Agenda item

Report by the Director of Finance (PF5)

The report provides the feedback to the Committee on the recent consultation exercise on the Investment Strategy Statement including the Climate Change Policy, and proposes final changes to the draft document.

The Committee is RECOMMENDED to consider the responses to the recent consultation exercise and approve the changes to the draft documents as set out in the report and incorporated in Annex 3.

In March, this had Committee reviewed its Investment Strategy Statement and completed the fundamental review of its asset allocation following on from the tri-ennial Fund Valuation.  For the first time, the Investment Strategy Statement included a Climate Change Policy as an annex to the document.

As required under the relevant Regulations and guidance, the Committee agreed to consult all key stakeholders on the draft Statement approved at the March meeting.  This process was undertaken over a 6-week period from the beginning of April to the middle of May.  The Committee now had before it a report, which set out the key issues raised in the consultation responses and recommended the Committee to approve the final Investment Strategy Statement including the changes to the draft Statement set out in this report.

In the view of the number of the consultation responses highlighting key issues in the implementation of the Climate Change Policy rather than any specific changes to the Policy itself,  it was felt that the report needed to be considered alongside the Climate Change Policy Implementation Plan included on today’s agenda.

The Chairman indicated that it was his intention to take item 5 and 6 together, as they were interrelated.  This was agreed by the Committee

In introducing the report, Mr Collins set out the approach they took to the consultation.  All possible steps had been taken to reach all members of the scheme including, sending out the consultation to all employers asking them to share it with all scheme members.  Officers also made the consultation available on the Website and notified scheme members by newsletter.  27 responses had been received and the responses were set out in Annex 2.

The vast majority of consultation responses had talked about the Climate Change Policy which was expected as it was the main new area of the consultation.  The main areas of the consultation were set out in Annex 1.  The vast majority of the consultation responses were very supportive of the policy and the direction of travel.  The main comments were in relation to it be strengthened slightly to make it more explicit in certain areas. 

The report sets out the four main key response areas.  There was agreement that the Paris Agreement should be used as a benchmark, together with a comment about tightening up targets on that.  There were more people wanting blanket divestment in fossil fuels, although those who accepted the position, wanted greater clarity around the targets that were being set and the sanctions that would follow.  Metrics were also provided, and these were set out in the report.  Other issues that people raised were also included in the report.   These were set out in terms of what had been done in terms of changing the Investment Strategy Statement and Policy; the issues we thought were issues of detail rather than issue of principle had been set out in the implementation plan.  There were also a few details that they thought they could not respond to and those were also set out in the report.

The Investment Statement Strategy and Climate Change Policy set out at Annex 3, showed track changes where changes had been made as a result of the consultation, including the strengthening the commitment section to make it clear that we are targeting the 1.5 maximum increase in temperature.  On reflection, he acknowledged that the original draft was not very clear on that point.

There was also comments around interim targets, so they had amended that section to talk about the requirement for interim targets and that would be covered later in the implementation plan.  They had also strengthened the section on engagement to make it clear that within the implementation they would be setting targets and they would also be setting sanctions.  They also intended to improve the risk management arrangements to make them more robust, so that there would be an opportunity to pick up unintended consequences of any investments and to ensure any risks were properly balanced.

The issues that they had felt unable to respond to were around the lack of understanding around the council’s ardituary duty which was paramount.  That did not mean that ethical issues were not taken into account, and the policy made it clear that in particular they took account of climate change risks, because there could be significant financial risk resulting from climate change.  They had not changed the policy in terms of blanket divestment as he believed nothing new had been raised.  A couple of responses indicated that they would wish to see more individual member choice in the selection of investments.  The scheme was a defined benefit scheme, so the risk was not taken by one member, but by the employers and taxpayers, which was why it was a Committee decision on how the allocation was made.

One response was regarding the court case brought by the Solidarity campaign in respect of Government Guidance which they had disputed.  The court ruled in favour of the Solidarity campaign and stated that government couldn’t provide guidance to tell us that we had to invest in line with government foreign policy and government defence policy.  The court had said that the guidance was going beyond the power that the government had.  As a consequence, officers had deleted the line from the Investment Strategy Statement which was in line with the previous guidance.

Councillor Jo Robb questioned whether there were any defined benefits schemes that offered that kind of choice to individual members?  Mr Collins responded that he was not aware of any.

Mr Gregory Lay then introduced Item 6 (Climate Change Policy Implementation Plan).  In introducing the report, he explained that the Implementation Plan before Members was the revised version as the result of the consultation.  Paragraph 2 of the report set out the key target from the implementation plan which was to reduce annual emissions by 7.6% which linked back to the 1.5 temperature goal of the Paris Agreement.

Paragraph 5 onwards of the report set out the actions that were the immediate priorities to deliver the 7.6% reduction.  Paragraph 6 required a decision from the Committee regarding what to do about the transition of the Global Equity portfolio currently managed by UBS.  Initially, it was planned to put it into the global core Brunel Fund, but there was now a proposal around the sustainable Global Equities portfolio.  At Annex 1 there was a report from the ER, recommending a 50/50 split between the two portfolios.  The Committee were also able to change that percentage. 

