Agenda and minutes

Apologies for absence were received from Councillors Hai and Stark.

There were no declarations.

Deputations were received as follows:

(a)            A deputation was received and noted from Nick Zinzan, on behalf of Divest Camden regarding Item 8, “Engagement Report”. A copy of the deputation statement was circulated at the meeting as attached at APPENDIX A.

In response to questions from Committee Members, Nick Zinzan and Finnian Murtagh said:

-        There should be zero investment in fossil fuels within the next 5 years

-        The Fund should divest from the top 200 fossil fuel companies

-        Investment should be made in green energy to mitigate the climate emergency

-        The financial argument for divesting from fossil fuels was strong, as oil and gas had performed worse than the MSCI index over the period 2010-2019 and that many industry commentators suggest that oil had peaked and was an industry in decline

-        Regarding Committee Members’ concerns that the Pension Fund might not be fully funded if divestment from fossil fuels and the top 200 fossil fuel companies did take place, they were of the view that in order to protect return it would be better to take action now.

(b)            A deputation was received and noted from Liz Wheatley, on behalf of UNISON regarding Climate emergency and divestment of the pension fund from fossil fuel investment. A copy of the deputation statement was circulated at the meeting as attached at APPENDIX B.

In response to questions from Committee Members, Liz Wheatley said:

§  The Fund must aim at zero investment in fossil fuels in order to attain a zero carbon footprint or to get anywhere near to that target.

§  The timeframe for this should be within 5 years given that they UNISON had a deputation 2 years previously to the Committee and, in her view, nothing much had happened since then.

§  Instead of investing in fossil fuels the Fund should invest in renewable energy

§  UNISON was currently carrying out consultation and a petition with its members and would share the results with the Committee when finalised.

§  Regarding Committee Members’ concerns that the Pension Fund might not be fully funded if divestment from fossil fuels and the top 200 fossil fuel companies did take place, Unison was of the view that the UK had the 5^th largest economy in the world and it was difficult to believe that the Pension Fund could not be sufficiently funded by alternative ethical investments like renewable energy.

Councillor Madlani invited Tessa Younger, from PIRC on behalf of LAPFF (the Local Authority Pension Fund Forum), to respond to some of the points raised by the deputations. She said that:

§  The 2 degrees scenario had now been updated to net zero degrees.

§  House builders were responsible for 40% of emissions.

§  LAPFF engagement had been successful, and she stressed the importance of lobbying oil and gas companies to achieve the decarbonisation of the economy, for instance following months of engagement:

-        Centrica had divested from oil and gas and Shell aim to follow  ...  view the full minutes text for item 3.

Councillor Madlani thanked Councillor Lorna Russell for chairing the Investment Manager meeting with Harris on 20^th November 2019 in his absence. He also thanked Councillors Johnson and Quadir for attending the meeting despite having other commitments.

There was no urgent business.

To approve and sign as a correct record the minutes of the meeting of the Pension Committee held on 12^th September 2019.

RESOLVED –

THAT the minutes of the meeting held on 12^th September 2019 be approved and signed as a correct record.

Report of the Executive Director Corporate Services

This report summarises the outcome of the workshop on Investor beliefs led by our independent investment adviser, Karen Shackleton, and supported by officers and our Investment Consultant, KPMG.

Consideration was given to the report of the Executive Director Corporate Services, which summarised the outcome of the Investment Belief Statement workshop held on 2^nd October. The workshop was led by the Fund’s independent investment adviser, Karen Shackleton, was attended by Members of the Pension Committee, and supported by officers and the Fund’s Investment Consultant, KPMG. It was noted that this report would be useful for the Fund to help frame its Responsible Investment focus and also some key tenets from an investment perspective.

