Lancashire County Pension Fund (LCPF)
Responsible Investment Policy
This policy defines the commitment of Lancashire County Pension Fund (the Fund)
to responsible investment (RI). Its purpose is to detail the approach that the Fund
aims to follow in integrating environmental, social and governance (ESG) issues into
its investments. This is consistent with the LGPS Management and Investment of
Funds Regulations (2016) and the Fund’s fiduciary duty to act in the best long-term
interest of our members. The Policy reflects the Fund's Investment Strategy
Statement and our approach to complying with the UK Stewardship Code. 2.
Responsible Investment Values and Principles
The Fund's values and principles reflect the need to deliver sustainable investment
returns in order to pay pension benefits. They recognise the importance of assessing
sources of risk and opportunity over an extended time horizon and emphasise the
importance of diligent stewardship as part of engaged asset ownership. Responsible Investment Values:
The Fund's RI priorities are a reflection of the views of its
members (through consultation with the Local Pension Board),
and of evolving best practice within the pension arena.
A proactive approach to evaluating ESG risks and opportunities
is more likely to result in long term benefits for the Fund and is
aligned with fulfilling our fiduciary duty.
The Fund considers engagement to be a route for exerting a
positive influence over investee companies and encouraging
responsible corporate behaviour.
We will be supportive of targeted dialogue in situations where
positive changes can be brought about to align governance
standards with our investment needs.
The Fund recognises that working collaboratively can achieve
greater influence than acting unilaterally. The Fund seeks to
align itself with likeminded investors through collective
organisations such as the Local Authority Pension Fund Forum
(LAPFF) of which the Fund is a member.
The Fund considers that its RI policy and approach should be
reviewed regularly in order to continue recognising and
reflecting best practice and addressing emerging priorities.
Responsible Investment Principles
The Fund's RI principles translate our values and commitments into responsible
investment practices which can help to deliver a sustainable and sufficient return on
all our investments. Our RI principles inform the stewardship arrangements we have
agreed with the Local Pensions Partnership as our provider of pension
administration and investment management services.
A summary of the key Responsible Investment principles:
Effective management of financially material ESG risks will support the Fund's
requirement to protect returns over the long term;
Apply a robust approach to effective stewardship;
Seek sustainable returns from well governed and sustainable assets;
Responsible investment is core in our skills, knowledge and advice;
Seek to innovate, demonstrate and promote RI leadership and Environmental,
Social and Governance (ESG) best practice;
Achieve improvements in ESG through effective partnerships that have robust
Share ideas and best practice to achieve wider and more valuable RI and ESG
The implementation of LCPF's RI policy is through the activities of Local Pension
Partnership Investments Ltd (LPPI) an FCA regulated Investment Manager
responsible for 100% of the Fund’s assets which are managed within pooled
Identifying core priorities for RI is an important part of focussing the attention of LPP
I on the issues of greatest importance to us. It also helps us to monitor the
stewardship activities they undertake on our behalf. The issues we have identified as
being of primary concern to us as asset owners are:
Climate change – engaging with pension funds and other stakeholders to develop
and share best practice, recognising and managing the risks and opportunities
investments face from climate change;
Corporate Governance – promoting the case for well managed companies which
implement fair and just employment practices and address excessive corporate
The above mentioned are our main priorities. However there are a number of other
RI issues which are of interest to the Fund and will be subject to review, including:
Ethical practices regarding off shore investments and tax havens;
Companies with a proven record of supporting the Living Wage;
Encouraging investment pan Lancashire;
Reducing investments in products such as plastics, tobacco and alcohol.
LCPF recognise the imperative to address climate change as a systemic and long-
term investment concern for the Fund, as it poses material risks across all asset
classes with the potential for loss of shareholder value including
via stranded assets.
The Fund will endeavour to carry out the following:
Where existing investments in fossil fuel companies are in place and identified, we
expect those companies to be able to demonstrate planning for the global
transition to a low-carbon economy and for the future emissions reduction targets
under the Paris Agreement or other appropriate initiatives. Where they are not,
and opportunities for engagement and reform of the company or project are not
possible or do not exist, the Fund will make all reasonable efforts to divest
provided that this will result in no material financial detriment (either through
increased costs or increased investment risk).
Where our fiduciary duty allows, the Fund will not consider new active investments
in fossil fuel companies directly engaged in the extraction of coal, oil and natural
gas as sources of energy which are ignoring the risks of climate change.
