Agenda item

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 in Environmental, Social and Governance (ESG) issues as the Fund works to maximise returns on investment.

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

The Treasury and Pension Fund Manager informed the Committee that this was a regular report presented to Committee Members updating them with engagement activity undertaken by the Fund and on its behalf by the Local Authority Pension Fund Forum (LAPFF) to promote good governance and behaviour in environmental and social issues.

She highlighted that:

• Table 1 listed the top areas of focus for this quarter with climate change taking top priority with over 100 engagements and LAPFF sending close to 100 correspondences and holding close to 20 meetings.
• They were mostly in the dialogue phase with 9% activity approximately ranging from small improvements to satisfactory response.
• With regards to response to correspondence which members queried at the last Committee meeting in September, LAPFF representatives had confirmed that there was a lag between when the engagement took place and the outcomes were seen.
• For every outcome of positive change that did take place it was not uncommon to see a lot of correspondence being sent out and meetings taking place.
• However, the number of engagements and correspondence highlighted the level of activity and push from LAPFF on behalf of the Pension Funds.
• A notable successful outcome of LAPFF’s engagement with companies included engagement with Volkswagen resulting in it deciding to exit its Xinjiang operations due to allegations of the use of forced labour.
• In recent meetings key areas of engagement had been around pushing companies to adopt more strict human rights and environmental protocols and improving risk management strategies. Decarbonisation, aviation and the cement industry were other areas.
• Corporate Governance issues relating to facilitating shareholder resolutions in UK firms and recent Financial Conduct Authority (FCA) changes were discussed,
• Table 3.1 provided details of future meeting dates with the LAPFF Annual Conference occurring later this week and the business meeting on 29^th January 2025.
• Table 3 showed the companies the Pension Fund had invested in and that LAPPF had been engaging with including the topic of and current state of engagement.
• There were discussions going on with LAPFF to provide a bit more detail around these engagements including the evolution of engagements with these companies so the effectiveness could be seen.

The Vice Chair of the Committee as a member of the LAPFF Executive was invited to update the Committee on LAPFF engagement, she commented that discussion around conflict affected and high-risk areas (CAHRA’s) was interesting with people keen to do this, with the need for work along these lines to continue. The details in the letters the LAPFF sent to companies was not published, so if there was an interest in the dialogue it was this information that needed to be seen.

The Chair reminded members that anyone could attend the business meetings which were all public and if they were interested in getting involved in any particular engagements they had the opportunity to do this.

A Committee member noted that it would be interesting to receive an update from LAPFF on the Financial Times Stock Exchange (FTSE) 100 index companies strengthening oversight of their corporate governance as well as the outcome of CAHRA discussions.

The member also commented that making the wording clearer in the report about the results or outcome of engagement should be considered. As he was of the view that the conclusion from the layman’s perspective was that engagement was not effective based on the amount of correspondence sent and responses received.

In response to Committee members questions officers provided the following information:

The Pensions & Investment Research Consultants (PIRC) report in the Committee agenda was over 300 pages, there was nothing notable to report, officers had provided the Committee with similar information that was provided in last year’s agenda papers.

The Chair noted that he would be meeting with PIRC representatives in January 2025 which the Committee would be presented with an update at the meeting in March.

With regards to the disparity between sent correspondence, responses and the way this was reflected in the reports this would be discussed with LAPFF as a means of properly reflecting that activity in future reports.

With reference to the company domiciles table on page 69 of the agenda in relation to the portion of the Pension Fund invested in British companies and what more could be done to exert influence with companies outside the UK, the Treasury and Pension Fund Manager agreed to take this away to discuss with the LAPFF.

Action By: Treasury and Pension Fund Manager

The Chair updated the Committee on the Gaza and Occupied territories conflict and deputation relating to divestment from companies selling arms to Israel. He commented that the Council’s legal team were looking at international law, current legal standing as well as advice from other organisations that had taken legal advice. This should be available at the next Pension Committee meeting in March 2025.

The London CIV as well as the LAPFF also had a discussion at their last shareholder meeting around the occupied territory and conflict zones and set up a sustainable working group which was likely to be on their meeting agenda next week.

The issues discussed were around how different borrowers had different levels of engagement, and thought on this, and understanding what others were doing and what the London CIV in engagement with a number of other managers were doing.

He also commented that at full Council he had informed the public that when the Pension Committee reviewed its investment beliefs consideration would be given to including peace and justice as one of the priority Sustainable Development Goals, and that this should be considered then. Advising that this should be made to fit in with the Committee’s natural sequence to ensure it could make the most impact by being clear and transparent with Fund Managers.

The Chair also noted that there were lots of issues relating to pensions going on at the moment that members and the Committee needed to think through and rather than entering into letter writing campaigns, Committee members would be updated with latest developments at Committee meetings and if members had any questions from residents and members of the public attending member surgeries, to let him and officers know so that they could keep track of the queries and respond.

A Committee member commented that it would be helpful when a summary of what other boroughs were doing in response to the divestment issue was available, this could be circulated ahead of the meeting to inform and verify claims that were being made.

Action By Treasury and Pension Fund Manager/ Principal Legal Officer

RESOLVED -

THAT the contents of the report be noted.