The Committee noted that the workshop had prioritised the key United Nations Sustainable Development Goals (SDGs) as set out in paragraph 5 of the report, although recognised that they were all veritable objectives. The Fund considered the objectives in bold to be the most important within each category of ESG

If the Committee agreed these as priorities for the Investor Belief Statement, it was noted that it would be important to communicate these to the fund managers and advisers. It was highlighted that over the long term, investments which further the UN's SDGs would drive growth and benefit the Fund. Although the Fund was aware that climate change was both a risk and opportunity it recognised that there was a climate emergency and it needed to plan its work to ensure that managers and advisers recognised this and factored this in to investment planning. The Fund expected Investment managers to ensure that they selected investments that helped transition to the net-zero carbon economy and mitigated against the risk of stranded assets.

The Chair referred to paragraph 3.5 and the SDGs as prioritised by the workshop. He suggested that “Affordable and clean energy (SDG 7)” and “Sustainable cities (SDG 11)” should be moved to the “Environmental” category where he felt they would sit better. 

In response to a question, Karen Shackleton said that it was important to examine the Fund’s portfolio to see how it could be more effective in terms of aligning the Fund to the SDGs. Fund managers would also be written to on an annual basis regarding their carbon footprints. Engagement was important and the LAPFF produced regular reports on engagement to Committee meetings. The Chair reminded Committee Members that they were welcome to attend LAPFF meetings.

There was then some discussion regarding decarbonisation and divestment. Karen Shackleton explained that “decarbonising” meant that Funds still had some carbon related investments. She confirmed that no Fund had fully divested. Islington was decarbonising and was undertaking a full carbon footprint of the portfolio. They had set themselves some carbon goals and was looking at offsetting the carbon that remained by investing in environmentally friendly investments.

The meeting was reminded that Members and officers had a fiduciary duty to ensure that the Fund’s investments received a good return and could not support investments that were detrimental to the Fund.

In response to a question regarding the Fund’s exposure to the top 200 fossil fuel companies, it was noted that the Fund’s equity managers would  ...  view the full minutes text for item 7.

Report of the Executive Director Corporate Services

This report brings Members up to date with engagement activity undertaken by the Fund and on its behalf by LAPFF (the Local Authority Pension Fund Forum) since the last Committee meeting. This work is important to the Fund’s ambition to be a fully engaged investor and demonstrates its commitment to Responsible Investment and engagement as a way to achieve its objectives.

Consideration was given to the report of the Executive Director Corporate Services, which provided an update of the engagement activity undertaken by the Fund and on its behalf by LAPFF (the Local Authority Pension Fund Forum) since the last Committee meeting. This work was important to the Fund’s ambition to be a fully engaged investor and demonstrated its commitment to Responsible Investment and engagement as a way to achieve its objectives. It also included updates on Modern slavery and Climate action 100+.

As mentioned at item 3, the Committee received and noted a deputation from Camden Divest in respect of this item.

It was noted that both the Councillor Madlani and the Head of Treasury and Financial Services had attended the last LAPFF meeting. The Chair said that it would be good to involve other Committee Members in LAPFF work and invited them to attend LAPFF meetings, even if it was just once a year.

The Committee was informed that the LAPFF conference would take place on 4^th – 6^th December and was an excellent way for Members to really understand LAPFF’s important work in this area. Councillors Madlani, Johnson and Russell would be attending and all other Committee Members were also welcome. Bookings would be arranged through the Treasury and Pensions officers.

Tessa Younger from PIRC (on behalf of LAPFF) was present at the meeting and summarised the main points in the report in respect of the work undertaken during the last quarter. The report also listed the engagement undertaken with a number of companies and those companies with which the Fund held interests in were included in table 1 (pages 85-87). The Committee welcomed the substantial improvement that Centrica plc and National Grid plc had shown with regard to climate change, but was concerned about those showing “no improvements”. Tessa Younger said that the strongest action aimed at changing this was voting alerts, attending AGMs and speaking to Board members.

The Chair thanked Tessa Younger for attending the meeting.

RESOLVED –

THAT the contents of the report be noted.

