Greater Gwent (Torfaen) Pension Fund
Investment Strategy Statement
(CONSULTATION DRAFT - ESG EXTRACT ONLY)
2017/2018 Nigel Aurelius, CPFA
Assistant Chief Executive Resources
www.gwentpensionfund.co.uk
How social, environmental or corporate governance considerations are taken into
account in the selection, non-selection, retention and realisation of investments
It is recognised that ESG factors can influence long term investment performance and the ability to
achieve long term sustainable returns. The Committee consider the Fund’s approach to responsible
investment in two key areas:-
Sustainable investment / ESG factors – considering the financial impact of environmental,
social and corporate governance (ESG) factors on its investments, both existing and potential.
Stewardship – acting as responsible and active investors/owners, through considered voting of
shares, and engaging with investee company management as part of the investment process,
or via appropriate delegation of these functions to investment managers.
Sustainable Investment / ESG factors
The Committee takes ESG matters very seriously and periodical y conducts a review of its policies in
this area. The Fund’s policy on how ESG factors should be taken into account in the selection,
retention and realisation of investments was original y developed under the Fund’s previous
governance arrangements by its Investment Panel when members considered that they should, in al
circumstances, act in the best financial interests of the Beneficiaries. This over-arching policy remains,
however, where this primary consideration is not prejudiced, Investment Managers are required to
take account of Social, Environmental or Ethical factors to the extent that they consider it appropriate.
They may thus take account of al factors they deem relevant in their considered best interests of the
investments they are managing for the Fund.
A review of the Fund’s ESG Policy has also taken place within the Fund’s current governance
arrangements, via the Pensions Committee. As a result of this the Committee decided that a separate
working group, the Environmental Social and Corporate Governance (ESG) Working Group, should be
set up to specifical y consider the Fund’s approach to ESG matters within its investment decision
making process. The Group was established to research these issues, consider any options for change
and report any proposals back to the Pensions Committee for consideration. The Group met regularly
over a period of around 12 months or so and reported back to the Pensions Committee with its initial
conclusions and recommendations. The fol owing are extracts from these:-
The Group were general y impressed by the comprehensive approach taken with regard to
ESG issues by the Fund’s investment managers and the level of resource and detail devoted to
this area.
The Group were general y content with the ESG policies and procedures of the Fund’s
investment managers and the way that these are implemented in practice.
The Group recommended that the Fund should continue membership of the Local Authority
Pension Fund Forum as the Group considered it to be of particular value and benefit in
achieving a col ective level of ESG monitoring and engagement that the Fund could not
achieve in isolation.
That despite not being a direct signatory to UNPRI or the UK Stewardship Code, the Group
were however comfortable that the Fund’s managers are themselves al code signatories and
thus the Fund’s investments are managed in accordance with Code principles.
The Pensions Committee welcomed the conclusions and approved the Group’s initial
recommendations in ful for adoption by the Fund in the consideration of ESG matters within its
investment process. The Committee further agreed that the ESG Working Group should continue its
work in the consideration of ESG matters within the Fund’s investment process and within the context
of the Funds wider governance processes. The ESG Working Group had however been set up as a
sub-group of the Pension Fund Management Group (PFMG) as the body that (at that time) provided
wider stakeholder representation, overview and scrutiny of the Pension Fund. However, fol owing the
change in LGPS governance required by the 2013 Public Sector Pensions Act, the PFMG has now
been superseded by the establishment of a Local Pension Board for the Fund. The possibility of re-
convening an ESG Working Group for the Fund is currently under consideration as the Pension Board
becomes embedded in the Fund’s governance arrangements. As well as considering and
recommending any changes to ESG considerations general y, the Group could specifical y review the
Fund’s approach to taking into account non-financial considerations within its investment processes.
At the present time, therefore, the Committee does not directly take into account non-financial
factors when selecting, retaining, or realising its investments. However, the Committee understands
that it is required to ensure that the Fund is not able to exclude investments in order to pursue
boycotts, divestment and sanctions against foreign nations and UK defence industries, other than
where formal legal sanctions, embargoes and restrictions have been put in place by the Government.
In accordance with its overarching policy detailed above, the Fund’s approach to
Social investments has therefore been to delegate any specific consideration of these to the underlying investment
managers as part of their overal ESG duties. The Fund’s managers report on the investments they
manage, including ESG aspects quarterly and, at present, the Fund does not hold any assets within
these arrangements which it deems to be social investments.
Stewardship
Voting and Engagement
Again in accordance with the overarching policy above, the Committee has delegated company
engagement and the exercise of voting rights to its investment manager(s). This is on the basis that
positive engagement and voting power wil be exercised by them with the objective of preserving
and enhancing long term shareholder value and thus that they wil vote within the best long term
interests of the investments they manage for the Fund. Accordingly, the Fund’s managers have
produced written guidelines of their process and practice in this regard. The managers are strongly
encouraged to vote in line with their guidelines in respect of al resolutions at annual and extraordinary
general meetings of companies under Regulation 7(2)(f). The Fund monitors the voting decisions
made by al its investment managers on a quarterly basis.
The Stewardship Code
The Committee understands that, within the 2016 Investment regulations, there is a requirement that
administering authorities should become signatories to the UK Stewardship Code. Though the
Committee has yet to formal y consider the issue of being a signatory in its own right fol owing the
publication of the 2016 Regulations, it has for many years recognised the importance of its investments
being managed in accordance with the principles of the Stewardship Code as published by the
Financial Reporting Council. The Fund has therefore ensured for a number of years that the Fund’s
managers are themselves al code signatories and thus the Fund’s investments wil al continue to be
managed in accordance with the seven Code principles until the Fund formal y considers how to take
this matter forward.
As well as ensuring that the Fund’s underlying investments are being managed in accordance with
Code principles, the Fund does already act on a number of the seven principles at a Fund level. One
such principle that the Fund firmly advocates is a belief in col ective engagement via its membership
of the Local Authority Pension Fund Forum (LAPFF), through which it col ectively exercises a voice
across a range of corporate governance issues.
In addition to the requirement to become a signatory in its own right, the Committee wil also expect
both the Wales Pool and any directly appointed fund managers to comply with the Stewardship
Code and this wil be monitored and kept under review.