Since the Royal Borough of Windsor & Maidenhead (RBWM) passed a climate emergency motion in 2019, questions about ‘what next’ have been asked. Some of the answers are in the draft Climate Strategy which is being debated at the full council meeting later in June 2020.
I’ve been wondering whether this has any implications for the Berkshire Pension Fund which provides pensions for council employees and others. Because there is no county council, it is administered by RBWM on behalf of all the local councils in Berkshire. It has a significant investment portfolio accumulated from past contributions to pay future pensions.
This raises the question of how the fund’s investments reflect and contribute to the economic transition towards ‘net zero’ emissions which is needed to do something about climate change. What part do old-fashioned smokestack industries and new economy low‑emissions / renewables companies play in the portfolio?
The Fund’s investment policies are relevant and they can be seen here. In the Investment Strategy Statement there is a description in sections 5 and 6 of how the investment managers take into account ‘social, environmental or corporate governance considerations’ in making investment decisions and vote as shareholders at company AGMs.
There is also a short statement on ‘responsible investment’ which signposts the ‘pooled’ investment managers’ policies on responsible investment. My definition of responsible investor is taking a long term view and incorporating environmental, social and governance factors into consideration as well as engaging with company management in order to achieve sustainably improved performance for both the company and the portfolio. It is therefore different to an ethical investor, which is giving the manager a ‘mandate’ to make investment decisions based on the asset owner’s ethics (though invariably ethical investors are also responsible investors).
The investment managers’ website has policies on responsible investing and climate change, though they are only available if one confirms one is a ‘professional client’ and they do not include anything specific to the Berkshire Pension fund (the managers also look after two other local government pension schemes).
What do other large pension schemes do? Here are some examples:
• The BT pension fund has a policy on responsible investment.
• The London Pension Fund Authority has policies on responsible investment and climate change, which was recently reviewed. On page 4 the use of the Transition Pathway Initiative toolkit and the graph a show the pension fund’s journey as part of the transition to net-zero.
• The Lothian Pension Fund also uses the Transition Pathway Initiative toolkit .
To provide some more technical background, regulation in this area is evolving, driven by Mark Carney when he was governor of the Bank of England. He launched an initiative to encourage the finance sector to assess and disclose climate risk which led to the Task Force on Climate-related Financial Disclosure (TCFD). Last autumn, Mark Carney said that financial disclosure must help the transition to ‘net zero’ and asset owners should consider how well their portfolios are placed for the transition.
The government has established a Pensions Climate Risk Industry Group which has issued non-statutory guidance for pension schemes on assessing, managing and reporting climate-related risk. This is being incorporated into legislation but for now, the Pensions Minister expects that schemes do not need regulation in order to start actively managing their exposure to climate change and reporting how they have done so. The expectation is that large asset owners including occupational pension schemes will disclose in line with the recommendations of the TCFD by 2022.
Climate-related risk management and disclosure are not currently part of RBWM’s developing Climate Emergency Strategy. Perhaps the topic was overlooked or it does not obviously fit into any of the four themes of the Strategy.
I would be very interested in hearing what others think of these issues. Having reviewed what other pension funds are doing, I have formed my own opinion but it would be great to hear wider views, especially from anyone who is a member of the Berkshire Local Government Pension Scheme. Is it sufficiently transparent about its portfolio or should it be doing more to reflect growing concerns over the climate? Should this topic be included in RBWM’s Climate Emergency Strategy?
Simon Bond
RBWM Liberal Democrat councillor (Belmont ward) SimonBond@maidenheadlibdems.co.uk