A new European Directive for Pension Funds ("IORP II"), recently backed by the European Parliament, has been described as "a landmark moment for responsible investment in Europe".
Given the uncertainty around Brexit, it remains to be seen whether the UK will transpose the Directive into law, but what we can be certain of is that GMPF is already ahead of the curve in terms of integrating Environment, Social and Governance factors into our investment decisions.
Back in July 2015, in advance of the COP 21 meeting in Paris, we held a debate on Climate Risk, with representatives from one of our Fund Managers, a leading think tank on climate change, and our corporate governance advisor. A pamphlet summarising the key arguments is available here. Crucially, we are firm believers in using our voice as a shareholder to engage with companies to effect positive change, rather than divesting from companies and passing the problem on to somebody else, who may not share our commitment to responsible investment. We are part of a wide collective of asset owners and asset managers pushing for companies to align their business models with a 2 degrees scenario, and an orderly transition to a low carbon economy.
In May 2016, we were extremely pleased to have been ranked 30th in the world by the Asset Owners Disclosure Project (AODP) for the leadership we have shown in managing climate risk in investments.
But we have not rested on our laurels, and I am excited to be able to provide an update on two extremely interesting initiatives that we have been involved in through our membership of the Local Authority Pension Fund Forum (LAPFF), a coalition of 71 LGPS funds representing over £175 billion of assets, which I chair.
Firstly, LAPFF's unique engagement strategy with oil, gas and coal companies has been developed with Carbon Tracker Initiative and is available in a report here . It is estimated that the fossil fuel industry could waste investments of $2 trillion by 2035 if it continues to invest under a growth model. We will push companies to curtail this high risk capital expenditure and return cash to shareholders.
Secondly, LAPFF have recently given its backing to the Transition Pathway Initiative. Developed by asset owners including the Environment Agency Pension Fund, this tool will be used to understand where companies currently sit on the transition to a low carbon economy and assess companies’ management and competence to manage this transition. It will inform investment decision-making and help focus engagement on priority areas.
Climate change is a massive global challenge. But it is also provides opportunities, and this year GMPF has invested millions of pounds directly into renewable energy facilities, including biomass plants and a UK windfarm. These green infrastructure investments will not only help in the fight against climate change, but will secure the pensions of hundreds of thousands of members over the decades to come.
Cllr Kieran Quinn, Chair of the GMPF Management and Advisory Panels
30 November 2016