Agenda and draft minutes
PDF 225 KBVenue: Council Chamber, Woodhatch Place, 11 Cockshot Hill, Reigate, Surrey, RH2 8EF
Contact: Angela Guest Email: angela.guest@surreycc.gov.uk
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APOLOGIES FOR ABSENCE AND SUBSTITUTIONS
Additional documents: Minutes: There were none.
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MINUTES OF THE PREVIOUS MEETING [8 SEPTEMBER 2023]
To agree the minutes as a true record of the meeting. Additional documents: Minutes: The Minutes were approved as an accurate record of the previous meeting. |
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DECLARATIONS OF INTEREST
All Members present are required to declare, at this point in the meeting or as soon as possible thereafter (i) Any disclosable pecuniary interests and / or (ii) Other interests arising under the Code of Conduct in respect of any item(s) of business being considered at this meeting NOTES: · Members are reminded that they must not participate in any item where they have a disclosable pecuniary interest · As well as an interest of the Member, this includes any interest, of which the Member is aware, that relates to the Member’s spouse or civil partner (or any person with whom the Member is living as a spouse or civil partner) · Members with a significant personal interest may participate in the discussion and vote on that matter unless that interest could be reasonably regarded as prejudicial. Additional documents: Minutes: Kelvin Menon declared a non-pecuniary interest in that he is a non-voting member of the Scheme Advisory Board representing Treasurers Society for England.
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QUESTIONS AND PETITIONS
a) A Member question and response is attached. b) Public questions and responses to follow. c) No petitions were received.
Additional documents: Minutes: There were no petitions.
There was one Member question. This and the response were published with the agenda. As a supplementary Steve Williams asked: a) in relation to the response to the first part of the question, I would like to ask professional officers whether they were aware of the advice provided to the Derbyshire and Cheshire funds criticised in the report by Professor Steve Keen. Both the LGPS Senior Officer and the Independent Adviser responded that they were unaware of the advice. In response to a requested for this to be a future agenda item the Chairman stated that he would look into the matter and consider whether appropriate to have this on a future agenda. b) in relation to the second part of my question, do officers still consider, particularly in the light of COP 28, reference to the beginning of the end for fossil fuels, that there is a trade-off between the fiduciary duty and divestment from fossil fuels? I am suggesting that the approach to date has been that on the one hand, there is the fiduciary duty of the committee and on the other hand, the committee’s desire to do something about carbon reduction and climate change, and that the two are diametrically opposed. My suggestion was that the two are now synchronised because fossil fuel assets will easily become stranded assets and so our fiduciary duty requires us requires us to divest from fossil fuels. The LGPS Senior Officer agreed in that there was no contradiction between fiduciary duty and good stewardship of assets from the point of view of climate, and also other characterisations of ESG. Hence the committee had agreed on that approach to its responsible investment policy.
There were six public questions submitted. These and the responses were published as a supplement to the agenda.
There were six supplementary questions: 1. Kevin Clarke asked if the two banks referred to in the response could be identified and whether there had been any engagement with either of those two companies, and what had been the result so far? The Chairman responded that there were some specific examples of engagement in a later item on the agenda. 2. Jenifer Condit asked on behalf of Lindsey Coeur-Belle: the 18th edition of the Global Risk Report, published in January 2023, states that climate and environmental risks are the core focus of global risk perceptions over the next decade and are the risks for which we are seeming to be least prepared. Border to Coast acknowledged the fact that six out of ten short term global risks are climate and environmentally related issues. As a result of this growing urgency, will the committee commit to fossil fuel divestment by 2025? The Chairman responded that the responsible investment policy would be reviewed in June 2024. Things were changing and it was expected investment managers to take all these factors into account and for them to both engage and consider whether fossil fuels and particular companies are the ... view the full minutes text for item 73/23 |
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GLOSSARY, ACTION TRACKING AND WORKPLAN
To consider and comment on the Pensions Fund Committee’s recommendations tracker and workplan. Additional documents: Minutes: Speakers: Neil Mason, LGPS Senior Officer
Key points raised during the discussion:
1. Further to item 5/23 on the action tracker the LGPS Senior Officer explained that the Chairs of the Pension Board and the Committee had written to the Deputy Chief Executive and Director of Corporate Finance & Commercial. An update would be provided to the Chairs in the New Year with further updates reported to the Board. 2. The LGPS Senior Officer reported that the Business Plan was due for approval at the next meeting, and this would affect what was on the forward plan.
