Climate risk in pension fund Investment Strategy Statements

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Dear City of London Corporation,

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.

COL - EB - Information Officer, City of London Corporation

Dear Mr Bullock,
 
FREEDOM OF INFORMATION ACT 2000 (FOIA) - INFORMATION REQUEST
 
The City of London (CoL) acknowledges receipt of your request for
information of 1 March 2017, below.
 
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show quoted sections

CHB - FOI, City of London Corporation

1 Attachment

Dear Mr Bullock,

 

FREEDOM OF INFORMATION ACT 2000 (FOIA) - INFORMATION REQUEST

 

Following your request for information of 1 March 2017 and our
acknowledgment of 2 March 2017 the City of London (CoL) responds as
follows.

 

The CoL Pension Fund Investment Strategy Statement (ISS) has been agreed
by the Financial Investment Board and will be published on the CoL website
in accordance with the regulatory requirements to publish by 1 April 2017.
Please find attached a copy of this strategy statement.

 

With regard to consultation having taken proper advice, the CoL’s
Investment Strategy Statement (ISS) meets the requirements of the Local
Government Pension Scheme (Management and Investment of Funds) Regulations
2016 (the Regulations).

 

With regard to your query , “Please could you respond stating how you
intend to address the financial risks that climate change poses within
your ISS and subsequent investment mandates?”, please see section 8 of the
statement, which broadly addresses this.

 

The Local Government Pension Scheme Regulations require the CoL to consult
with such persons as it considers appropriate as to the proposed contents
of its investment strategy. On this basis a draft ISS was considered by
the CoL’s Financial Investment Board on 2 February 2017. Subsequently the
City’s Investment Advisers were consulted for their comments before the
ISS was finalised.

 

If you have any queries or concerns, please contact me.

 

If you wish to make a complaint about the way the CoL has managed your
enquiry, please make your complaint in writing to email address:
[1][email address]. For a link to the CoL’s FOI complaints
procedure, please visit the following page:
[2]www.cityoflondon.gov.uk/Feedback, at the end of which is located the
FOI complaints procedure. If, having used the CoL’s FOI Complaints
Procedure, you are still dissatisfied, you may request the Information
Commissioner to investigate. Please contact: Information Commissioner,
Wycliffe House, Water Lane, Wilmslow, Cheshire, SK9 5AF. Telephone:
(01625) 545700.  Website: [3]http://www.ico.org.uk/.

 

The FOIA applies to the CoL as a local authority, police authority and
port health authority.

 

The CoL holds the copyright in this communication. Its supply does not
give a right to re-use in a way that would infringe that copyright, for
example, by making copies, publishing and issuing copies to the public or
to any other person. Brief extracts of any of the material may be
reproduced under the fair dealing provisions of the Copyright, Designs and
Patents Act 1988 (sections 29 and 30) for the purposes of research for
non-commercial purposes, private study, criticism, review and news
reporting, subject to an acknowledgement of the copyright owner.

 

 

Yours sincerely

 

Access to Information Network Representative

Chamberlain's Department

City of London

Tel: 020 7332 1384

Website: [4]www.cityoflondon.gov.uk

 

 

Dear City of London Corporation,

 

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:
[5]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,

 

References

Visible links
1. mailto:[email address]
2. http://www.cityoflondon.gov.uk/Feedback
3. http://www.ico.org.uk/
4. http://www.cityoflondon.gov.uk/
5. https://www.ftadviser.com/auto-enrolment...