by Simon Bond
This quarter’s meeting of the committee that oversees the council’s pension fund was a classic case of steps forward and steps backward.
On the positive side was consideration of policies on responsible investment and voting at company AGMs. For me the major disappointment was that the responsible investment policy presented was second-hand – it was borrowed from another pension fund, essentially with just a change of name, and was last reviewed by the other fund three years ago. It is therefore out of date and misses all the really positive developments of the last few years. It sets out the priorities but surely they ought to be reviewed and perhaps updated every few years? There is nothing in the policy about measuring, or metrics to use the technical term, a live issues in the world of pension fund investments and climate change.
It was also very helpful that one of the fund’s independent advisers gave a short masterclass on current responsible investment thinking. She said it is all about building climate change resilience into the portfolio so that it is well adapted to climate-related risk, and having a process of ‘engagement and escalation’ with companies in the portfolio. Some of the councillors at the meeting come across as a little out of date on this issue, talking as if it is purely an ethical matter, and someone from another council even used the phrase “so-called climate change”. In reality it is about being hard-headed, taking a long-term perspective (pensions are payable for many decades), and recognising the imperative to prepare the portfolio for the future.
The good news is that the investment managers are doing this already but in a very quiet way – sometimes it feels as if they recognise that the Conservative councillors who are in the majority at the meetings need to be handled gently. Engagement and escalation has recently resulted in the manager reaching the end of the process and disinvesting from five carbon intense companies so they are now among just a handful of local government pension funds with low exposure to fossil fuels. They have not publicised this widely so it is the opposite of ‘green washing’ which companies sometimes do to exaggerate their progress.
I was also pleased about agreement across the meeting that councillors should have been engaged with this major policy development at an earlier stage and that this is not the last word on an evolving topic. It is totally impractical to rewrite an out of date policy in a committee meeting and hopefully the committee will return to the topic before too long.
I am concerned over issues around how the pension fund can interact with the council’s finances, concerns which are no doubt shared by other councillors on the committee, and have a number of constructive reform proposals in the areas of transparency, accountability and governance. There have been significant improvements in the last year, but there is still a way to go. Here are some of my suggestions:
- First and foremost, more and better engagement on major policy developments
- A transparency review to adopt best practice on information the council makes available
- Accountability over the pension fund budget to councillors (as happens with other councils)
- Whilst recognising significant progress on training for councillors, all those eligible to attend the meetings should undergo minimal training as part of good governance.