Report by the Director of Finance (PF8).
This item will include the regular update to the Committee on progress in implementing the Climate Change Policy, as well as a presentation and opportunity to raise questions with Faith Ward, Chief Responsible Investment Officer from Brunel.
The Committee is RECOMMENDED to:
(a) note the report;
(b) agree the purpose of the Climate Change Working Group as set out in Annex 1;
(c) agree that no target is set for fossil fuel reserves levels; and
(d) provide any comments on the priorities for the work of the Climate Change Working Group.
The Committee was provided with a report which provided a quarterly update on delivery against the agreed Climate Change Policy Implementation Plan.
Members were informed that further to the decision of this Committee at its meeting held on June 2020, to move the full UBS global equity mandate to the Brunel Global Sustainable Equities that the transition had taken place at the end of September 2020 with settlement occurring in early October.
The sustainable equity portfolio focused on companies that were part of the solution to material sustainability challenges. As such, the portfolio should help to deliver on the Fund’s Climate Change Policy both through an immediate reduction in the emissions of the Fund’s investments and contributing to solutions that avoid dangerous climate change scenarios.
Members were reminded that at the Committee meeting held on 11 September 2020 approval was given to the Fund joining two investor groups focused on addressing climate change. These were the Institutional Investors Group on Climate Change (IIGCC) and Climate Action100+ (CA100+).
Both groups goals align with those set out in the Fund’s Climate Change Policy and provide research on climate related issues that would assist the Fund in further developing its policy and implementation plan.
Meetings have been held separately with Fossil Free Oxfordshire and Brunel where a number of issues were discussed including the continuing work by Brunel in piloting the IIGCC Paris Aligned Investments Initiative which it was hoped would provide a methodology of ensuring investment portfolios were aligned with the Paris Agreement. Members were informed that it had been agreed that the focus of the presentation by Brunel at this Committee should be on development of metrics, portfolio development and governance, engagement approach, and scenario testing.
On the 17 November 2020 the Climate Change Working Group met. One issue discussed was the terms of reference for the Group. The group felt that this should be agreed by Committee based around developing the climate change policy and developing/delivering the Implementation Plan.
Reference was made to fossil fuel reserves metrics which it had been agreed at the September meeting would be investigated, together with the potential to set targets. It had been agreed that this was a useful measure to monitor and Members were informed that Brunel did provide reserves measures in their annual carbon report to the Fund. However, in terms of setting a target for reductions, officers believed this would be difficult as unlike the emissions target there was not a science-based reduction requirement for reserves.
Also, in any case having reserves per se did not conflict with the Fund’s climate policies. The burning of those reserves caused emissions and should be picked up by the Fund’s emissions target. The relevance regarding reserves was how these were valued in determining a company’s value; the risk to the Fund was that the price attached to reserves was too high given that some reserves were likely to be unusable if the Paris Agreement was to be met. With this is mind, and in order to meet the Paris Agreement, large volumes of existing reserves cannot be burnt and there was an expectation that reserves should not increase further.
Officers reported that this metric would be regularly reported on and explanations provided for significant movements. This position would be kept under review and target would be adopted if there were developments in this area.
A general discussion took place around not having a policy on reducing fossil fuel reserves with District Councillor Jo Robb expressing concern at this. Assurance was given that targets would be adopted should developments in this area materialise. It was agreed that the issues raised in relation to fossil fuel companies including capital expenditure would be taken forward and discussed further at the Climate Change Working Group.
It was noted that Faith Ward had been appointed the Chair of the Institutional Investors Group on Climate Change.
The Committee was provided with a presentation on Brunel’s Responsible Investment from Faith Ward, Chief Responsible Investment Officer from Brunel. It was agreed that the PowerPoint presentation would be sent to Members.
Faith responded to a number of questions from Members of the Committee and one question each from Alistair Bastin and Andrew Finney on behalf of the Pension Board and Fossil Free Oxfordshire respectively, as agreed in advance by the Chairman.
(a) the report be noted.
(b) approval be given to the purpose of the Climate Change Working Group as set out in Annex 1 of the report.
(c) it be agreed that there would no target set for fossil fuel reserves levels.
(d) comments on the priorities for the work of the Climate Change Working Group be forwarded to the Service Manager for Pensions.