Agenda item

1.            Catrina Arbuckle (Director, Mercer Ltd) introduced the set of slides which had been published as part of the agenda. She advised the committee that it was being asked to review the Fund’s Responsible Investment policy and if they wished to change it.

2.            Ms Arbuckle highlighted the importance of stewardship and the need to be proactive in checking that fund managers were taking full account of ESG issues in their investment decisions. The Scheme Advisory Board was also currently consulting on its responsible investment guidance, which would be more prescriptive in future.

3.            Ms Arbuckle advised that Kent was ahead of the curve as it had a Statement of Responsible Ownership (SRO) and was a signatory to the UN principles for responsible investment (UNPRI). It would be able to evidence its approach, for example if asked to as part of a Freedom of Information request. She also advised that Mercer were able to prepare carbon footprints for each of the Fund’s investment managers if required. 

4.            Members made the following comments:-

a)    the Kent Fund already followed good practice with its approach to ESG and RI but would need to be able to demonstrate publicly what it did and how, for example, it measured its individual investment managers’ performance in terms of ESG and RI.  It would help if there were accreditations which could be applied to individual investment managers to reassure the public of their ESG credentials. Ms Arbuckle advised that there was no universal system although Mercer had its own rating scale, from ESG1 to ESG4;

b)    although most attention was usually given to the Environmental part of ESG, all elements were equally important in showing the whole picture. Good governance was particularly important;

c)    to avoid any accusation of ‘tokenism’, the committee would need to develop a good understanding of ESG issues so it would be well placed to question investment managers and make sound judgements on their investment decisions;

d)    the government was moving to introduce a requirement in the Mandatory Disclosure Regulations 2020 (due to take effect on 1 July 2020) that fund managers disclose the total expense ratio (TER).  The Brydon independent review of the quality and effectiveness of auditors would also add to the governance requirements;

e)    pension funds needed to achieve a balance between embracing ethical investment and maximising the return on investment to benefit pensioners;

f)     investment managers should be given a checklist of ESG requirements and could be sent a standard set of questions about their ESG credentials before attending to present to the committee; and

g)    Ms Arbuckle suggested that the Fund’s RI policy could take account of Mercer’s ratings and Members may want for example, to resolve not to invest in any company scoring lower than ESG3.

5.            Ms Arbuckle proposed that the Fund write to all its investment managers asking how they planned to respond to the updated stewardship code. The committee could then make it known that it would favour those companies who showed the best awareness of the code and had a plan of how to respond to it.  

6.            The Chairman summed up the actions agreed as follows:-

a)      the SRO be updated to express more clearly the Fund’s policy on Responsible Investing and the importance of RI; and

b)      a press release be prepared by the Council’s press office to show how the Pension Fund was engaging with ESG issues, and the text of this would be shared with the committee for comments.

7.            It was RESOLVED that:-

a)     the Statement of Responsible Ownership be updated to express more clearly the Fund’s policy on Responsible Investing.  A draft policy will be prepared and presented at the next committee;

b)     the policy make clear the importance of Environmental, Social and Governance issues and Responsible Investment;

c)     a press release be prepared with the County Council’s press office to show the public how the Kent Pension Fund was engaging with Environmental, Social and Governance issues, and the text of this be shared with the committee for comments; and

d)     officers follow up with Mercer to find out more information about the carbon footprint reporting they could provide and report back to Committee.