Climate risk in pension fund Investment Strategy Statements

The request was partially successful.

Dear Barking and Dagenham Borough Council,

Re: Investment Strategy Statement deadline 1st April 2017: Legal requirements regarding climate risk

We are writing regarding the imminent deadline for local authority pension funds to issue new Investment Strategy Statements (ISS) by 1st April 2017, under the terms of the 2016 Investment Regulations.

In recent years, there has been growing evidence that climate change poses systemic and material financial risks to pension funds, from bodies such as the Bank of England, AODP, IIGCC, Mercers and Blackrock. This evidence is summarised in the Feb 2017 letter from Clientearth and Shareaction to the Pensions Regulator regarding climate risk, which you will have been sent this week.

In addition, we note that the National Employment Savings Trust in late February 2017 shifted investments away from high-carbon emitting companies, citing its fiduciary duty to take climate risk seriously: https://www.ftadviser.com/auto-enrolment...

The Government guidance for ISS preparation states that “The law is generally clear that schemes should consider any factors that are financially material to the performance of their investments, including social, environmental and corporate governance factors, and over the long-term, dependent on the time horizon over which liabilities arise" (Regulation 7(2)(e)) and also that administering authorities “should be aware of the risks that may impact on their overall funding and investment strategies; should take measures to counter those risks; .. and should formulate contingency plans to limit the impact of risks that might materialise” (Regulation 7(2)(c)).

In this context, the financial risks that climate change poses are a clear material consideration which must be addressed at portfolio level in the formulation of ISS. Failure to do so would put funds in breach of their fiduciary duty and make them susceptible to legal challenge.

We are writing to recommend that your fund follows best practice in addressing climate risk and adopts wording similar to that in the Environment Agency Pension Fund SIP, such as: “The Fund also believes that other financially material risks including, but not limited to, corporate governance, climate change, pollution, and other environmental issues, need to be considered and controlled. Our fund managers are required to consider these sources of risk (and opportunity) when evaluating investments on our behalf, and they are also considered in our investment strategy and asset Allocation. Climate change is a key financially material environmental risk for the Fund, and as such we will develop a comprehensive and robust strategy to minimise the long term impacts on the Fund value. Our website will have a dedicated area focusing on climate risk, outlining the plans and actions undertaken by the Fund”.

Please could you respond stating how you intend to address the financial risks that climate change poses within your ISS and subsequent investment mandates?

In addition, Government guidance is clear that pension members should be consulted regarding the new ISS – we are also writing to request that you respond setting out how you are intending to consult with your fund members on this issue.

Please consider this letter a request under the Freedom of Information Regulations 2000.

Yours faithfully,

Simon Bullock, Friends of the Earth; and
Joel Benjamin, Community Reinvest.

London Borough of Barking and Dagenham,

Information request
Our reference: 3267433

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Dear Sir/Madam
 
Freedom of Information Act 2000
 
Thank you for your request for information that was received on 1 March
2017 concerning climate risk in pension fund Investment Strategy
Statements. 
 
We are dealing with your request under the Freedom of Information Act
2000 and we aim to send a response by 29 March 2017.
  
The Freedom of Information Act 2000 may restrict the release of some or
all of the information you have requested. We will carry out an assessment
and if any exemptions apply to some or all of the information then we
might not provide that information to you. We will inform you if this is
the case and advise you of your rights to request an internal review and
to complain to the Information Commissioner's Office.
 
We will also advise you if we cannot provide you with the information
requested for any other reason together with the reason(s) why and details
of how you may appeal (if appropriate).
 
Yours faithfully
 
 

The FoI Team

 
NOTE: Please do not edit the subject line when replying to this email.

London Borough of Barking and Dagenham,

Information request
Our reference: 3267433

--------------------------------------------------------------------------

Dear Sir/Madam

With reference to your email dated 1 March 2017 requesting information as
reproduced below :-

Re: Investment Strategy Statement deadline 1st April 2017: Legal
requirements regarding climate risk

We are writing regarding the imminent deadline for local authority pension
funds to issue new Investment Strategy Statements (ISS) by 1st April 2017,
under the terms of the 2016 Investment Regulations.

In recent years, there has been growing evidence that climate change poses
systemic and material financial risks to pension funds, from bodies such
as the Bank of England, AODP, IIGCC, Mercers and Blackrock. This evidence
is summarised in the Feb 2017 letter from Clientearth and Shareaction to
the Pensions Regulator regarding climate risk, which you will have been
sent this week.

In addition, we note that the National Employment Savings Trust in late
February 2017 shifted investments away from high-carbon emitting
companies, citing its fiduciary duty to take climate risk seriously:
https://www.ftadviser.com/auto-enrolment...