Report of the Executive Director Corporate Services

This report updates on the Fund’s Carbon Footprint of its equity assets and also presents information on other asset classes.

Consideration was given to the report of the Executive Director Corporate Services, which provided an update on the Fund’s Carbon Footprint of its equity assets and also presented information on other asset classes.

This was the third year that the Fund had presented information on its carbon footprint. The report focussed particularly on equity manager footprints with all three scopes included and this year L&G had a footprint too. It also presented increasing detail from non-equity managers.

It was noted that climate change, and the required low-carbon transition, was one of the largest individual engagement streams that LAPFF dealt with. When engaging, LAPFF encouraged companies to transition in an orderly fashion to a low-carbon economy. LAPFF believed that companies had a unique role to play in addressing the challenges posed by climate change, not only because they were emitters of greenhouse gases, but also as they were providers of short and long-term solutions to decarbonise the economy and adapt to climate change. LAPFF recognised the issue of stranded assets and continued fossil fuel extraction as a collective investment risk for all asset owners and as an engagement and policy priority.

The Fund’s Investment Strategy Statement set out its policy on how social, environmental and corporate governance (ESG) considerations were taken into account in the selection, retention and realisation of investments. The statement also stated that the Pension Fund was bound by law in respect of Socially Responsible Investment (SRI) policy. The Fund should, in all circumstances, act in the best financial interests of the members of the Fund.  Where this primary consideration was not prejudiced, Investment Managers were expected to have active regard to the impact that SRI issues might have on the returns of companies in which they invest on the Fund’s behalf.

The Transition Pathway Initiative (TPI) assessed how companies were preparing for the transition to a low-carbon economy. It was established in 2017 and was led by asset owners and supported by asset managers. The first step was to evaluate the quality of companies’ management of their carbon emissions and the risks and opportunities related to the low-carbon transition, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). It then assessed how companies’ planned or expected future carbon performance compares with international targets and national pledges made as part of the 2015 Paris Agreement on climate change.

The TPI initially looked at 274 companies within 14 high-impact sectors such as oil, gas, utilities, mining, cars, airlines, cement, steel, aluminium, paper, oil and gas distribution, services, consumer goods, basic materials and other industries. Most recently, the TPI had published reports on airlines’ progress to decarbonise. The TPI categorised companies into one of five levels as set out below:

·       Level 0 – Unaware of (or not acknowledging) climate change as a business issue

·       Level 1 – Acknowledging climate change as a business issue

·       Level 2 – Building capacity

·       Level 3 – Integrated into operational decision-making

·       Level 4 – Strategic assessment

Two of the  ...  view the full minutes text for item 9.

Report of the Executive Director Corporate Services

This report presents the analysis of the actuary on the Fund’s liabilities and funding level for differing climate change scenarios and demonstrates the significant impact climate change can have on the Fund.

Consideration was given to the report of the Executive Director Corporate Services, which presented the analysis of the Actuary on the Fund’s liabilities and funding level for differing climate change scenarios and demonstrated the significant impact climate change could have on the Fund.

It was recognised that climate change was one of the biggest risks facing the world in environmental and financial terms. Governments across the globe were reacting to the climate crisis and the impact of global warming which would be felt in all regions and all climates.

The Fund’s Actuary, Hymans Robertson, had offered the Fund some analysis and modelling based on different climate related scenarios which was set out in Appendix A. Barry Dodds, from Hymans Robertson, was in attendance at the meeting and summarised the main points in his report. He explained that the scenarios tested were:

·       Green Revolution: Rapid policy response from government created the absolute necessity for change which was matched by the deployment of green technologies and ongoing investment in adaptation;

·       Challenging times: Challenging times reflected delayed policy action. Change was likely to be intermittent at first but was assumed to become more severe in response to growing environmental feedbacks;

·       Head in the Sand: Policy responses did not prioritise environmental change with corporates largely continuing business as usual type approaches.

