Issue - meetings

10.30

This report sets out the new passive options developed by Brunel in conjunction with FTSE Russell and Legal and General Investment Management in response to the requests from Client Funds for suitable alternatives aligned to the Paris Agreement. 

The Committee is RECOMMENDED to determine any changes to the current allocation to passive equities, and if appropriate, to the current commitments set out in the Investment Strategy Statement.

Agreed to allocate the 15% passive equities to the Paris Aligned Benchmark.

Before considering the report setting out the new passive options developed by Brunel in conjunction with FTSE Russell and Legal and General Investment Management in response to the requests from Client Funds for suitable alternatives aligned to the Paris Agreement, the Committee reviewed a slide presented by Faith Ward, Chief Responsible Investment Officer, Brunel Pension Partnership demonstrating the levers pushing the weighting of different companies up and down.  She noted that both the Paris Aligned Benchmark (PAB) and the Climate Transition Benchmark (CTB) require analysis to see if companies have breached the global compact or OECD guidelines.

Sean Collins, introducing the report, noted that the two benchmarks meet the requirements of the Institutional Investors Group for Climate Change Net Zero Framework.  The first bullet point under Paragraph 7 was no longer correct.  For both funds, the reduction in fossil fuel reserves now matches their reduction in carbon emissions – 50% for PAB and 30% for CTB.

Sean Collins also explained that the exclusion of tobacco was there because it was part of the EU taxonomy.  It was felt important to go with a standard, otherwise everyone was measuring things in different ways.

Highlighting the main differences between the two benchmarks, Sean Collins, described the PAB as more ambitious, involving immediate reductions in the fossil fuel areas.

FTSE does not have a UK Paris-aligned benchmark as it could not be sufficiently diversified.  The Working Group believed that UK investment would be better pursued through active mandates and that any passive mandates should be with the Developed World.

The Working Group also agreed that retaining 15% passive was delivering better value for money and the new benchmarks were achieving much of what you would get from active anyway.

Officers favoured the CTB as being more aligned with the current Investment Strategy Statement.  However, others on the Working Group favoured the more ambitious PAB.  They were agreed that there was no point in allocating less than 5% to either fund.

The Chair asked firstly if there was agreement to go with passive funds.  Members of the Committee agreed.

Members expressed support for the PAB for the following reasons:

·         It was the simplest and most practical approach from the point of view of the funds.

·         Given the latest UN report, it was better to go with the more ambitious fund.

·         Both funds were targeting the same return so that was not a factor.

Faith Ward noted that both funds excluded thermal coal and tar sands.

The Chair proposed that 15% be allocated to PAB.  This was seconded by Councillor Bulmer and agreed by the Committee.

RESOLVED: to allocate the 15% passive equities to the Paris Aligned Benchmark.