The Scottish Local Government Pension Scheme and its fiduciary duty to manage climate change risk

The request was successful.

To whom it may concern,

In the last year, the Governor of the Bank of England (1), HSBC (2), Mercers (3) and the World Bank (4) have made it clear that climate change is a major and growing financial issue. Mark Carney has said that climate change poses physical, liability and transition risks, which are all increasing.

Therefore, it is in the best interests of the SLGPS to have regard to the financial risks posed by climate change, and take appropriate steps to manage these risks.

We are writing to the Chair of the Pension Committee, or other appropriate Council official, to set out the response of your fund to five questions:

1. What steps is the fund taking to address the financial risks posed by climate change? Is there a formal process for regularly assessing and reducing exposure to these risks? In particular, can you provide details of:
a. When the Board or Pensions Committee has explicitly discussed carbon bubble risk and the financial implications of growing defaults and credit risk for fossil fuel companies; and
b. What action or strategy the fund has agreed upon, to manage and reduce carbon bubble risk/exposure to fund members?

2. The December 2015 Paris Agreement on climate change saw Governments agreeing to keep global warming to well below 2 degrees, which will require the overwhelming majority of the world’s proven fossil fuel reserves to remain unburned, which would lead to substantial stranding of fossil fuel assets held by corporations in which your fund may currently be investing. On April 22nd 2016, the Paris treaty was signed by 175 countries. Since December 2015 how has your pension fund changed its approach to climate change risks, given the Paris Agreement’s significant ratcheting up in the global response to climate change risks?

3. 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?

4. 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?

5. Have you signed up to the UN Principles for Responsible investment?

We are asking these questions of all UK local authority pension funds, as part of a survey to assess whether pension funds’ fiduciary duties are being met in regard to climate change financial risks. If you would be able to respond to these questions by the end of July 2016 we would be extremely grateful. Please accept this letter as a request for information under the Environmental Information Regulations 2004, alternatively the Freedom of Information Act 2000.

Please do contact me if you would require further information.

Yours sincerely

Ric Lander
Friends of the Earth Scotland
5 Rose St, Edinburgh EH2 2PR
0131 243 2718
[email address]

Friends of the Earth Scotland is an independent registered Scottish charity (SC003442).

References

1 Mark Carney Bank of England, 2015. Breaking the tragedy of the horizon - climate change and financial stability. www.bankofengland.co.uk/publications/Pag... . 29 September

2 HSBC, April 16 2015. Stranded Assets: what next? http://www.businessgreen.com/digital_ass...

3 Mercers, 2015. Investing in a time of climate change. http://www.mercer.com/our-thinking/inves...

4 World Bank, 2015. Major Financial Institutions Move to Integrate Climate Change
http://www.worldbank.org/en/news/press-r... December 7th

Foi Enquiries, Aberdeen City Council

1 Attachment

Dear Mr Lander,

 

Information enquiry reference EIR-16-0833 - Pension Scheme

 

Thank you for your recent request for information, which we received on
23rd  June 2016.   

 

The scheduled date for our response to your request for information is on
or before 21st ^  July 2016.

 

Please do not hesitate to contact us should you have any queries in the
meantime.

 

Yours sincerely,

 

Nicky Leiper

Information Compliance Officer

 

Information Compliance Team
Communications and Promotion
Office of Chief Executive
Aberdeen City Council
Room 1-24
Town House
Broad Street
ABERDEEN AB10 1AQ

[1][Aberdeen City Council request email]
01224 523827/523602

Tel 03000 200 292

 

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your mobile call plan.

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[2]www.aberdeencity.gov.uk

 

IMPORTANT NOTICE: This e-mail (including any attachment to it) is
confidential, protected by copyright and may be privileged. The
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References

Visible links
1. mailto:[Aberdeen City Council request email]
2. http://www.aberdeencity.gov.uk/

Foi Enquiries, Aberdeen City Council

1 Attachment

Dear Mr Lander,

 

Thank you for your information request of 23^rd June 2016.  Aberdeen City
Council (ACC) has completed the necessary search for the information
requested.

