Agenda item

Questions and Answers

Minutes:

Question 1:  Vicki Elcoate

Councillor Canning told me earlier this year that the data in the UK Divest Report for Friends of the Earth of February 2021 was out of date for Dorset Council (https://www.divest.org.uk/wp-content/uploads/2021/03/UKDivest_Report.pdf).

He said that since those figures, which related to the 2019/2020 financial year, Dorset Council had undertaken a major strategic review of its pension fund investments. He promised an update after March 2021.  The question is: what is the current amount of investment in fossil fuels (I understand these are indirect investments)? The figures provided by the Friends of the Earth report are for the amount in £s of investments and the % that is of the overall investments. It would be useful to have it in the same format to compare. So this is not a question about the carbon footprint or the carbon intensity of the investments. The figure in the Friends of the Earth report was £128 million in indirect investment in fossil fuels. This put Dorset in the top 10 of local authority pension funds for fossil fuel investments. What is the current figure?

Answer 1

As part of the government’s requirement for Local Government Pension Scheme (LGPS) funds to pool investments the Dorset County Pension Fund no longer holds direct investments in companies.  Instead, the vast majority of its equity investments are now in pooled investment vehicles managed by the Brunel Pension Partnership, the LGPS investment pooling manager set up and fully owned by the administering authorities of ten LGPS funds including Dorset.

 

Brunel regularly publish details on their website of the underlying holdings in all their pooled investment vehicles.  Using this information officers have estimated that the value of the pension fund’s investments as at 31 March 2021 in companies primarily involved in the exploration, production, mining and/or refining of fossil fuels was approximately £41M (1.2% of total investment assets).

 

Question 2:  Tracee Cossey 

It is clear that pension funds exposed to the fossil fuel system in the coming decade will face a rollercoaster ride of disruption, write-downs, financial instability and share price deratings as markets adjust (Hobcraft, 2020)’ in UK Divest.

https://www.divest.org.uk/wp-content/uploads/2021/03/UKDivest_Report.pdf

Does Dorset Council see itself as ultimately responsible for any losses incurred to themselves and their Pension Fund Members by refusing to insist on 100% divestment from fossil fuels now or are Brunel Investments responsible?

 

Answer 2

The Dorset County Pension Fund is part of the Local Government Pension Scheme (LGPS) which is a national pension scheme administered locally.  It is a ‘defined benefit’ scheme which means that benefits for scheme members are calculated based on factors such as age, length of membership and salary not investment performance as they would be in a ‘defined contribution’ scheme. 

 

Dorset Council (DC) is the administering authority for the LGPS in Dorset which provides pensions and other benefits for employees of DC, other councils and a number of other organisations within the county.  DC has delegated its responsibilities as an administering authority to the Pension Fund Committee, which consists of five DC elected members, three Bournemouth, Christchurch and Poole Council (BCP) elected members, and one scheme member representative nominated by the trade unions.

 

Administering authorities are required to maintain a pension fund for the payment of benefits to scheme members funded by contributions from scheme members and their employers, and from returns on contributions invested prior to benefits becoming payable. The Pension Fund Committee has a duty to scheme members and their employers to ensure that their contributions to the pension fund are invested appropriately to make returns sufficient to meet those obligations – and this duty overrides any other considerations.

 

The Pension Fund Committee agree the investment strategy for the pension fund then engage external investment managers, including the Brunel Pension Partnership, to deliver that strategy – but the Committee remain responsible for the pension fund’s performance.

 

We do not restrict our investment managers from investing in specific companies or sectors but they must consider all financially material risks relating to their decisions, including the risks you highlight.  Also, in order to reduce its exposure to sector specific risks such as those you have highlighted, the pension fund holds a highly diversified portfolio of investments across sectors, geographic regions and asset classes

 

A year ago the Committee discussed and agree our current investment strategy, including a lengthy debate between divestment and decarbonisation.  

 

If we had followed a divestment strategy and sold all of our fossil fuel energy stocks this would have reduced our carbon footprint by 19% but we opted for a decarbonisation strategy.  This has resulted in 20% of our equity investments being switched into a low carbon global fund targeting a 64% reduction in our carbon footprint and committing all of our remaining actively managed equity investments to a 7% a year reduction in carbon usage over the next three years – so 21% overall.

 

So, while the policy of divestment from all fossil fuel extraction companies may sound better it will actually result in a higher carbon footprint than the policy we are currently following.

 

Divestment from companies means that we sell our holdings to other investors – it is a transfer of ownership that does not directly lead to a reduction in either the supply or demand for fossil fuels but it does remove the opportunity to influence companies by working with them to transition to a lower carbon future.  Targeted divestment remains an option from individual companies who will not positively engage.