Actions/ further information to be provided: None.
Resolved: That the Committee workplan and the action tracker be noted.
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CHANGE PROGRAMME UPDATE - QUARTER 2
This paper details the Change Team Quarterly Report of activity for the period July-September 2023.
Additional documents: Minutes: Speakers: Nicole Russell, Head of Change Management (online)
Key points raised during the discussion:
1. Head of Change Management introduced the report and highlighted the following: · Following the recent Board meeting a number of suggested improvements were made to the One Pensions Team Dashboard. These are being worked on and will be presented in the new year. · A key area of focus this year has been development of people. The results of the second Pensions Team bi-annual survey had just been received and the early indications were that the changes were bearing fruit. A full report was to be provided at the next Committee meeting. · The programme of continuous improvement projects was ongoing. All but two projects were on track and those that were behind schedule had corrective actions in place.. 2. The Committee acknowledged and commended the work being undertaken by the Change Team.
Actions/ further information to be provided: None.
Resolved: That the report be noted.
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SUMMARY OF THE LOCAL PENSION BOARD REPORT
This report provides a summary of administration and governance issues reviewed by the Local Pension Board (the Board) at its last meeting (10 November 2023) for noting or actioning by the Pension Fund Committee (the Committee).
Additional documents: Minutes: Speakers: Tim Evans, Chairman of Local Pension Board (online) Neil Mason, LGPS Senior Officer Paul Titcomb, Head of Accounting & Governance
Key points raised during the discussion:
1. The Chairman of the Local Pension Board introduced the report and highlighted several areas that the Board had discussed including Unit 4, Business Continuity and Cyber Security. 2. A Member noted that the commentary for paragraph 9 of the report was the same as the report previously provided at the last meeting. It was confirmed that this had not been updated and was an administrative error. The Committee agreed that it could not therefore make recommendations to the Board.
Actions/ further information to be provided: That the LGPS Senior Officer arrange to email Members the correct narrative for paragraph 9 of the report and present the correct information to the next Board and Committee meetings.
Resolved: That the report be noted. |
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INVESTMENT MANAGER PERFORMANCE AND ASSET/LIABILITIES UPDATE
This report is a summary of manager issues for the attention of the Pension Fund Committee (Committee), as well as an update on investment performance and the values of assets and liabilities.
Part 2 annex at Item 15 Additional documents: Minutes: Speakers: Lloyd Whitworth, Head of Investment & Stewardship Steve Scott, Hymans Tom Lewis, Head of Service Delivery
Key points raised during the discussion:
1. The Head of Investment & Stewardship presented highlights of the report which included: - 2. A Member asked what the Funding level ratio would be if the discount rate of the 2022 valuation was used? The Head of Investment & Stewardship responded that using this discount rate the figure would be much closer to 100%. Hymans gave a detailed explanation of changes that have occurred since the 2022 valuation and stated that if the same discount rate were used today, then the funding level would actually be lower than that reported at the 2022 valuation, due to lower asset values. 3. A Member asked to see a breakdown in future reports regarding economic sector exposure. The Head of Investment & Stewardship stated that sector data was available for each manager but that there would be a problem combining for the whole fund because of the different mandates and different benchmarks but would look at what it was practicable. 4. A Member asked about the negative cash flow to which Hymans responded with further information and an analysis of interest rates. 5. A Member mentioned that there hadn't been any new joiners from Surrey County Council recorded since June because of issues with Surrey County Council payroll and wondered what the implications were for those employees. Were they missing out on pension entitlements and benefits? The Head of Service Delivery explained the issues being experienced and the work being undertaken with Surrey payroll to resolve the matter. He assured the committee that all pension entitlements would be properly captured in the records.
Actions/ further information to be provided: Head of Investment & Stewardship to consider how best to provide economic sector exposure information.
Resolved: That the main findings of the report in relation to the Fund’s valuation and funding level, performance returns and asset allocation be noted.
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This report provides an update from the Fund Actuary on cash flow and the new pass-through policy relating to new admission bodies (specifically contractors) participating in the Fund.
Additional documents: Minutes: Speakers: Steve Scott, Hymans Neil Mason, LGPS Senior Officer
Key points raised during the discussion:
1. Hymans presented their report and focussed on the cash flow position - how that had changed since last year, as well as how things may change going forward. They focussed on the proposed new ‘pass-through’ approach for admitted bodies participating in the fund. 2. There were Member questions about the inflation figures and the LGPS Senior Officer reminded the committee that under normal circumstances a cash flow analysis would be done every three years in line with the triennial evaluation. However, the committee took the view last year due to the inflationary volatility, that this would be done annually until further notice. 3. Hymans explained the new pass-through policy and described in detail what this meant in terms of benefits and risks to the administering authority and other employers. In response to a Member question, it was confirmed there was no impact on members of the Scheme.
