Responsible Investment and Environmental, Social and Governance Policies

The Pension Fund has a paramount fiduciary duty to obtain the best possible financial return on Fund investments without exposing assets to unnecessary risk. It believes that following good practice in terms of social, environmental and ethical issues is generally likely to have a favourable effect on the long-term financial performance of a company and will improve investment returns to its shareholders.

The Fund investment managers, acting in the best financial interests of the Fund, are expected to consider, amongst other factors, the effects of social, environmental and ethical issues on the performance of a company when undertaking the acquisition, retention or realisation of investments for the Fund.

The Fund’s investment managers have adopted socially responsible investment policies which are subject to regular review both by officers and by the Council’s Pension Committee.

The Pension Fund recognises that the neglect of corporate social responsibility and poor attention paid to environmental, social and governance (ESG) issues may lead to poor or reduced shareholder returns. This presents a significant responsibility for the Pension Fund Committee (the Committee).

The Fund’s policies on environmental, social and governance (ESG) issues and responsible investment can be found within the Investment Strategy Statement. 

The fund is a member of the Local Authority Pension Fund Forum (LAPFF) and has been working towards embedding ESG factors into its investment process. This year, for instance, the fund dedicated itself to investing in the Global Environment Fund led by Ninety One.

Professional Bodies

The Council is a member of the CIPFA Pensions Network which provides a central coordination point for all LGPS funds and local authority members.

CIPFA staff and the network more generally are able to advise subscribers on all aspects of pensions and related legislation. Relevant training and seminars are also available to officers and members of participating funds.

While the Fund is a member of the Local Authority Pension Fund Forum (LAPFF), it does not subscribe to nor is it a member of UK Sustainable Investment & Finance Association or the Institutional Investors Group on Climate change or any other bodies.

Collaborative Ventures

The Fund has been working closely with other London LGPS funds in the London Collective Investment Vehicle set up to enable greater buying power, reduced fees and enhanced governance arrangements. The London Borough of Bexley is a shareholder in London LGPS CIV Limited.

Funding Strategy Statement

The Funding Strategy Statement sets out the aims and purpose of the pension fund and the responsibilities of the administering authority as regards funding the scheme.

Its purpose is:

• to establish a clear and transparent fund-specific strategy to identify how employers’ pension liabilities are best met going forward
• to support the regulatory requirement to maintain as nearly constant employer contribution rates as possible
• to take a prudent longer-term view of funding those liabilities

Separation of Responsibilities

The Fund employs a global custodian (Northern Trust), independent to the investment managers, to be responsible for the safekeeping of all of the Fund’s investments. Northern Trust is responsible for the settlement of all investment transactions and the collection of income.

The Fund’s bank account is held with NatWest Bank. Funds not immediately required to pay benefits are held as interest bearing operational cash with NatWest Bank.

The actuary is responsible for assessing the long-term financial position of the pension fund and issues a Rates and Adjustments Certificate following the triennial valuation of the Pension Fund, which sets out the minimum contributions which each employer in the Scheme is obliged to pay over the following three years.

Stewardship Code

The Pensions Committee believes that investor stewardship is a key component of good governance and is committed to exercising this responsibility with the support of its investment managers. In line with this approach, the committee expects its managers to have signed up to the UK Stewardship Code and to report regularly on their compliance with the Code and other relevant environmental, social and governance principles.

The Pension Fund Committee believes that companies should be accountable to shareholders and should be structured with appropriate checks and balances so as to safeguard shareholders’ interests and deliver long-term returns.

The Pension Fund Committee encourages fund managers to consider a range of factors before making investment decisions, such as the company’s historical financial performance, governance structures, risk management approach, the degree to which strategic objectives have been met and environmental and social issues. Such considerations may also be linked to voting choices at company AGMs.

The Pension Fund Committee’s role is not to micro-manage companies but provide perspective and share with boards and management our priorities for investment and approach to corporate governance. The ultimate aim is to work with management, shareholders and stakeholders to bring about changes that enhance long-term performance.

In addition, the Committee meets most of its managers at least once a year and they are always asked to discuss the activities they undertake in respect of socially responsible investment and how they consider long term environmental, social and governance risks in making specific investment decisions.

Exercise of the Rights (including voting) attaching to Investments

The Committee has delegated the Fund’s voting rights to the investment managers, who are required, where practical, to make considered use of voting in the interests of the Fund. The Fund through its participation in the London CIV will work closely with other LGPS Funds in London to enhance the level of engagement both with external managers and the underlying companies in which invests.

The Fund’s policies on responsible investment are set out in section 11 of the Fund’s ISS. This document also sets out how the Fund demonstrates its compliance with the Investment Governance Principles. Last year, the Fund became a member of the Local Authority Pension Fund Forum. The Fund expects its investment managers to exercise their voting rights and actively engage with the companies in which they invest in accordance with the principles set out in the ISS. The table below summarises the votes cast by investment managers on behalf of the Fund in 2022/23.

Our equity manager proxy voting for 2023/24 is shown in the following table.