 

In the last year, the Governor of the Bank of England (1), HSBC (2),
Mercers (3) and the World Bank (4) have made it clear that climate change
is a major and growing financial issue. Mark Carney has said that climate
change poses physical, liability and transition risks, which are all
increasing.

 

Therefore, it is in the best interests of the SLGPS to have regard to the
financial risks posed by climate change, and take appropriate steps to
manage these risks.

 

We are writing to the Chair of the Pension Committee, or other appropriate
Council official, to set out the response of your fund to five questions:

 

1.        What steps is the fund taking to address the financial risks
posed by climate change? Is there a formal process for regularly assessing
and reducing exposure to these risks? In particular, can you provide
details of:

 

a)      When the Board or Pensions Committee has explicitly discussed
carbon bubble risk and the financial implications of growing defaults and
credit risk for fossil fuel companies; and b. What action or strategy the
fund has agreed upon, to manage and reduce carbon bubble risk/exposure to
fund members?

 

An external review was carried out by our newly appointed Investment
Consultants KPMG. A full report on ESG factors was presented to the
Pensions Committee in December 2015.

 

No further action or strategy has been actioned or agreed upon beyond that
which is already in place.

 

2.       The December 2015 Paris Agreement on climate change saw
Governments agreeing to keep global warming to well below 2 degrees, which
will require the overwhelming majority of the world’s proven fossil fuel
reserves to remain unburned, which would lead to substantial stranding of
fossil fuel assets held by corporations in which your fund may currently
be investing. On April 22nd 2016, the Paris treaty was signed by 175
countries. Since December 2015 how has your pension fund changed its
approach to climate change risks, given the Paris Agreement’s significant
ratcheting up in the global response to climate change risks?

 

There has been no material change to our approach. We continue to engage
through LAPFF and our Fund Managers, who regularly report to the Pension
Committee.

 

The NESPF Pension Committee has a fiduciary duty to the scheme member and
employer in relation to investment matters.

 

3.       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?

 

There has been no direct consultation. However our policies i.e. Statement
of Investment Principles, Voting Policy, Stewardship Code etc are all
available on our website [1]www.nespf.org.uk under the heading
‘Governance’ along with a copy of our Annual Report. 

 

[2]http://www.nespf.org.uk/Investment/inv_a...

 

4. 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 current total annual cost is £31,825.

 

NESPF engages on climate change and carbon risk through the Local
Authority Pension Fund Forum (LAPFF), with our Convener being a member of
its executive Board. 

 

LAPFF’s work on corporate climate change and disclosure has substantially
increased over the last 10 years, particularly through extensive
engagement with companies. Over the last year, carbon risk and climate
change have formed the subject of over 50 unique engagements with more
than 20 companies. Particularly successful engagements included co-filing
strategic resilience resolutions on carbon risk management with Shell and
BP in 2015 which were supported by the boards and 98% of voting
shareholders and resulted in improved reporting in the 2016 cycle. In
2016, similar resolutions were filed with Rio Tinto, Anglo American and
Glencore. In July 2016, LAPFF is launching a report with the Carbon
Tracker Initiative specifically focussing on climate change engagement.

 

LAPFF also engages collaboratively with other investors and stakeholders.
LAPFF is a member of the Investor Network on Climate Risk, a network of
institutional investors and financial institutions that promotes better
understanding of the financial risks and investment opportunities posed by
climate change. Recent examples include: a shareholder position paper,
pushing for more detailed reporting on material climate-related risks
within companies’ annual report; a joint letter to the Financial Reporting
Council on climate reporting in viability statements; and letters to Total
and Eni calling for increased disclosure on strategic resilience. In the
latter case, both companies subsequently released enhanced reports,
showing the benefits of this engagement.