Actions/ further information to be provided: None.
Resolved:
1. That the Fund’s cashflow position be noted. 2. That the pass-through policy which includes the detail around the specific Surrey fund’s policy be approved.
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COMPANY ENGAGEMENT & VOTING
This report is a summary of various Environmental, Social & Governance (ESG) engagement and voting issues that the Surrey Pension Fund (the Fund), Local Authority Pension Fund Forum (LAPFF), Robeco, and Border to Coast Pensions Partnership (BCPP) have been involved in, for the attention of the Pension Fund Committee. Additional documents: Minutes: Speakers: Lloyd Whitworth, Head of Investment & Stewardship Neil Mason, LGPS Senior Officer Jane Firth, Border to Coast
Key points raised during the discussion:
1. The Head of Investment & Stewardship gave a brief summary of the report and highlighted the new chart that split out the engagement of the LAPFF by the SDG's, as well as SDG15 relating to life on land. He noted that LAPFF had made a first step in joining a nature action 100 group. 2. In response to a Member query the Head of Investment & Stewardship confirmed that the Fund had no exposure to UK water companies. That Member then went on to express caution in any future investment in water companies because of the environmental risks of dumping sewage. 3. A Member asked whether religious factors were relevant in engagement. The Head of Investment & Stewardship explained that it was neither fund management partners nor the LAPFF that carried out such engagement. He added that whilst we have historically been asked about Sharia law in terms of our Fund, there was no separate mandate on that basis. The LGPS Senior Officer added that the Scheme Advisory Board, being the overall governing body for the LGPS, had consulted with an Islamic cleric and, while we await formal advice, it was his understanding that the LGPS is classified as Sharia compliant. 4. A Member asked if Border to Coast would consider and evaluate their approach to managing and evaluating risk in light of climate and sustainability considerations which would be subject to quite considerable change over the next 5-10 years. He thought that any insurer that doesn't move with the times in this regard could easily to be caught out and landed with some quite significant liabilities. Jane Firth responded that the engagement described in the report was through LAPFF, but Robeco had separate engagements with financial companies. She was unable to say if there were any insurance companies included but there were some big banks and agreed that there was a regulatory risk, and she would pick this up with Robeco. Jane Firth also stated that she would find out from LAPFF if this work in this area was included in their engagement and, if not, would raise this as part of the annual input into their work plan. 5. There were queries and discussion around the engagement process and the Committee not being informed of results of engagement, particularly around investment managers, and therefore what was the point of including this in the RI Policy? Jane Firth confirmed that if engagements failed that the policy ultimately allowed for companies to go into an exclusion list.
Actions/ further information to be provided: Feedback from Border to Coast on engagement with insurance companies.
Resolved:
1. That the ESG Factors were reaffirmed as fundamental to the Fund’s approach, consistent with the RI Policy through: a) Continuing to enhance its own RI approach and SDG alignment. b) Acknowledging the outcomes achieved for quarter ended 30 September 2023 by LAPFF and ... view the full minutes text for item 79/23 |
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ASSET CLASS FOCUS - PRIVATE MARKETS
As part of good governance, the Committee periodically reviews the performance of the Fund’s investments. There is a further focused review of different asset classes each quarter. This quarter, the paper concentrates on private markets and the BCPP Listed Alternatives Fund. Additional documents: Minutes: Speakers: Lloyd Whitworth, Head of Investment & Stewardship Anthony Fletcher, Independent Advisor, MJ Hudson
Key points raised during the discussion:
1. The Head of Investment & Stewardship introduced the report explaining that the Fund had an extensive private markets programme with a target asset allocation of 20%. There was a range of legacy managers but all recent commitments over the last few years had been through Border to Coast and that continued to be the case. There was also a report on the BCPP Listed Alternatives Fund which sat well with the private markets report. 2. The Independent Advisor explained the Listed Alternatives report and stated that performance figures for investments of less than five years standing should not be used to form firm conclusions due to a number of factors. The returns of the Listed Alternatives Fund have been strongly impacted by increased interest rates and increased inflation over the last couple of years, so these assets had actually done quite poorly. 3. The Independent Advisor went on to explain in detail elements of the private markets update report. This contained information on the Private Markets investments with Border to Coast. It also covered the legacy investments Surrey has with various private markets managers. 4. A few Members requested a future report looking at alternative investments and specifically renewable green alternatives. 5. The Chairman reiterated that these were long term investments and there was a need to always be mindful of the cash flow situation when looking at longer term investments.
