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

The request was partially successful.

Dear Carmarthenshire 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

FOIA, Carmarthenshire Council

Dear Mr Benjamin

Thank you for your request for information, which was received on 13th December, 2016 and is being dealt with under the Freedom of Information Act 2000.

We are therefore required to provide a response within 20 working days, which will be on or before 13th January, 2017.

If we require clarification we will contact you as soon as possible – please note that the timescale for response specified above may be subject to change if this is the case.

In the meantime, please do not hesitate to contact me should you have any queries, remembering to quote the reference number above in any communications.

Yours sincerely

John Tillman
Swyddog Gwybodaeth a Diogelu Data
Adran y Prif Weithredwr
Cyngor Sir Gaerfyrddin

Information & Data Protection Officer
Chief Executive's Department
Carmarthenshire County Council
Mewnol/Internal: 4127
Allanol/External: 01267 224127

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Dear FOIA,

Please note a response to this FOI is now overdue. Please respond ASAP.

Yours sincerely,

Joel M Benjamin

Dear Carmarthenshire Council,

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

I am writing to request an internal review of Carmarthenshire 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'.

This request is now weeks overdue, and has not been answered despite prompts to do so.

Given the large volumes of members funds being managed by the pension fund committee, advisors and fund managers, and the extensive financial risk being carried by local taxpayers who effectively underwrite the defined benefit LGPS schemes and cover losses where the scheme is mis-managed, there is a substantial public interest case in favour of full disclosure.

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

FOIA, Carmarthenshire Council

Dear Mr Benjamin,

Thank you for your email. This is receiving attention and a further response will be provided as soon as possible.

Yours sincerely

John Tillman
Swyddog Gwybodaeth a Diogelu Data
Tîm Llywodraethu Gwybodaeth a Chwynion
Adran y Prif Weithredwr
Cyngor Sir Gaerfyrddin

Information & Data Protection Officer
Information Governance & Complaints Team
Chief Executive's Department
Carmarthenshire County Council

Mewnol/Internal: 4127
Allanol/External: 01267 224127

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FOIA, Carmarthenshire Council

2 Attachments

Dear Mr Benjamin,
 
I refer to your request for information, which was received on 13^th
December, 2016 and has been dealt with under the Freedom of Information
Act 2000.  Please accept my apologies for the delay in providing this
response.
 
I will respond to your request in the order it was presented using
numbered points as headings for ease of reference.
 
1. Please provide the two most recent versions of the Statement of
Investment Principles (SIP)
 
The latest and previous versions of the SIP are attached below.
 
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?
 
The fund will be reviewing the document in its new form as the Investment
Strategy Statement (ISS) (as per the LGPS (Management and Investment of
Funds) Regulations 2016) by 1^st April, 2017.
 
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.
 
After careful consideration we are of the view that the information
requested under points 3 and 4 cannot be disclosed, for reasons I will set
out below.
 
Under Section 43 (2) of the FOIA, a public authority may refuse to
disclose information if it would, or would likely to, prejudice the
commercial interests of any person, including the public authority holding
it. Commercial interest can be defined as the ability of any party to
participate competitively in a commercial activity, such as tendering for
contracts or the provision of goods or services.
 
In this case, the disclosure of this information would be likely to damage
the commercial relationship between the Council and its current supplier
and any potential future services they may provide.  We believe that the
release of this information would be likely to weaken the position of the
Council when negotiating future contracts for the provision of these
services.
 
However, this exemption is subject to a public interest test, which
requires me to consider whether the public interest in maintaining the
exemption outweighs the public interest in disclosing the information. In
doing so, it is important to draw a distinction between what may be of
interest to members of the public and what is genuinely in the public
interest.
 
I accept that there is always likely to be a public interest in
information on matters relating to the expenditure of public funds which
extends to how much the Council pays for services such as investment
advice and fund management.  I also acknowledge that this requires
openness and transparency.
 
Nevertheless, in this case, there is in my view a stronger, countervailing
public interest in allowing normal market forces to operate in this
environment and in protecting the commercial interests of the Council and
others. 
 
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.
 
No compliance breaches have been reported to the pension panel over the
last 3 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?
 
In response to points 6 and 7, the Dyfed Pension Fund has been a member of
the Local Authority Pension Fund Forum (LAPFF) for many years. Officers
and members of Carmarthenshire County Council (the administering authority
of the Dyfed Pension Fund) who sit on the pension panel attend LAPFF
meetings and the annual conference.
 
The Forum recognises the issue of stranded assets and continued fossil
fuel extraction and the risk to climate change as a collective investment
risk for all asset owners and as an engagement and policy priority. For
companies engaged in fossil fuel extraction, LAPFF’s approach is to
undertake robust engagement on aligning their business models with a 2°C
scenario and to push for an orderly low carbon transition.
 
LAPFF engages by meeting with companies and participating in collaborative
investor initiatives including filing and supporting relevant shareholder
resolutions to companies. Monitoring of progress and outcomes includes
LAPFF’s participation in the Transition Pathway Initiative, which aids
understanding of where companies are placed in the transition to a low
carbon economy and their competence to manage this transition.
 
