Responsible Investment - Frequently Asked Questions (FAQs)
Is the Fund's Responsible Investing (RI) approach consistent with its fiduciary duty and LGPS Regulations?
The issue of fiduciary duty and environmental, social and governance (ESG) considerations in the investment process has been a subject of renewed attention over the last two years. The Local Government Association (LGA) on behalf of the LGPS Shadow Scheme Advisory Board retained legal advice regarding the inclusion of ESG considerations in investment decision making. Further, the UK Government recently asked the Law Commission to review the legal concept of fiduciary duty as it relates to the above remit.
Conclusions from both enquiries were aligned: trustees should take into account factors which are financially material to the performance of an investment. More details regarding the findings of the LGA review can be found here, while further information regarding the Law Commission findings can be found by visiting this webpage.
The Fund's RI strategy is entirely consistent with its fiduciary obligations as it aims to integrate financially material ESG issues into its investment approach.
Can you consider members' views when selecting investments?
Given the specific contractual arrangements with Defined Benefit Schemes, the UK Law Commission do not think that trustees are required to seek the views of their beneficiaries. However, the Fund recognizes that the UK law is sufficiently flexible to give trustees discretion to consider the views of the beneficiaries when making their investment decisions so long as certain criteria are met.
To that end, the Pension Committee does review member feedback regarding the exclusions of certain investments.
Pensions Committee papers can be found here
For more details regarding the Fund's policy regarding ethical exclusions, please refer to the questions below.
Does the Fund exclude investments on the basis of environmental, social and governance factors?
The Fund recognises that members hold varying and sometimes conflicting views of what's acceptable for a wide range of ESG issues. From a pure financial perspective, if companies indirectly or directly involved in subjectively deemed unethical activities were excluded for investment purposes, there would be very few companies left in which to invest.
As a matter of principle, the Fund adopts an engagement rather than an exclusion approach to investment decision making. For more details on the rationale for choosing an engagement approach, please refer to the question below.
How does the Fund address companies with a weak track record on ESG issues?
There is risk but also opportunity in companies that have weak governance of financially material ESG issues. Instead of excluding such companies from our portfolio as a matter of principle, the Fund prefers to adopt a policy of risk monitoring and engagement in order to protect and enhance shareholder value. This allows the Fund to use its influence as an active owner with other like-minded investors to improve ESG practices in its investee companies, influence that would be lost through a divestment approach.
If there is a serious issue and the company fails to act, then Fund would make representations to the company expressing our concerns and may vote against the company management at a shareholder meeting. Further detail regarding the Fund's engagement approach is provided in the Engagement Through Partnerships section of this website.
How do I know you take a consistent, principle based approach on voting matters?
Voting is the Fund's key communication signal to investee companies and thus is one of our most effective tools for promoting good ESG. Where practical and possible, the Fund votes every share of every company it owns in a manner that is consistent with its active principles.
For further details regarding the Fund's voting arrangements, please refer to the Voting Globallysection of our website.
How does the Fund address climate change in its investment approach?
For further information regarding the Fund approaches to the issue of climate change, please refer to the Climate Change section of the website here
How can I get further information regarding your responsible investment approach?
Comments and questions about the Fund's responsible investment approach via email to responsibleinvestment@wolverhampton.gov.uk.
