Agenda item

To receive a report from the Deputy Chief Executive and Director of Corporate Operations providing information regarding the Pension Fund’s investment managers’ stewardship of the Pension Fund’s assets.

The Sub-Committee received a report from the Deputy Chief Executive and Director of Corporate Operations providing information regarding the Pension Fund’s investment managers’ stewardship of the Pension Fund’s assets.

Members noted that the appendices to the report highlighted how investment managers had exercised their voting rights during the period July to December 2023, with appendix 1 demonstrating where fund managers votes had varied. Members noted the significant number of instances where voting had differed, and heard in response that this was a matter both regularly monitored and currently under discussion with ACCESS.

It was further noted that the report introduced the Annual Stewardship Code compliance report, which was an annual requirement of the Pension Fund’s membership of the UK Stewardship Code. Through the compliance report the Council had sought to demonstrate how the Pension Fund had met the Financial Reporting Council’s (FRC) rigorous compliance standards and to demonstrate the outcome of changes made since feedback was received on the previous year’s compliance report. 

It was heard that ACCESS was not a stewardship code signatory at the time of the meeting, but was in the process of writing its application and once submitted would need to undertake work to develop its own compliance policies. It was further noted that PIRC had been appointed to provide support in progressing ACCESS’s responsible investment approach.

In response to Members questions it was heard that:

·         An alternative approach to delegating shareholding voting to investment managers would be to consider the use of a third party proxy voting service, such as PIRC. It was agreed that the level of inconstancy in voting between investment managers was not a particularly satisfactory position. Officers explained that there had not been a strategic pattern of difference between votes cast, however that through this cycle of reporting an increase in the level of votes cast in different directions had been noted and that this was being closely monitored and further conversation would be undertaken with investment managers as needed and a report brought back at the next meeting of the Sub Committee on progress in this matter.

The Chairman invited Cllr Crawford to share his observations on the report, through which it was heard that:

·         Whilst any alignment in the climate change principles of the County Council and the Pension Fund would be beneficial, this should not be a strategic aim as the Fund would be approaching the matter from its own perspective of the management of the Fund to pay pension obligations.

·         The decision to amend to the Panel and Board’s investment strategies to target over 30% of the Fund’s alternative investments to sustainable and impact investments by 2025/26 was taken by the Panel and Board in September 2023, following work with three investment members to understand how much they could change their investment portfolio by 2026, whilst maintaining a diversified portfolio. It was noted that this had represented a significant increase in sustainable investments compared with the previous approach.

Cllr Davies joined the meeting at this point.

·         It was agreed that further information within the report regarding the portfolio ESG assessments, as shown on page 30 of the report, would be beneficial in helping scheme members understand what the data was demonstrating.

It was heard the compliance report would be published on the County Council’s website, as per the FRC requirement.

RESOLVED:

• That the Pension Fund Responsible Investment Sub-Committee notes the Fund’s annual compliance report with the UK Stewardship Code, which will be submitted to the Financial Reporting Council (FRC) for Hampshire to reapply for membership of the Code.

• That the Pension Fund Responsible Investment Sub-Committee notes how the Pension Fund’s investment managers have voted in the Fund’s portfolios and engaged with the management of these companies as highlighted in this report and reported in the Fund’s Stewardship Code update report attached to this report.