Forum members are interested in investment opportunities afforded by a
low-carbon future which increase asset diversification and provide
long-term returns. LAPFF does not give investment advice or promote
placing restrictions on particular types of investment as it is not
authorised by the Financial Conduct Authority
 
Engagement Strategy
 
The Forum’s engagement strategy with oil, gas and coal companies has been
developed with Carbon Tracker Initiative (CTI) and is set out in the
report ‘Engaging for a Low Carbon Transition’.
 
The report looks at stranded assets under different demand trends, noting
that companies can face both physical and financial stranding. The
implication of demand trends is such that, should the fossil fuel industry
continue with a business-as-usual approach, supplies of oil and gas could
outpace demand. Companies will then face the choice between shutting in
capacity and starting a price war to force others to do so. Both of these
choices lead to stranded assets: the first leads to physically stranded
assets, the latter to financially stranded assets.
 
Therefore, LAPFF’s engagement focus for oil and gas companies is the value
at risk, particularly from high cost projects, and instead asks for
companies to consider where they can support returning capital to
investors. For coal companies, this would mean no new projects should be
developed that continue ‘business as usual’.
 
LAPFF Engagement
 
Since 2011, as part of a core UK investor group engaging with resource and
utility companies, LAPFF has encouraged company disclosure on the
strategic resilience of their business models, by means of supportive
shareholder strategic resilience resolutions.
 
Filing of the strategic resilience resolutions followed a long process of
engagement with all companies on climate risks, stranded assets and
reporting this information in the context of their business models. Each
resolution to date has been supported by the board and has prompted other
resolutions such as to Statoil. They have all been carried by a record
margin.
 
To support effective engagement, LAPFF has joined the Transition Pathway
Initiative which aims to provide a transparent framework to track
engagement and analyse company responses to climate and carbon risk.
 
Encouraging appropriate regulatory frameworks is also crucial. An example
of this has been LAPFF’s participation in collaborative engagement with
other investors with the Financial Reporting Council (FRC) on long-term
investors' expectations that fossil fuel dependent companies should
address climate-related risks in the viability statements in their annual
reports. LAPFF is also promoting relevant disclosure by responding to the
Task Force on Climate Disclosure’s consultations.
 
LAPFF supports member pension funds addressing concerns around climate and
carbon intensive investments through a combination of individual
engagements at corporate level, working with investor coalitions,
contributing to the regulatory and policy debate and adding to
institutional investor voices engaging with international forums.
 
8. Please provide Pension Fund Committee and Board meeting minutes where
climate change, and carbon bubble investment risk was discussed, and
minuted 2014 - 2016.
 
Climate change and carbon bubble investment risk has not been specifically
discussed at panel meetings but please refer to items 6 and 7 above re:
LAPFF.
 
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?
 
No.
 
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?
 
The Dyfed Pension Fund is a member of the Local Authority Pension Fund
Forum, a collaborative body of 71 LGPS funds with assets under management
of £175 billion. LAPFF operates to protect the long-term investment
interests of beneficiaries by promoting the highest standards of corporate
governance and corporate responsibility amongst investee companies.  On
behalf of its members, LAPFF runs a diverse work plan providing
comprehensive engagement over a range of different work streams including
LGPS reform, the promotion of good governance, reliable accounting and
various aspects of responsible investment. Publications released in 2016
include ‘Engaging for a Low Carbon Transition’, ‘The Corporate Tax
Transparency Initiative Report’ and a ‘Mergers and Acquisitions Trustee
Guide’ (see [1]www.lapfforum.org/Publications/latest-research).  The total
spend budgeted for the LAPFF work plan in 2016/2017 is in excess of
£400,000.  The annual membership fee paid to LAPFF for the Dyfed Pension
Fund is £8,460.
 
As I am refusing to provide some of the requested information on the basis
explained above, please consider this email to be a formal notice of
refusal as required by Section 17 of the Act.
 
If you are unhappy with the way in which your request has been dealt with,
you have the right to complain in the first instance to:
 
The Head of Administration & Law
Carmarthenshire County Council
County Hall
Carmarthen
Carmarthenshire
SA31 1JP
 
Email: [2][email address]
 
If you remain unhappy with the handling of your request or complaint, you
have a right to appeal to the Information Commissioner at:
 
The Information Commissioner’s Office
Wycliffe House
Water Lane
Wilmslow
Cheshire
SK9 5AF
 
Telephone: 0303 123 1113
Website: [3]www.ico.org.uk
 
There is no charge for making an appeal.
 
Yours sincerely
John Tillman
Swyddog Gwybodaeth a Diogelu Data
Adran y Prif Weithredwr
Cyngor Sir Gaerfyrddin
Information & Data Protection Officer
Chief Executive's Department
Carmarthenshire County Council
Mewnol/Internal: 4127
Allanol/External: 01267 224127
 
 
 
 
 
 

References

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1. http://www.lapfforum.org/Publications/la...
2. mailto:[email address]
3. http://www.ico.org.uk/

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