The Committee noted that the results of the modelling showed that the “green revolution” gave the best result of the three modelled and gave an outcome similar to the results of the triennial valuation. “Challenging times” gave the second best result but with a volatile trajectory. “Head in the sand” gave the worst outcome with funding levels not reaching 100% funding over the 20 year time horizon modelled. The Hymans Robertson report stated that the Fund should not just focus on assets and how they might be impacted, but should also focus on impacts to the Fund’s liabilities, via inflation assumptions and life expectancies.

The Committee was of the view that it was helpful to look at climate change in the context of investment strategy and would asked that KPMG, the Fund’s investment advisors, also looked at the report.

          ACTION BY: Executive Director Corporate Services

The Chair thanked Barry Dodds for the report and attending the meeting.

RESOLVED –

THAT the contents of the report be noted.

At this point in the proceedings the Committee noted that the meeting had lasted for nearly the maximum time of 3 hours and it, therefore, agreed to move standing orders to extend the meeting for a further 25 minutes in order to finish the business on the agenda.

Report of the Executive Director Corporate Services

This report presents the performance of the Pension Fund investment portfolio and that of the individual investment managers for the quarter ended 30 September 2019.

Consideration was given to the report of the Executive Director Corporate Services.

The Committee noted the performance of the Camden Pension Fund investment portfolio and the individual investment managers for the quarter ended 30th September 2019 (quarter 3 of 2019).

The Committee noted in particular that

-        The Fund portfolio had a market value of £1.786bn at 30^th September 2019 compared with £1.752bn at 30^th June 2019.

-        Total fund liabilities were estimated to be £2.108bn as at 30^th September 2019, with assets valued at £1.786bn giving a theoretical estimated funding ratio of 86.4%. The last full valuation was carried out based on March 2019 data and reported to Committee in September 2019. This showed a dramatic improvement in funding from 76.2% to 102.5%.

-        As at Q1 (2019), the Fund assets had outperformed long term target set at the triennial valuation in 2016 by 8.5% (£68m).

-        The Fund had achieved performance of 1.9% during the quarter which was behind its target of 2.5%.

Committee Members noted Appendix A “Camden Client Ranking by Manager” which detailed Camden’s exposure as clients to the overall fund or strategy managed by each Investment Manager. In future, where Camden represented greater than 5% of the Investment manager’s fund and there was a material increase due to client outflows, this would be reported to Committee on an exceptions basis.

The Committee also noted Appendix B, which presented a more comprehensive overview of the financial markets by the Independent Investment Advisor and reported the performance of the individual Investment Managers in more detail. Karen Shackleton, Independent Investment Advisor highlighted the salient points as follows:

(a)        London CIV - Baillie Gifford - This sub-fund delivered a return of +0.66% in Q3, underperforming Harris by -2.03%, and by -2.69% for 12 months to Q3 2019. They underperformed the Index by -2.74% for the quarter and by -1.54% for the 12 months. In terms of assets under management, the LCIV sub-fund stood at £2,705.2 million as at end September, an increase of £15.8 million since the previous quarter end. London Borough of Camden’s investment represented 11.2% of the Fund.

(b)    Harris – Harris’ stock selection had a positive impact, contributing +0.24% to the relative return in Q3 2019, with sector selection was negative, contributing -0.68%. The past twelve months for Harris had, however, been challenging, with the fund trailing its target by -8.5%.  As at quarter end, the fund had 48.04% allocated in Europe, 39.77% in the US, with the balance in Asia/emerging markets.

(c)    Insight - The fund performed negatively in absolute terms (-0.47%), and in relative terms it underperformed three month LIBOR by -0.66% in Q3 2019 which led to it trailing its target by -1.6%.

(d)    Legal & General - The observed tracking errors on the pooled index funds were within expected ranges during the quarter. There were no concerns.

(e)    CBRE - As at quarter end the portfolio had 22 investments and leverage on the portfolio stood at 10.6% compared with  ...  view the full minutes text for item 11.

