Carbon Bubble Risk, Pension Fund Fiduciary Duty & Risks To Local Taxpayers Through LGPS Underfunding and Exposure to Investment Losses in Defined Benefit Schemes

Yn disgwyl am adolygiad mewnol gan East Sussex County Council o'u triniaeth o'r cais hwn.

Dear East Sussex County Council,

The Bank of England, HSBC, Citi Bank, Mercers, and the World Bank are clear that climate change is a major and growing financial issue. Bank of England Governor Mark Carney has said that climate change poses physical, liability and transition risks, which are all increasing.

Therefore, carbon bubble risk is now a clear material financial risk, and it is in the best interests of pension fund members to have regard to and actively manage, financial risks posed by climate change.

Additionally, as the individual ensuring compliance with SIP documents and signing off on the pension fund annual accounts, the s151 officer has a fiduciary duty to local taxpayers - who would ultimately be required to bail out the defined benefit LGPS fund, in the event of significant losses suffered in carbon markets, should the LGPS fund not manage carbon risk prudently.

We are therefore requesting the Pension Fund/ Committee/ Board would provide information or set out the appropriate response of the fund to the following questions:

(1) Please provide the two most recent versions of the Statement of Investment Principles (SIP)
(2) Will the fund be reviewing its SIP documents to pursue best practice and review carbon risk management and investment mandates in advance of LGPS pooling? If so when?
(3) Please provide current contract and procurement documents for the Investment Adviser(s) to the Pension Fund Committee.
(4) Please provide current procurement and contract documentation for the external fund manager(s) as set out in investment management agreements.
(5) Please provide a list of compliance breaches identified by the Head of Finance/ s.151 officer and brought to the attention of the Pension Fund Committee, during the last three (3) financial years.
(6) What steps have the Pension Fund Committee and Board taken to address the financial risks posed by climate change?
(7) Since the December 2015 Paris COP agreement, Peabody bankruptcy, and Exxon Mobil downgrade, has the pension fund changed its approach to climate change risk management and investment in carbon stocks?
(8) Please provide Pension Fund Committee and Board meeting minutes where climate change, and carbon bubble investment risk was discussed, and minuted 2014 - 2016.
(9) Have you surveyed or formally consulted with your individual members or employers for their views on your ESG policies or practices in the last 10 years?
(10) How much does the fund spend on ESG engagement services and can you give any examples of engagement activities relating to climate change/carbon risk from the last 10 years?

We are asking these questions to understand how/ if UK local authority pensions funds fiduciary duties are being met in regard to climate change related financial risks - and to appraise financial risks to taxpayers in situations where fiduciary duty to manage carbon investment risk has been breached.

Yours faithfully,

Joel M Benjamin

Freedom of Information, East Sussex County Council

 

 

Dear Mr Benjamin

 

FOI Request ref:  8012 / East Sussex Pension Fund - Climate Change and
Carbon Risk

 

Thank you for your request for information about the above. Your request
was received on 08/11/2016 and I am dealing with it under the terms of the
Freedom of Information Act 2000.

We always aim to respond as quickly as possible, and in this case will do
so no later than 06/12/2016, as this the 20 working day deadline. The
deadline is counted from the first working day we receive it, not the date
a letter is written / posted or an email sent.

In some circumstances a fee may be payable and if that is the case, I will
let you know. A fees notice will be issued to you, and you will be
required to pay before we proceed in dealing with your request.

Please quote the above reference number in any communication regarding
this request.

 

Yours sincerely

 

 

 

Samantha Spence

Customer Information Advisor

 

East Sussex County Council

Communities Economy and Transport Directorate

W1D, County Hall

St Anne’s Crescent

Lewes

East Sussex BN7 1UE

 

Phone: 01273 482913

email: [1][East Sussex County Council request email]   web: [2]www.eastsussex.gov.uk/foi

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Freedom of Information, East Sussex County Council

1 Atodiad

 

 

Dear Mr Benjamin

 

FOI Request ref:  8012 / East Sussex Pension Fund - Climate Change and
Carbon Risk

 

Thank you for your request for information about the above, which has been
dealt with under the terms of the Freedom of Information Act 2000. Your
request and our response are set out below. Please note that any
information we provide is subject to the copyright and reuse of
information terms and conditions set out at the bottom of this email.