The report further made a commitment to continue to work with all the stakeholders who had been involved throughout the process and had proved to have been extremely helpful.

Councillor Nick Field-Johnson queried if officers could explain the difference between the passive developed low equity fund and the passive equity low carbon fund.

Mr Ley responded that the passive low carbon had already been decided at the last Committee and that now the suggestion was to move into a ‘no carbon fund’.  The Chairman explained that the problem currently, was that there were no ‘no carbon funds’ for the Committee to move the money into.

Ms Jo Robb asked sought clarification as to how discussions were going with Brunel relating to the 2.5% the Committee had earmarked for low carbon fund that recognised Scope 3 emissions.  Mr Ley responded that they were waiting for the implementation Plan was approved so that they could then have detailed discussions with Brunel about what they were trying to achieve.

Councillor John Sanders questioned whether it was likely that the 0-emissions timescale target of 2050 would brought forward from 2050?  The Chairman indicated that it was very difficult to say at this current time, but that it was under constant review, with a view to moving faster in the future.

Councillor Roz Smith questioned how the carbon reduction targets right across the board were being assessed to check they were being met?  She hoped once there was all the data, they could move quicker to divest from fossil fuels.

The Chairman reiterated that the Investment Strategy would be reviewed every year and therefore the target could be reviewed every year.  Mr Ley confirmed that it would be Brunel would assess targets.  They already received some carbon metrics through from Brunel, but it was only the listed equities portfolios. There was still work to be done on finding a metric for the other portfolios, bonds and other markets.  There was nothing at this stage to cover the whole market.

All investments would be moved to Brunel and Brunel would be leading on monitoring.  Metrics still needed a lot of improvement and the Council would be working with Brunel with regard to developing the kind of metrics needed to meet out climate change policy and investment strategy.  Brunel would produce regular reports backs on how investments were going together with data as part of the regular performance reports.

Ms Jo Robb questioned whether it was known when the metrics would be available and sought an assurance that the metrics would be transparent in terms of Scope 1,2, and 3 emissions.  She also questioned being able to make the 7.6% reduction whilst they remained invested in carbon intensive corporate bond sovereign bonds, financial institution bonds.  Mr Collins was unable to comment on timescales, however, Ftse had developed an index for sovereign bonds.  The Corporate Bonds would be picked up by the same indices as the equities.  There was measurement of property through Bresby.  We will be continually improving the metrics over the next couple of years.

Ms Jo Robb further questioned how the Committee felt about the suggested specific date for a review and in particular the Fossil Free Oxfordshire suggested date of 2022?  Mr Ley commented that they had undertaken to do an Annual Review so all policies would be fully reviewed by 2020.

Councillor Lygo questioned when the Committee would be meeting with Brunel, to enable the Committee to ask more detailed questions around divestment.  Mr Collins confirmed it would be at the December Meeting.  Councillor Lygo proposed and it was AGREED that the Committee at its September Meeting agree the questions to put forward to Brunel so that Brunel had the answers for the Meeting.  The Chairman requested that the Committee send their questions into Mr Collins or Mr Ley.

Peter Davies, Independent Financial Advisor referred the Committee to Annex 1 which set out where the funds equities were currently invested, as a lot had changed since the end of December and to access the sustainable global equities fund.  He pointed out that it did have a slightly different bias in its make-up to the world index, so he was suggesting that the marginal increase in risk was the reason for only putting half of the UBS money into it, but he would be happy to go along with the officer recommendation of all the UBS money going into the sustainable global equities fund.

The Chairman felt that the Committee should go with the 100% as there was minimal difference in risk between the two portfolios.  Councillor Mark Lygo indicated that he would be happy to second that proposal.

Councillor Roz Smith indicated that she would also be in support of moving 100% and asked the Chairman to the recommendation to the Committee.

The recommendation was put the Committee and was AGREED by 10 votes to 0, with 1 abstention.

Councillor Charles Mathew abstained on the basis that he thought the Committee should not be going to 100% without knowing all the facts and without knowing the effect of the decision, particularly at this very unstable time.

Councillor Corkin acknowledged how far the Committee had come on the issue to very angry presentations and protests to mutual understanding and agreement through working in partnership with stakeholders.  He commended officers for all their work.

Councillor Mark Lygo expressed the importance of continued joint working with the stakeholders and reiterated that there would be further workshops in the future to promote and welcome joint working.  He lamented the fact that there had not been comms around the issue.

Mr Alaa Al-Yousef expressed the continuing importance of attending conferences to keep up to date with the industry.

Councillor Ian Corkin undertook to pick up the comms issue.

RESOLVED: (nem con) to consider the responses to the recent consultation exercise and approve the changes to the draft documents as set out in the report and incorporated in Annex 3.