 

LAPFF also engages with government departments to push for increased
reporting and, where relevant, legislation or guidance, on carbon risk
issues. In June 2007, LAPFF responded to the government’s consultation on
the Climate Change Bill, pushing for tougher targets on emissions and
mandatory corporate carbon emission disclosure. LAPFF has since responded
to a number of additional consultations related to climate risk including
the DEFRA Consultation on Greenhouse Gas Emissions Reporting Regulations
(2012), the FRC Consultation on the Strategic Report (2013) and the
Taskforce on Climate Disclosure’s Phase I Consultation (2016).

 

LAPFF’s engagements regarding climate change can be found on its website
[3]http://www.lapfforum.org

 

The Fund is also signed up to the UNPRI with our main focus being
Sustainable Stock Exchanges. The Fund is on a working group whose aim is
to get Stock Exchanges to improve the quality of disclosure to companies
on their environmental, social and corporate governance performance. This
is a very active project and includes quarterly telephone webinars. For
further information on this see [4]https://www.unpri.org

 

NESPF is also a signatory to the Carbon Disclosure Project (from March
2015)

 

5. Have you signed up to the UN Principles for Responsible investment?

 

NESPF is a signatory to the UNPRI (from August 2010).

 

We hope this helps with your request.

 

Yours sincerely,

 

Nicky Leiper

Information Compliance Officer

 

INFORMATION ABOUT THE HANDLING OF YOUR REQUEST

 

ACC handled your request for information in accordance with the provisions
of the Freedom of Information (Scotland) Act 2002. Please refer to the
attached PDF for more information about your rights under FOISA.

 

 

Information Compliance Team
Communications and Promotion
Office of Chief Executive
Aberdeen City Council
Room 1-24
Town House
Broad Street
ABERDEEN AB10 1AQ

[5][Aberdeen City Council request email]
01224 523827/523602

Tel 03000 200 292

 

*03000 numbers are free to call if you have ‘free minutes’ included in
your mobile call plan.

Calls from BT landlines will be charged at the local call rate of 10.24p
per minute (the same as 01224s).

[6]www.aberdeencity.gov.uk

 

 

 

 

 

IMPORTANT NOTICE: This e-mail (including any attachment to it) is
confidential, protected by copyright and may be privileged. The
information contained in it should be used for its intended purposes only.
If you receive this email in error, notify the sender by reply email,
delete the received email and do not make use of, disclose or copy it.
Whilst we take reasonable precautions to ensure that our emails are free
from viruses, we cannot be responsible for any viruses transmitted with
this email and recommend that you subject any incoming email to your own
virus checking procedures. Unless related to Council business, the
opinions expressed in this email are those of the sender and they do not
necessarily constitute those of Aberdeen City Council. Unless we expressly
say otherwise in this email or its attachments, neither this email nor its
attachments create, form part of or vary any contractual or unilateral
obligation. Aberdeen City Council's incoming and outgoing email is subject
to regular monitoring.

IMPORTANT NOTICE: This e-mail (including any attachment to it) is
confidential, protected by copyright and may be privileged. The
information contained in it should be used for its intended purposes only.
If you receive this email in error, notify the sender by reply email,
delete the received email and do not make use of, disclose or copy it.
Whilst we take reasonable precautions to ensure that our emails are free
from viruses, we cannot be responsible for any viruses transmitted with
this email and recommend that you subject any incoming email to your own
virus checking procedures. Unless related to Council business, the
opinions expressed in this email are those of the sender and they do not
necessarily constitute those of Aberdeen City Council. Unless we expressly
say otherwise in this email or its attachments, neither this email nor its
attachments create, form part of or vary any contractual or unilateral
obligation. Aberdeen City Council's incoming and outgoing email is subject
to regular monitoring.

References

Visible links
1. http://www.nespf.org.uk/
2. http://www.nespf.org.uk/Investment/inv_a...
3. http://www.lapfforum.org/
4. https://www.unpri.org/
5. mailto:[Aberdeen City Council request email]
6. http://www.aberdeencity.gov.uk/

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