero company by 2050 or sooner’
·
Targets include:
o
Net zero across BP’s operations on
an absolute basis by 2050 or sooner
o
net zero on carbon in BP’s oil and
gas production on an absolute basis by 2050 or sooner
o
50% cut in the carbon intensity of
products BP sells by 2050 or sooner
o
Installation of methane measurement
at all BP’s major oil and gas processing sites by 2023
o
Reduction in methane intensity of
operations by 50%
o
Increase in the proportion of
investment into non-oil and gas businesses
·
This builds on extensive positive
engagement through our engagement partner, Federated Hermes and Climate Action
100+ (the largest global investor coalition on climate change)
·
More information on commitments made
by BP can be found here
and here
Glencore
·
In 2019, we co-signed a letter to
Glencore calling for support of the statement to ensure investors can legally
hold Glencore to the commitments it made as part of its recent announcement
·
Extensive engagement through Climate
Action 100+ and our engagement provider, Federated Hermes – Glencore has agreed
to review its links with trade associations to identify lobbying
activities that could undermine its support for the Paris Agreement
·
For the first time, this year, the
company has agreed to start reporting on scope 3 emissions and will do so on an
annual basis.
·
It has committed to report annually
on the extent to which the company’s capital expenditure and investments were
in line with the goals of the Paris Agreement.
·
It has also committed to publishing
new, longer-term targets, based on policy and technical developments, which
will be made public in the company’s 2020 Annual Report
Shell
·
Shell has committed to achieving net
zero emissions by 2050 or sooner. It also has the ambition to bring its net
carbon footprint in line with the goals of the Paris Agreement
·
Extensive engagement through our
engagement provider, Federated Hermes and Climate Action 100+, enables
investors to hold Shell accountable to its targets
·
More detail about Shell’s
commitments can be found here
Barclays
·
Brunel, on behalf of our Clients,
co-filed a shareholder resolution formally requesting that Barclays phases out
the financing of fossil fuel companies. This was the first climate change
resolution to be filed at a European bank
·
It asks Barclays to publicly
disclose how it plans to stop the provision of financial services to energy
sector companies that are not aligned with the goals of the Paris climate
agreement; it also asks how Barclays aims to understand whether a borrower is
meeting Paris Agreement targets
·
The resolution passed in May 2020,
exceeding the 20% threshold required (23.95%). This requires Barclays to
consult with shareholders and publish the views received and actions taken
within six months
·
Barclays has committed to being a
net-zero bank by 2050. It has started to set transparent targets and will be
reporting progress against them from 2021. We continue to engage with Barclays
and look forward to receiving more detail on its strategy and targets, as
committed, later this year
·
More information on the commitments
made by Barclays can be found
here
Engagements with
asset managers on climate change
Blackrock
·
Our extensive engagement with
Blackrock, including a one-to-one meeting with Larry Fink, CEO, led to the
company agreeing to prioritise sustainability through their investment and
stewardship approach
·
Blackrock agreed to join Climate
Action 100+ and take the lead on engaging with China Steel
·
Blackrock recently took a public
stance against companies who are not taking appropriate action on climate risk
by voting against 53 companies and putting another 191 on ‘watch’. See
FT article
·
Of the 53 companies it voted
against, 37 were in the energy sector. Blackrock will vote against management
again in 2021, should these companies not make significant progress
·
More detail of Blackrock’s
commitments can be found here
To read more about our
position, including our view on carbon pricing and detail on why we co-filed
the Barclays resolution, please see the FAQs section of the Climate Change section of our
website.
We continue to
develop our thinking and practices on this issue, and to engage with a wide
range of Partners and stakeholders. For a few of our most recent activity on RI
and ESG, please see a
recent article.
Many thanks for
making contact and expressing your concern in this area. We will continue to
learn from our peers and Partners as we develop our thinking and practices.”