The Committee received an information report from the Avon Pension Fund (APF) for the financial year 2020/21 and took account of the comments made during the public forum process and separate input from an investment officer of the Avon Pension Fund resulting from questions raised by the Chair of the HR Committee. It was also noted that investment officers were invited to attend today’s meeting, but the invitation had been declined due to resource issues. The chair noted his disappointment as BCC was the largest employer in the APF.
The questions and answers raised between the Chair and the investment officer are as set out below –
1. Please could you confirm that Avon Pension fund no longer has investments in companies directly promoting the use of fossil fuels (shell, BP etc). If we still do, please give details
The Fund does not have a policy to divest from the oil and gas sector. However, through our asset allocation and the portfolio construction process (undertaken by Brunel), our exposure is very small. The Fund analyses its fossil fuel exposure by identifying companies that derive some proportion of revenues from either fossil fuel extraction and/or power generated from fossil fuel consumption. This ensures we capture our fossil fuel exposure to the fullest extent possible. The value of holdings, per this definition, equates to 3.4% of the Funds listed equity portfolio and 1.4% of total Fund assets (as at Dec 2021). The majority of the companies contributing to this fossil fuel exposure are in the “solutions camp”. The renewable energy company Orsted, for example, still derive 2% of revenues from legacy FF assets. As such removing companies with revenues attached to fossil fuels in the Fund’s case would mean withdrawing support for companies that are critical to the transition.
We have also sought to respond to your question directly by quantifying Fund exposure to the top 5 developed market oil & gas companies (Total, Chevron, BP, Shell and Exxon). The value of holdings across these 5 companies is £4.1m (as at Dec 2021) which equates to 0.2% of the Funds listed equity portfolio and 0.07% of total assets. These companies are held as part of a passive index tracker fund which is used for collateral purposes and is designed to support our wider risk management strategies in the event collateral is required. At present, the suite of products available to use for collateral purposes is limited and selectively divesting from individual stocks in passive products remains challenging. Alongside Brunel, the Fund is actively exploring sustainable alternatives to use in place of this passive index tracker as well as analysing the effectiveness of the engagement activity undertaken over the last 2-3 years, where it has failed and which companies will become candidates for selective divestment.
2. Similarly, can you give the same details for investments in companies that indirectly promote the use of fossil fuels (eg car manufacturers).
This is far harder to quantify as fossil fuels are embedded, to varying degrees, in the supply chains of most sectors. The challenge with singling out a single industry such as auto manufacturers is that it captures companies that have allocated significant capital to transition technology (in this case the manufacture of electric vehicles and EV infrastructure) as well as companies which proactively seek to reduce the reliance on fossil fuels, such as Tesla. This supports the view that engagement on a case-by-case basis is more effective than wholesale divestment. The Fund’s overarching climate change objectives mean the Fund has a natural tilt toward low carbon sectors such as technology and is underweight in carbon intensive sectors such as energy, utilities, and industrials.
3. Steve Pearce reported at full council that the pension fund had either completed or was in the process of divesting from Russian investment. Can we get an update on this please?
The situation is unchanged. Our holdings in Russian assets were very limited at £135k or 0.002% of total assets and were either sold down (where possible due to the sanctions) or have been written down to zero.
4. In these uncertain economic times, what is the current risk analysis of the pension fund that might affect members future pensions or expose authorities to risk of the fund not being able to support members pensions?
The Fund has governance arrangements in place to monitor the investment strategy and identify emerging risks. The Committee reviews the strategy formally at least every 3 years in line with the valuation cycle, with a review taking place this financial year. The objective of the valuation is to ensure the Fund can pay the benefits and to keep the cost affordable for employers. The main risk we currently face is that of rising inflation as the benefits are indexed to inflation and the investment review will analyse how best this risk can mitigated through our investment strategy. The Fund already has comprehensive risk management strategies in place which partially protects against rising inflation and protects against significant falls in equity markets. In addition, we meet the UAs as part of our valuation process to understand their affordability and funding pressures and build this into the funding plan.
5. In our trade union pre meeting a recently retired member reported it took several months for them to get paid. He was fine but others may not be. Could you address how this can be speeded up?
All retirements are treated as critical processing cases. The Fund administration operates together with individual employers under a joint Service Level Agreement with agreed timescales for delivery. APF task processing and performance is reported to the Local Pension Board and Pensions Committee on a quarterly basis for review. The latest report indicates that 90.2% of 317 cases measured were processed and paid within the agreed KPI benchmark of 15 working days of the Fund having received all the necessary information to proceed. Regular performance review meetings are held with individual employers to identify any issues where cases have been delayed. Members with an active In-House AVC arrangement may be unavoidably delayed due to the timeframe to disinvest the AVC arrangement following the member retirement.
Key points raised during the subsequent debate were –
1. A suggestion made during public forum was that BCC employees could be consulted about whether they wished to see the APF disinvest in Carbon producing companies. Trade Union representative made the point that there was a risk that a comprehensive employee poll regarding investment in fossil fuel companies might not result in support for divestment.
2. An alternative option that could be considered to progress this was to involve the HR Directorate liaising with the TU side via the Trade Union Consultative Committee to initiate a poll with its members.
3. Whilst some members were supportive of disinvestment an alternative view put forward was that divestment was not a binary issue, and that pursuance of this policy could result in unintended outcomes. This was largely due to fossil fuel companies making significant investment in renewable sources of energy and withdrawal of pension fund investments with these companies could result in a negative impact on future growth of the renewable energy sector. A further reason to not divest was to ensure that the pension fund obtained the best financial returns for its members which was its primary purpose.
4. It was Noted that investment strategy in the pension fund was not part of the HR Committee’s remit.
5. Support for a poll of BCC employees was discussed considered but it was acknowledged that that the employers were members of the pension fund too and would have their view own on any changes to the pension fund’s investment strategy.
6. Members noted that the amount of investment made by the pension fund in Russian companies was very small and welcomed that procedures were already in place to divest from further Russian investment.