The Government guidance for ISS preparation states that “The law is
generally clear that schemes should consider any factors that are
financially material to the performance of their investments, including
social, environmental and corporate governance factors, and over the
long-term, dependent on the time horizon over which liabilities arise"
(Regulation 7(2)(e)) and also that administering authorities “should be
aware of the risks that may impact on their overall funding and investment
strategies; should take measures to counter those risks; .. and should
formulate contingency plans to limit the impact of risks that might
materialise” (Regulation 7(2)(c)).

In this context, the financial risks that climate change poses are a clear
material consideration which must be addressed at portfolio level in the
formulation of ISS. Failure to do so would put funds in breach of their
fiduciary duty and make them susceptible to legal challenge.

We are writing to recommend that your fund follows best practice in
addressing climate risk and adopts wording similar to that in the
Environment Agency Pension Fund SIP, such as: “The Fund also believes that
other financially material risks including, but not limited to, corporate
governance, climate change, pollution, and other environmental issues,
need to be considered and controlled. Our fund managers are required to
consider these sources of risk (and opportunity) when evaluating
investments on our behalf, and they are also considered in our investment
strategy and asset Allocation. Climate change is a key financially
material environmental risk for the Fund, and as such we will develop a
comprehensive and robust strategy to minimise the long term impacts on the
Fund value. Our website will have a dedicated area focusing on climate
risk, outlining the plans and actions undertaken by the Fund”.

Please could you respond stating how you intend to address the financial
risks that climate change poses within your ISS and subsequent investment
mandates?

In addition, Government guidance is clear that pension members should be
consulted regarding the new ISS – we are also writing to request that you
respond setting out how you are intending to consult with your fund
members on this issue.

Section 1 of the Freedom of Information Act 2000 provides two distinct but
related rights of access to information which impose corresponding duties
on public authorities.  These are:

*        The duty to inform the applicant whether or not information is
held by the authority and, if so,
*        The duty to communicate that information to the applicant

We can confirm that the London Borough of Barking and Dagenham holds the
information requested our response is as follows:

The Fund’s Investment Strategy Statement was agreed by the Pension Panel
on 15 March 2017, a copy of which can be found within the March 2017
Pension Panel Papers:
[1]http://moderngov.barking-dagenham.gov.uk...

The ISS does not reflect any changes in strategy that may or may not take
place following a Strategy Review, which is due to be completed later this
year.

Part of the strategy review will include a review of the Fund’s social,
environmental and ethical considerations, where fund employers, investment
managers, Local Pension Board, advisers to the Fund will be consulted.

Internal Review Procedure

If you are dissatisfied with the handling of your request then you have a
right under Section 50 of the Act to request an internal review. All such
requests must be sent to us within 8 weeks, by e-mailing
[2][Barking and Dagenham Borough Council request email], or in writing to the FOI Team, Room 218, Barking Town
Hall, 1 Town Square, Barking, IG11 7LU and must clearly state your
reference number and your reason for your request for an internal review.

We will respond to your request for an internal review within 20 working
days of receipt. Your request for an internal review should be sent by
email to [3][Barking and Dagenham Borough Council request email] quoting your FOI reference number. 

Information Commissioners Office

Should you remain dissatisfied with the final outcome of the internal
review then you may apply directly to the Information Commissioner (the
“ICO”) for an independent review. The ICO is the Government’s Independent
Body responsible for overseeing the Freedom of Information Act 2000, the
Data Protection Act 1998 and The Environmental Information Regulations
2004. Please note the ICO will only review cases that have exhausted the
council’s internal review procedure. All correspondence to the ICO must
quote the council’s reference number and your reasons for your appeal. The
ICO’s contact details are as follows:-

The Information Commissioners Office,

Wycliffe House,

Water Lane, Wilmslow,

Cheshire,

SK9 5AF.

More information can be found at the ICO’s website at
http://www.ico.org.uk If you have any further enquiries about this matter,
please do not hesitate to contact us by emailing [4][Barking and Dagenham Borough Council request email]

We trust you find the above to be satisfactory but should you have any
queries please do not hesitate to contact us.

 

Yours sincerely

 

 

 

The FoI Team

 

 

 
NOTE: Please do not edit the subject line when replying to this email.

References

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1. http://moderngov.barking-dagenham.gov.uk...
2. mailto:[Barking and Dagenham Borough Council request email]
3. mailto:[Barking and Dagenham Borough Council request email]
4. mailto:[Barking and Dagenham Borough Council request email]