LCPF expects LPP to take steps to ensure that the level of exposure to climate
change investment risks are evaluated and monitored. This will involve the use of
appropriate investigative and analytical tools such as the Transition Pathway
Initiative to increase information and provide appropriate input around investment
decision making and will be reflected in regular reporting and assurance provided to
LCPF. Corporate Governance
The Fund will, through our asset managers, promote high standards of employment
practice and reasonable and equitable pay differentials for employees. This will be
done through actively seeking companies who demonstrate such practices and
engaging effectively to encourage these standards within existing investee
LPP I is a named supporter of the Workforce Disclosure Initiative, a project which
aims to "bring institutional investors together behind a call for comparable workforce
reporting by publicly listed companies on their global operations and supply chains". 4.
Responsible Investment Implementation
The implementation of the Fund’s approach to Responsible Investment divides into
the following five areas of activity.
The Fund recognise that effective stewardship arrangements protect the financial
interest of scheme beneficiaries and contributes to enhancing the value of the Fund's
investments. All aspects of shareholder voting is a fundamental part of the Fund
compliance with the UK Stewardship Code.
The Fund's stewardship actions are implemented as an integral part of the
investment management services LCPF receives from Local Pensions Partnership
(LPP). The Fund's entire investment portfolio is under management by Local
Pensions Partnership Investments Ltd (LPP I), a subsidiary of LPP and an FCA
authorised investment manager.
All aspects of shareholder voting are carried out in line with the LPP I 'Shareholder
Voting Policy' which can be viewed at https://www.localpensionspartnership.org.uk/Admin/Public/DWSDownload.aspx?File
The policy covers areas including voting arrangements, 'reporting and disclosures'
and voting philosophy.
The responsible investment priority areas identified by the Fund for voting purposes
Action on Climate Change;
Strong corporate governance, with particular emphasis on reducing pay
Improving Employment Practices.
Engagement through Partnerships.
The Fund’s second approach involves working in partnership with like-minded
bodies. The Fund recognises that to gain the attention of companies in addressing
governance concerns, it needs to join other investors with similar concerns and it
does this through the Local Authority Pension Fund Forum (LAPFF) and joining
appropriate lobbying activities.
In terms of its engagement approach with other investors, it is most significant
through LAPFF. This Forum exists to promote the investment interests of local
authority pension funds, and to maximise their influence as shareholders to promote
corporate social responsibility and high standards of corporate governance among
the companies in which they invest. See the LAPFF website for further details: www.lapfforum.org
LCPF are members of LAPFF and as such representatives of the Fund attend and
contribute to the quarterly business meetings.
The third approach, adopted by the Fund in order to encourage corporate
management to behave responsibly and honestly, is through shareholder litigation.
The Fund has agreed arrangements with LPPI which ensure emerging legal cases
are monitored and the Funds rights and interests are represented via class actions
and other shareholder actions globally where possible and where appropriate. d)
LCPF do not invest directly but, on behalf of the Fund, LPP I actively seeks
sustainable investments which meet LCPF’s requirements for strong returns
combined with best practice in ESG and corporate governance. Such investments
include renewable and clean energy, and affordable housing.
As part of its commitment to Active Ownership LPP I seeks to use the ownership
rights conveyed by the assets under its management to exert a positive influence in
favour of transparent and sustainable management behaviour which recognises and
addresses the broader trends which bring both risks and opportunities to their
The Fund may at its discretion prefer to divest from a sector due to RI
considerations, provided that this would not result in any material financial detriment
(either through increased costs or increased investment risks).
The integration of environmental, social and corporate
governance (ESG) considerations into investment management
processes and active ownership practices in the belief that these
factors can have an impact on financial performance.
Environmental, social and governance factors which may impact
on company performance and therefore investment returns.
Examples include resource management and pollution
prevention, climate change impacts, labour management,
product integrity, executive compensation, board independence
and audit function.
The process and principles by which a company or organisation
undertakes its business. For LCPF, governance includes how it
undertakes both its operational and investment responsibilities
on behalf of its members.
Refers to the responsibility of LCPF to participate, where
appropriate, in the governance decision-making of companies in
which it invests by way of voting and by engagement with
company management, either directly or via its fund managers.
It also recognizes the relevance of engaging with regulatory
bodies and other market players to support policies that promote
long-term sustainable growth.