 

Question 3:  Linda Dean

I am a Dorset County Council Pension Fund Member and I do not want my money to be invested in companies that make money from fossil fuels, for environmental reasons, given that we are all facing a Climate Emergency. 

 

 On June 1, 2021, in a Money-Saving Expert Environmental Poll on ‘How important is protecting the environment to you?' the top choice for all age categories was: ‘ I’m happy to pay more & make changes for green options.’


I choose environmentally- friendly, green energy providers for my utilities and ensure environmentally sustainable criteria are in place before making any other financial investments, where possible.  I would therefore like my Council Pension money not to be invested in such companies.  There must be other DCC pension fund members who would feel as I do, at this critical time in our global climate situation.


Will Dorset Council commit to polling all its Pension Fund Members to see whether a majority would prefer to divest from companies that profit from fossil fuels and to put their money in ethical/green investments, or ask whether they are happy with the current use of their money?

 

Answer 3

The Local Government Pension Scheme (LGPS) is a national pension scheme administered locally.  Dorset Council (DC) is the administering authority for the LGPS in Dorset which provides pensions and other benefits for employees of DC, other councils and a range of other organisations within the county.

 

DC has delegated its responsibilities as an administering authority to the Pension Fund Committee, which consists of five DC elected members, three Bournemouth, Christchurch and Poole Council (BCP) elected members, and one scheme member representative nominated by the trade unions.

 

The LGPS is a ‘defined benefit’ scheme which means that benefits for scheme members are calculated based on factors such as age, length of membership and salary, not investment performance as they would be in a ‘defined contribution’ scheme.

 

Administering authorities are required to maintain a pension fund for the payment of benefits to scheme members funded by contributions from scheme members and their employers, and from returns on contributions invested prior to benefits becoming payable.

 

Contribution levels for scheme members are set nationally, and contribution levels for scheme employers are set locally by actuaries engaged by administering authorities.  As scheme member rates cannot be changed locally and benefits are defined, the risk of investment underperformance is effectively borne by scheme employers.

 

For the reasons set out above scheme members cannot have different investment options available to them as could be the case with a defined contribution scheme where the risk of investment underperformance is borne by the individual scheme member.

 

Membership of the LGPS is not compulsory and employees of scheme employers can choose to make alternative pension arrangements that allow greater control over how their contributions are invested.  However, we would strongly recommend that anyone considering such an approach takes appropriate independent advice before doing so.

 

Question 4:  Sandra Reeve

As one of the 'Direct Actions' within their Climate and Ecological Emergency Strategy, will Dorset Council's Pension Fund Committee be asking Brunel Pension Partnership to adjust and cease their investments in fossil fuels in order to meet Dorset Council's own 'net zero by 2040' target, rather than Brunel's stated net-zero 2050 target?

 

I read the transcript of COP26 President Alok Sharma’s speech at the first Net Zero Pensions summit, published June 1,2021 in which he says:

'Today, green investments are smart investments. In the majority of the world, renewables are cheaper than new coal and gas.  Putting your money in fossil fuels creates the very real risk of stranded assets.

 He then supports and urges financial institutions to take the following steps:

First, commit to exit coal finance. So that, together, we make COP26 the moment we consign coal power to the past where it belongs. Second, increase investments in climate action in developing and emerging markets. Thirdly, protect nature. By 2025 ensure none of your investments contribute to deforestation. And by 2030 ensure your investments are contributing to the restoration of the natural world. Finally, disclose your climate risk in line with the Taskforce on Climate Related Financial Disclosures, or TCFD. And points out that this will become mandatory across most of the UK economy in 2023.

And the government will shortly introduce regulations on what this means for pensions, to ensure trustees take account of climate change risk in each and every decision. There is a real advantage in getting your house in order. And early. And that in this vital year for climate action, the year of COP26, you are playing your part in keeping 1.5 degrees alive.'

Will Dorset Council urge Brunel to sign up to the Glasgow Financial Alliance for Net-Zero (along with other major pension schemes, such as Aviva, BT Pension Scheme and the Church Commissioners of England)  in particular to fulfil the requirement that  by 2030 they can ‘ensure that their investments are contributing to the restoration of the natural world?

 

Answer 4

You are correct in stating the Dorset Council has committed itself to a net-zero 2040 objective.  We are committed to working with partners to achieve this target and that includes the Brunel Pension Partnership.

 

Brunel are widely recognised as a ‘market leader’ within this field and their website includes a wealth of information relating to its engagement activities with companies, including voting records.  In 2022 Brunel will complete 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.

 

Brunel is a member of the Institutional Investors Group on Climate Change (IIGCC) which means that they are automatically signed up to the Glasgow Financial Alliance for Net-Zero and Brunel’s Chief Investment Officer, David Vickers, is a member of the Real Economy Transition workstream which forms part of this alliance. Brunel are also a signatory to a similar initiative, the Net Zero Investor Framework (NZIF), launched in March 2021 with the aim of helping investors become ‘Paris-aligned’.