 

REQUEST

 

The Bank of England, HSBC, Citi Bank, Mercers, and the World Bank are
clear that climate change is a major and growing financial issue. Bank of
England Governor Mark Carney has said that climate change poses physical,
liability and transition risks, which are all increasing.

 

Therefore, carbon bubble risk is now a clear material financial risk, and
it is in the best interests of pension fund members to have regard to and
actively manage, financial risks posed by climate change.

 

Additionally, as the individual ensuring compliance with SIP documents and
signing off on the pension fund annual accounts, the s151 officer has a
fiduciary duty to local taxpayers - who would ultimately be required to
bail out the defined benefit LGPS fund, in the event of significant losses
suffered in carbon markets, should the LGPS fund not manage carbon risk
prudently.

 

We are therefore requesting the Pension Fund/ Committee/ Board would
provide information or set out the appropriate response of the fund to the
following questions:

 

(1) Please provide the two most recent versions of the Statement of
Investment Principles (SIP)

(2) Will the fund be reviewing its SIP documents to pursue best practice
and review carbon risk management and investment mandates in advance of
LGPS pooling? If so when?

(3) Please provide current contract and procurement documents for the
Investment Adviser(s) to the Pension Fund Committee.

(4) Please provide current procurement and contract documentation for the
external fund manager(s) as set out in investment management agreements.

(5) Please provide a list of compliance breaches identified by the Head of
Finance/ s.151 officer and brought to the attention of the Pension Fund
Committee, during the last three (3) financial years.

(6) What steps have the Pension Fund Committee and Board taken to address
the financial risks posed by climate change?

(7) Since the December 2015 Paris COP agreement, Peabody bankruptcy, and
Exxon Mobil downgrade, has the pension fund changed its approach to
climate change risk management and investment in carbon stocks?

(8) Please provide Pension Fund Committee and Board meeting minutes where
climate change, and carbon bubble investment risk was discussed, and
minuted 2014 - 2016.

(9) Have you surveyed or formally consulted with your individual members
or employers for their views on your ESG policies or practices in the last
10 years?

(10) How much does the fund spend on ESG engagement services and can you
give any examples of engagement activities relating to climate
change/carbon risk from the last 10 years?

 

We are asking these questions to understand how/ if UK local authority
pensions funds fiduciary duties are being met in regard to climate change
related financial risks - and to appraise financial risks to taxpayers in
situations where fiduciary duty to manage carbon investment risk has been
breached.

 

RESPONSE

 

Section 21 Freedom of Information Act provides that where information is
resonably accessible to the applicant elsewhere then then the duty to
provide it upon request is removed

 

(1) The most recent SIP is available on our website here
[1]https://www.eastsussex.gov.uk/jobs/benef...
and I have attached the 2015 version.

 

(2) The East Sussex Pension Committee reviewed their SIP annually the
latest review was in September 2016. However the SIP has been superseded
by the Investment Strategy Statement, this is currently being reviewed and
will be presented to committee to be in place for the 1 April 2017

 

(3) The Council can confirm that it holds additional information but we
have concluded that it is commercially sensitive within the meaning of
Section 43(2) Freedom of Information Act and therefore is exempt from
disclosure. We have considered the public interest here and we have
concluded that it remains in the public interest to maintain the exemption

 

(4) The Council can confirm that it holds additional information but we
have concluded that it is commercially sensitive within the meaning of
Section 43(2) Freedom of Information Act and therefore is exempt from
disclosure. We have considered the public interest here and we have
concluded that it remains in the public interest to maintain the exemption

 

(5) Please see the reports provided to the Pension Committee in the past
three years.
[2]https://democracy.eastsussex.gov.uk/docu...
and
[3]https://democracy.eastsussex.gov.uk/docu...

