Issue - meetings

11:00

The report (PF9) presents the latest position on the Fund’s Risk Register, including any new risks identified since the report to the last meeting.

The Committee is RECOMMENDED to note the comments of the Pension Board and determine any changes it wishes to see made to the Risk Register.

(a)  to note the Risk Register; and

(b)  to note the recommendation from the Local Pension Board and to inform the Board of its decision not to include a separate line for Climate Change, for the reason that the term ESG incorporated a much wider range of other issues not specifically related to climate change. However, to assure the Board that this issue would be monitored carefully and the would be revisited if the situation changed and intervention was required.

The Committee had before them a report (PF9) which presented the latest position on the Fund’s Risk Register for consideration.

At its meeting in January 2019, the Local Pension Board had identified that the risk to investment returns from poor management of ESG issues, in particular climate change, was not fully reflected in the current Risk Register. They had asked the Committee to consider adding a risk relating to reductions in investment performance, with the cause specifically relating to the failure to properly account for climate change in making investment decisions. The impact of the risk was seen by the Board as a fall in funding levels, requiring an increase in employer contributions. The Board felt that the risk could be managed by switching assets between the current allocation to passive equities to the passive low carbon portfolio.

The Committee considered the views of the Pension Board alongside the advice from Officers contained within the report, which suggested that the risk to investment returns stemmed from a failure to properly account for all ESG issues in making investment decisions, rather than just issues associated with climate change. Officer advice was that a mitigation based on switching an allocation to a low carbon portfolio was also too narrow.

RESOLVED: to

(a)   note the Risk Register; and

(b)  note the recommendation from the Local Pension Board and to inform the Board of its decision to add a wider ESG related risk to the risk register rather than include a separate line for Climate Change, to be mitigated through the current ESG Policy and improved reporting. However, to assure the Board that this issue would be monitored carefully and would be revisited if the situation changed and mitigation was required.