Actions/ further information to be provided: That the officers look at future reporting of renewables and green/alternative investments within the Private Markets asset class.
Resolved:
1. That the Fund’s private market holdings and commitments, respective funds’ investment performance and review from the Fund’s Independent Investment Adviser be noted. 2. That the Independent Investment Adviser’s report on BCPP Listed Alternatives be noted.
Both Robert Hughes and Trefor Hogg were absent from the meeting for a few minutes each for this item.
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RESPONSIBLE INVESTMENT UPDATE
The Fund’s Responsible Investment (RI) policy takes an ‘engagement with consequences’ approach to responsible investment issues. A key element of this approach is the escalation policy if issues persist. As this engagement is delegated to the investment managers, the Committee asked Border to Coast Pensions Partnership, BCPP, to present some case studies showing this process in action. Investment managers were also asked to provide data showing the underlying exposure to the largest fossil fuel companies and engagement approaches.
Additional documents: Minutes: Speakers: Lloyd Whitworth, Head of Investment & Stewardship Sandy Dickson & Jon Cross, Mercer Jane Firth, Border to Coast
Key points raised during the discussion:
1. The Head of Investment & Stewardship introduced the report by explaining the two parts contained therein. The first was in response to requests from the Committee to have a discussion on some engagement case studies, and the second was in response to the question about the Fund’s exposure to the 25 largest oil and gas companies globally. 2. Jane Firth highlighted the following elements of the report: 3. A Member questioned whether there was a need to re-evaluate whether it was fiducially responsible to be invested in any of these fossil fuel companies especially for the big 25 and whether it was time to acknowledge the fact that engagement was clearly not going to work in changing their approach and if so, to look at divestment. 4. A Member gave reasons for divestment from the fossil fuel companies as: 5. Steve Williams therefore proposed a motion to change the word ‘to note the underlying exposure’ in the second recommendation to read ‘to take steps to eliminate the underlying exposure to these assets classes’. This was seconded by George Potter. 6. A few Members spoke not supporting the motion and would prefer to make an informed and considered decision and therefore discuss in June 2024 in line with the review of the RI policy. 7. There was much discussion on this before George Potter made a further motion to retain recommendations one and two but to add a third to read ‘it is recommended that the committee ask officers to include as part of the RI Annual Review in June, an assessment of the implications and impact of the exclusion of investment in the largest 25 fossil fuel companies.’ ... view the full minutes text for item 81/23 |
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LGPS UPDATE (BACKGROUND PAPER)
This report considers recent developments in the Local Government Pension Scheme (LGPS).
Additional documents: Minutes: Speakers: Neil Mason, LGPS Senior Officer
Key points raised during the discussion: 1. The LGPS Senior Officer highlighted paragraph 21 of the report which referred to the Scheme Advisory Board which was providing advice on the use of surplus funding levels. The advice was clear at the moment that contributions should not be changed on the basis of market movements, including changes in the interest rate environment.
Actions/ further information to be provided: None.
Resolved: That the report be noted.
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To provide details of the response of the Department for Levelling Up, Housing & Communities (DLUHC) to its consultation on the Next Steps for Investments for the Local Government Pension Scheme (LGPS).
Additional documents: Minutes: Speakers: Neil Mason, LGPS Senior Officer
Key points raised during the discussion: 1. The LGPS Senior Officer highlighted several areas of the report including: 2. A Member asked about the governance arrangements for Border to Coast and what member representation there was. The Chairman responded that there was a representative of the Local Pension Boards on the Border to Coast Joint Committee. He also pointed out that as the pools got bigger, then the impact of each Administering Authority would become diluted. The LGPS Senior Officer stated that each Administering Authority was also represented on the Company’s Board. 3. A Member asked if the 5% would be mandated or was guidance. The LGPS Senior Officer explained that Government was proposing to clarify this in the Regulations, but the 5% was not mandated. However, if not compliant then this would need to be explained. He felt that the Joint Committee and Border to Coast were both well positioned in dealing with the Government request.
Actions/ further information to be provided: None.
Resolved: That the report and annex be noted.