 

(6) Please see the following links to the East Sussex Pension Committee
papers
[4]https://democracy.eastsussex.gov.uk/ieLi...
and the East Sussex Pension Board papers
[5]https://democracy.eastsussex.gov.uk/ieLi....

 

(7) The investment managers appointed by the East Sussex Pension Committee
are responsible for the selection and de-selection of individual
securities within the portfolios they manage. The investment managers are
encouraged to engage in constructive dialogue on behalf of the fund and
use their influence to encourage companies to adopt best practice in key
areas.

 

8) Please see the following links to the East Sussex Pension Committee
papers
[6]https://democracy.eastsussex.gov.uk/ieLi...
and the East Sussex Pension Board papers
[7]https://democracy.eastsussex.gov.uk/ieLi...

 

(9) The East Sussex Pension Board has both employer and employee
representatives and have sight of all the East Sussex Pension Committee
papers to review and comment on.

 

(10) The East Sussex Pension Fund is a member of the Local Authority
Pension Fund Forum and pays an annual subscription fee of £8k. For details
on their engagement activities please see their website via the following
link  [8]http://www.lapfforum.org/.

 

 

 

 

I hope that this answers your enquiry. If you believe that the County
Council has not complied with the FOI Act in responding to your request,
you may ask for an internal review. If you wish to do so, please set out
the grounds of your appeal in writing to:

 

Philip Baker, Assistant Chief Executive, East Sussex County Council,
County Hall, St Anne’s Crescent, Lewes, East Sussex. BN7 1UE.

or by email to him at [9][email address]

 

Please quote the FOI reference number in any communication regarding this
particular request.

 

If you are not content with the outcome of the internal review, you then
have the right to apply directly to the Information Commissioner for a
decision. Generally, the Information Commissioner cannot make a decision
unless you have exhausted the County Council’s internal review procedure
as described in the previous paragraph. The Commissioner can be contacted
at: Information Commissioner's Office, Wycliffe House, Water Lane,
Wilmslow, Cheshire, SK9 5AF. Tel: 0303 123 1113.  [10]www.ico.org.uk

 

Yours sincerely

 

Jeremy Coleman

Customer Information Officer

 

East Sussex County Council

Communities, Economy and Transport

W1D, County Hall

St Anne’s Crescent

Lewes

East Sussex BN7 1UE

 

Phone: 01273 482913
Fax: 01273 481208

email: [11][East Sussex County Council request email]   web: [12]www.eastsussex.gov.uk/foi

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email 

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e-mail and any attachments are virus free, we can take no responsibility
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appropriate checks are made.

You can visit our website at http://www.eastsussex.gov.uk

References

Visible links
1. https://www.eastsussex.gov.uk/jobs/benef...
2. https://democracy.eastsussex.gov.uk/docu...
3. https://democracy.eastsussex.gov.uk/docu...
4. https://democracy.eastsussex.gov.uk/ieLi...
5. https://democracy.eastsussex.gov.uk/ieLi...
6. https://democracy.eastsussex.gov.uk/ieLi...
7. https://democracy.eastsussex.gov.uk/ieLi...
8. http://www.lapfforum.org/
9. mailto:[email address]
mailto:[email address]
10. http://www.ico.org.uk/
11. mailto:[East Sussex County Council request email]
12. http://www.eastsussex.gov.uk/foi

Dear East Sussex County Council,

Please pass this on to the person who conducts Freedom of Information reviews.

I am writing to request an internal review of East Sussex County Council's handling of my FOI request 'Carbon Bubble Risk, Pension Fund Fiduciary Duty & Risks To Local Taxpayers Through LGPS Underfunding and Exposure to Investment Losses in Defined Benefit Schemes'.

With regard to refusal of Q3 and Q4:

(3) Please provide current contract and procurement documents for the Investment Adviser(s) to the Pension Fund Committee.
(4) Please provide current procurement and contract documentation for the external fund manager(s) as set out in investment management agreements.

Council has witheld both contract procurement/ brief documents AND the respective contracts citing section 43 (commercial sensitivty) despite the fact that the procurement brief/ framework documents are publicly tendered?