Report of the Executive Director Corporate Services

This report provides a quarterly update on developments at the London Collective Investment Vehicle (CIV) in creating sub-funds for the spectrum of asset classes, on-boarding of assets and development of the CIV’s staff resource. Progress with the London CIV contributes to the Government’s pooling agenda and drive to reduce costs in the Local Government Pension Scheme (LGPS).

This report has an appendix which contains information exempt within the meaning of Schedule 12A to the Local Government Act 1972 and is not for publication. The appendix has therefore been circulated to Committee Members only.

If the Committee wishes to discuss the contents of a closed exempt appendix it may pass the proposed resolution identified at the end of the agenda to exclude members of the public and the press from the proceedings for that discussion.

Consideration was given to the report of the Executive Director Corporate Services, which provided a quarterly update on developments at the London Collective Investment Vehicle (CIV) in creating sub-funds for the spectrum of asset classes, on-boarding of assets and development of the CIV’s staff resource. Progress with the London CIV contributed to the Government’s pooling agenda and drive to reduce costs in the Local Government Pension Scheme (LGPS).

Harry Lamprinopoulos, Client Relations Manager, London CIV, was in attendance at the meeting. He informed the Committee that the CIV had appointed Kevin Corrigan as Interim Chief Investment Officer (CIO), who had been the CIO of Sandair where he managed the wealth for foundations and had previously worked at Goldmans. The Chair expressed concern that this was the 4^th interim CIO appointment at CIV and would like to see clarity and stability in the near future.

          TO NOTE: Executive Director Corporate Services

It was noted that on 16^th October 2019, the CIV held an ESG (Environment, Social and Governance) and Responsible Investment seminar led by Dawn Turner (formerly CEO of the Brunel pool). This was well attended by officers and Committee Members and included sessions led by Dawn Turner, Rob Hall (Head of Equities), Michael Marshall (LGPS Central), Karen Shackleton (on behalf of Pensions for Purpose), Sacha Sadan (L&G) and Mike O’Donnell (CIV). The Committee noted that Dawn Turner was leading a review of the CIV’s ESG capabilities and had surveyed all London Funds. The Fund would be finalising its response this week.

The Committee noted the Fund Launch Plan which was attached at Appendix B to the report. This was a Part II appendix, as it contained commercially sensitive and confidential information and was, therefore, not available to the public. Committee Members confirmed that they had read the appendix and would take it into account when making the decision.

At its meeting on 12^th September 2019, the Committee had noted that the London CIV had placed CQS on watch last month due to concerns around key staff changes, underperformance and investment strategy.  It was further noted that, given the CIV’s concerns, the planned quarterly transition from Insight to CQS had been put on hold pending Committee scrutiny. In these circumstances, the Committee had agreed that a decision should be delayed until the end of October to enable CIV to continue to monitor and work with CQS. In the meantime, officers were asked to carry out a cost benefit analysis on whether or not the transition of funds from Insight to CQS should continue. Authority was delegated to the Executive Director Corporate Services to enable him to take this decision, in consultation with the Chair of the Pension Committee at the end of this period and when an update from the CIV and the results of the cost benefit analysis were available.

The Committee sought an update on the situation with CQS. It was noted that the Executive Director had not yet taken a decision regarding CQS. Harry  ...  view the full minutes text for item 12.

Report of the Executive Director Corporate Services

This report sets out items scheduled for future agendas of this Committee together with a record of training/ meetings attended and a list of future training opportunities.

Consideration was given to a report of the Executive Director Corporate Services, which set out items scheduled for future agendas of this Committee together with a record of training/meetings attended and a list of future training opportunities.

Committee Members were asked to inform the Head of Treasury and Financial Services if they wished to attend the meetings with Investment Managers or any training sessions.

TO NOTE: ALL

RESOLVED –

THAT the contents of the report be noted.

There was no other urgent business.