 

Question 5:  Caz Dennett, on behalf of South West Action on Pensions

As a coordinator for South West Action on Pensions I have recently heard from Brunel Pension Partnership that, as part of their upcoming Climate Stocktake Consultation this autumn, they will be taking views from others than just the ten principal (Council / EA) stakeholders.  

Given Brunel are opening up the conversation about its investment portfolios, to complement this exercise will Dorset County Pension Fund Committee now consult its own pensioner members’ views, in particular on the question of ongoing and planned future investments in fossil fuel companies? 

 

Answer 5

The Local Government Pension Scheme (LGPS) is a national pension scheme administered locally.  Dorset Council (DC) is the administering authority for the LGPS in Dorset which provides pensions and other benefits for employees of DC, other councils and a range of other organisations within the county.  DC has delegated its responsibilities as an administering authority to the Pension Fund Committee, which consists of five DC elected members, three Bournemouth, Christchurch and Poole Council (BCP) elected members, and one scheme member representative nominated by the trade unions.

 

Administering authorities are required to maintain a pension fund for the payment of benefits to scheme members funded by contributions from scheme members and their employers, and from returns on contributions invested prior to benefits becoming payable. The Committee has a duty to scheme members and their employers to ensure that their contributions to the pension fund are invested appropriately to make returns sufficient to meet those obligations – and this duty overrides any other considerations.

 

Members of the public, including scheme members, can make their views known on any matter relating to the pension fund, including those you highlight, by submitting questions or statements to the Committee.  A wider consultation would be a costly and time-consuming exercise which we do not believe is needed.

 

Question 6:  Julie-Ann Booker, on behalf of Dorset Action on Pensions

Dorset Pension Fund Committee last met on 15 June 2021.  Since then, on August 9, the Intergovernmental Panel on Climate Change (IPCC) published its sixth report.  UN Secretary General, António Guterres said that the report signals ‘Code Red for Humanity’. 

 

The report provides new estimates of the chances of crossing the global warming level of 1.5°C in the next decades, and finds that unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach.

 

We are seeing now almost daily reports of the effects of climate change on communities around the world.  In recent days New York and New Jersey.  A few weeks ago it was Germany and Greece.  There’s been lives, homes and livelihoods lost.  We have seen the destruction. 

 

A key driver for climate change are the fossil fuel companies and the financial industry that supports it.  Fossil fuel companies remain huge polluters, producing and selling fossil fuel products while scientists say we need a mass switch to renewable energy and efficiency.  We have the technology to move to renewable energy sources and should be using all available financial resources to make this happen – including pension fund financial assets. 

 

Fossil fuel companies are responding to the climate crisis with ‘green’ marketing, while their core business remains fossil fuels.  Their adverts are using greenwashing to distract the public from the harm their products cause to people and planet.  Some of us are old enough to remember when giant tobacco companies did the same after the irrefutable damage their products caused were exposed – they carried on sponsoring sporting activities in the hope we would all thing they were doing something good, so could be excused all the damage they were responsible for.  https://www.clientearth.org/the-greenwashing-files/ 

 

Dorset Council’s strategy, agreed with their investment managers, Brunel Pension Partnership, is to divest at 7% per year, so it will take 15 years to divest completely – taking us to 2036.  Hardly reflecting an ‘immediate’ or ‘rapid’ response to contribute towards large-scale reductions in greenhouse gas emissions.

 

In the words of Alok Sharma (who is leading the coming COP26 climate summit), “The world is ‘dangerously close’ to running out of time to stop a climate change catastrophe …  we can’t afford to wait two years, five years, 10 years – this is the moment.” https://www.bbc.co.uk/news/uk-58132939

 

Given the IPCC report has been published since the last Dorset Pension Fund Committee meeting, when will the Committee be tabling an agenda item to discuss the report and it’s warnings against the backdrop of the current Dorset pension fund investment strategy?

 

Answer 6

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.

 

The Dorset County Pension Fund’s investment strategy is driven by an actuarial valuation that takes place every three years.  This valuation examines a whole range of factors including how long our pensioners are likely to be claiming for plus future rates of inflation and interest rates.

 

Once we have this information we can make decisions on the appropriate levels of risk, asset allocation, liquidity of investments, sustainability etc.

 

The next triennial valuation will be based on the situation in March 2022.  We would aim to discuss its recommendations and review our whole strategy by the end of next year.  This also fits in with Brunel’s timetable to review its sustainable policies in 2022.

 

The Dorset County Pension Fund has already made great strides in reducing its exposure to fossil fuels.  The Friends of the Earth report estimated that we had £128 million invested in fossil fuel production in 2019 and this was reduced to £41 million in March 2021.