It is widely acknowledged and understood that individuals, businesses and corporations signing contracts with public authorities do so on the basis that such documents are subject to public srutiny, and may be requested by FOIA.

Employees of the council similarly understand that they are serving the public, and their decisions with regard to the use of public funds will be subjected to scrutiny, and can not reasonably be expected to be private, especially at senior management levels.

Despite this knowledge, a creeping practice of commercial secrecy has emerged throughout the public sector, culminating in the use of non-disclosure/ gag clauses in contracts - including contracts signed between public authorities and pension fund managers https://www.ft.com/content/94524a60-5b96...

Such agreements are designed to protect oversize corporate profits and shield the pervasive use of rip-off fees and charges observed throughout the fund management industry, and no public authority acting in the public interest has any business in signing such contracts.

Turning to section 43(2)

The reasons cited by the council justifying non-disclosure relate to the financial health of firms transacting with the council, and b) the ability of the council to engage in competitive tender.

This is despite the known fact that failure to benchmark LGPS fund management fees has resulted in some LGPS funds paying 3-4x more in fees than their peers for the same returns and levels of service, precisely because their fund managers fee structures are not pubicly disclosed and are not transparent - meaning that councils are prevented from undertaking effective benchmarking and obtaining best value.

This raises legitmitate public interest questions regarding whose interests the local authority actually serves. Both LGPS members, and the taxpaying public lose out when fund managers over charge on fees, and it is only the corporate actors in the City who benefit.

On balance, the risks to the taxpayer accruing through overcharging and resulting underfunding of LGPS funds, and the loss of retirement income from fund members should tip the balance firmly in favour of full disclosure.

Additionally, in terms of financial risk: the pension fund adviser and manager are responsible for steering hundreds of millions of pounds around financial markets, under instructions given by the pension fund committee and s151 officer, on behalf of LGPS fund members.

Crucially, if the council and its fund managers and advisors make mistakes, such as continuing to invest in fossil fuels, resulting in losses - despite prior warnings, then it is local taxpayers, who must then top up the defined benefit LGPS scheme to replenish losses suffered in financial markets - additional taxation for which the general public receive no tangible benefit.

Therefore, the public interest in favour of full disclosure, and for council to reveal the details of the advisors instruction/ fund mandate and investments is substantial - and has significant financial consequences for local taxpayers and LGPS members, whose retirement savings are reduced by overcharging on fees and failure of the council to obtain best value.

A full history of my FOI request and all correspondence is available on the Internet at this address: https://www.whatdotheyknow.com/request/c...

Yours faithfully,

Joel M Benjamin

Freedom of Information, East Sussex County Council

3 Atodiad

 

 

 

Dear Mr Benjamin

 

FOI Request ref:  8012 / East Sussex Pension Fund - Climate Change and
Carbon Risk

 

Thank you for your application for an internal review of how we have dealt
with your request for information. We received your request on 04/01/2017
and I am dealing with it under the terms of the Freedom of Information Act
2000.

We always deal with reviews as quickly as possible but we are permitted up
to 20 working days in which to do so. We therefore aim to provide you with
the outcome of the review no later than 01/02/2017, which is the 20
working day deadline. The deadline is counted from the first working day
we receive a request for a review, not the date a letter is written /
posted or an email sent.

In exceptional circumstances we are permitted to extend the deadline by up
to a further 20 working days. if this becomes necessary we will advise you
of this by the above deadline.

Please quote the above reference number in any communication regarding
this request.

 

Yours sincerely

 

Name

Title

Communities, Economy and Transport Department

01273 482913
[1]www.eastsussex.gov.uk

[2]cid:image001.png@01D23B41.D83B1770[3]cid:image002.png@01D23B41.D83B1770 
                                                                                              
[4]ESCC_logos-TO-USE-90x64px

 

 

 

 

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E-mail is not a secure communications medium. Please be aware of this
when replying. All communications sent to or from the County Council
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relevant legislation.