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EXCLUSION OF THE PUBLIC
Recommendation: That under Section 100(A) of the Local Government Act 1972, the public be excluded from the meeting for the following items of business on the grounds that they involve the likely disclosure of exempt information under the relevant paragraphs of Part 1 of Schedule 12A of the Act. Additional documents: Minutes: Resolved: That under Section 100(A) of the Local Government Act 1972, the public be excluded from the meeting for the following items of business on the grounds that they involve the likely disclosure of exempt information under the relevant paragraphs of Part 1 of Schedule 12A of the Act.
PART TWO – IN PRIVATE |
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INVESTMENT MANAGER PERFORMANCE AND ASSET/LIABILITIES UPDATE
Part 2 Annexe for item 8 attached.
Minutes: Resolved:
That the Part 2 annex to item 9 on the agenda (Minute 77/23) be noted.
Trefor Hogg and Robert Hughes left the meeting at 1.50pm.
The Committee agreed to a change of order of the agenda.
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BORDER TO COAST UPDATE
This paper provides the Pension Fund Committee (Committee) with an update of current activity being undertaken by BCPP.
Minutes: Speakers: Neil Mason, LGPS Senior Officer Jane Firth and Milo Kerr, Border to Coast
Key points raised during the discussion: 1. The Committee considered a Part 2 report which gave an update of current activity being undertaken by the Border to Coast Pensions Partnership (BCPP). 2. Border to Coast highlighted the main changes to the Responsible Investment Policy including the introduction of sections on biodiversity and real estate as well as the broadening of exclusions to include things such as controversial weapons. 3. Steve Williams proposed an amendment to recommendation 1. - for the Committee to ‘note’ rather than ‘support’ as he did not agree with the statement in the policy that Border to Coast would not divest from companies principally on social, ethical or environmental reasons. This was seconded by George Potter. Following a discussion, a vote was taken and, with the Chair using his casting vote, the motion was lost.
Actions/ further information to be provided: None
Resolved:
1.That the revised BCPP Responsible Investment (RI) Policy 2024, Climate Policy 2024 and Corporate Governance & Voting Guidelines 2024, subject to the continuing work between the Fund and BCPP to align their approaches consistent with the Fund’s standalone RI Policy was supported.
2.That compliance with the “necessary conditions” of governance for the BCPP Global Real Estate investment proposition and that a commitment consistent with the Surrey Pension Fund target asset allocation (c£96m) to global real estate can commence was noted.
3.That the background and progress of BCPP activity, including details of the following be noted: a) Relevant items from the BCPP Joint Committee (JC) meeting of 28 November 2023. b) The schedule of activity of BCPP since the last Committee meeting of 8 September 2023 until the end of the calendar year.
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COMPETITION & MARKETS AUTHORITY (CMA) INVESTMENT CONSULTANT STRATEGIC OBJECTIVES
Local Government Pension Schemes (LGPS) are required to set strategic objectives for their Investment Consultant (IC) Provider and monitor performance against these objectives. Minutes: Speakers: Lloyd Whitworth, Head of Investment & Stewardship Neil Mason, LGPS Senior Officer Anthony Fletcher, Independent Advisor, MJ Hudson
Key points raised during the discussion: 1. The Head of Investment & Stewardship introduced the submitted Part 2 report and the Committee discussed in detail the issues raised earlier in the meeting regarding Derbyshire and Cheshire and the risks around that. 2. It was reiterated that the Committee were just being asked to note the compliance as there was a call to defer decision. 3. The Independent Advisor read a statement shared by the Head of Pensions at Derbyshire. 4. The Committee acknowledged that further information could come in future reports to assess engagement with the Investment Consultant. In the light of this the recommendations were approved.
Actions/ further information to be provided: None
Resolved:
1. That compliance of the Investment Consultant provider for 2023 against the Fund’s Strategic Objectives for Investment Consultants, as approved in December 2021, be noted. 2. That the submission of the Competition and Markets Authority Compliance Statement and Certificate for 2023 be approved.
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PUBLICITY OF PART 2 ITEMS
To consider whether the item considered under Part 2 of the agenda should be made available to the Press and public. Additional documents: Minutes: Resolved: That items considered under Part 2 of the agenda should not be made available to the Press and public.
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DATE OF NEXT MEETING
The next meeting of the Surrey Pension Fund Committee will be on 22 March 2024. Additional documents: Minutes: The next meeting of the Surrey Pension Fund Committee will be on 22 March 2024.
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