Although East Sussex County Council has taken steps to ensure that this
e-mail and any attachments are virus free, we can take no responsibility
if a virus is actually present and you are advised to ensure that the
appropriate checks are made.

You can visit our website at http://www.eastsussex.gov.uk

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Freedom of Information, East Sussex County Council

3 Atodiad

 

 

Dear Mr Benjamin

 

FOI Request ref:  8012 / East Sussex Pension Fund - Climate Change and
Carbon Risk

 

Thank you for your application for an internal review of how we have dealt
with your request for information. We received your request on 04/01/2017
and I am dealing with it under the terms of the Freedom of Information Act
2000.

We always deal with reviews as quickly as possible but we are permitted up
to 20 working days in which to do so. We therefore aim to provide you with
the outcome of the review no later than 01/02/2017, which is the 20
working day deadline. The deadline is counted from the first working day
we receive a request for a review, not the date a letter is written /
posted or an email sent.

In exceptional circumstances we are permitted to extend the deadline by up
to a further 20 working days. if this becomes necessary we will advise you
of this by the above deadline.

Please quote the above reference number in any communication regarding
this request.

 

Yours sincerely

 

 

 

Samantha Spence

Customer Information Advisor

Communities, Economy and Transport Department

01273 482913
[1]www.eastsussex.gov.uk

[2]cid:image001.png@01D23B41.D83B1770[3]cid:image002.png@01D23B41.D83B1770 
                                                                                              
[4]ESCC_logos-TO-USE-90x64px

 

 

 

 

 

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contain confidential or privileged information. If you have received it in
error please notify the sender and destroy it. You may not use it or copy
it to anyone else.

E-mail is not a secure communications medium. Please be aware of this
when replying. All communications sent to or from the County Council
may be subject to recording and/or monitoring in accordance with
relevant legislation.

Although East Sussex County Council has taken steps to ensure that this
e-mail and any attachments are virus free, we can take no responsibility
if a virus is actually present and you are advised to ensure that the
appropriate checks are made.

You can visit our website at http://www.eastsussex.gov.uk

References

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Freedom of Information, East Sussex County Council

3 Atodiad

 

 

Dear Mr Benjamin

 

FOI Request ref:  8012 / East Sussex Pension Fund - Climate Change and
Carbon Risk

 

Thank you for your application for an internal review of how we have dealt
with your request for information. We received your request on 04/01/2017
and I am dealing with it under the terms of the Freedom of Information Act
2000.

 

We always aim to respond as quickly as possible.  Unfortunately, there are
a substantial number of complexed documents to be considered.  Due to
these exceptional circumstances we are unable to provide a response by
01/02/2017 and will be extending the deadline by up to a further 20
working days. We therefore aim to provide you with the outcome of the
review no later than 15/02/2017.  I have asked Legal Services for a
specific date  of when the disclosure will be ready but have not heard
back from them at this time.  I will however, be in touch with you as soon
as I have this information. 

 

Thank you for your continued patience in this matter.

 

Yours sincerely

 

 

 

Samantha Spence

Customer Information Advisor

Communities, Economy and Transport Department

01273 482913
[1]www.eastsussex.gov.uk

[2]cid:image001.png@01D23B41.D83B1770[3]cid:image002.png@01D23B41.D83B1770 
                                                                                              
[4]ESCC_logos-TO-USE-90x64px

 

 

 

 

 

 

This message is intended for the use of the addressee only and may
contain confidential or privileged information. If you have received it in
error please notify the sender and destroy it. You may not use it or copy
it to anyone else.

E-mail is not a secure communications medium. Please be aware of this
when replying. All communications sent to or from the County Council
may be subject to recording and/or monitoring in accordance with
relevant legislation.

Although East Sussex County Council has taken steps to ensure that this
e-mail and any attachments are virus free, we can take no responsibility
if a virus is actually present and you are advised to ensure that the
appropriate checks are made.

You can visit our website at http://www.eastsussex.gov.uk

References

Visible links
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2. https://www.facebook.com/eastsussexcc
3. https://twitter.com/eastsussexcc
4. https://www.eastsussex.gov.uk/