Responsible Investment

We understand that ESG risks and opportunities can materialise affecting our ability to provide members' pension benefits. We aim to identify, monitor and manage these risks before, during and after any investment decision.

As a long-term asset owner, we have an opportunity to seek positive real-world change whilst protecting and enhancing the Fund's assets within the scope of our fiduciary duty. In line with our Responsible Investment Framework, we adopt a three-pillar approach: selection, stewardship, and reporting and disclosure. For more information please view the Responsible Investment Framework in the Downloads section.

Stewardship

We prioritise an engagement over divestment approach to investment. Stewardship is an important tool that fulfils that role, translating portfolio decarbonisation into real-life decarbonisation and ESG risk mitigation into real-life positive change. We expect our approach to evolve with increasing data availability; improvements in understanding of complex issues and the development of best practices. To read our full approach, please view the Annual Stewardship Report 2022 in the Downloads section.

To tailor our stewardship methodology, we selected four key engagement themes over 2020-2023 to target

Climate Change

The Fund has set ambitions to achieve net zero by 2050 or sooner in line with the Paris Agreement.

As pension fund and asset owner we recognise the risks associated with climate change and the challenges its presents to us in fulfilling our fiduciary duty. As best practice methodologies and legalisation begin to emerge, the Fund aims to:

Refine metrics to measure progress and alignment towards 2050 net zero and our interim targets - Collect, measure and track operational and investment portfolio emissions data - Reduce investment portfolio and operational carbon emissions, where possible - Explore opportunities to invest in climate solutions - Engage with governments, companies and investors to ensure disclosure, action and alignment to net zero throughout value chains - Collaborate to influence positive change and drive meaningful action on a global scale

Our approach is further detailed in the Climate Change Framework and Strategy 2021, which can be found in the Downloads section.

The Fund has published its latest stand-alone Climate Related Financial Disclosure report, which can be found in the Downloads section, to further enhance transparency and disclosure around our approach to climate strategy and risk management.

The Fund recognises the need for action to address climate change on a global scale and that it has a role to play in ensuring transition to a lower carbon economy. More details on our partnerships can be found within our Annual Stewardship Report 2022, which can be found in the Downloads section.

Human Rights

Addressing the civil, political, economic, and social and cultural human rights, such as the right to life, the right to freedom of association or the right to health.

The Fund recognises the breath of human rights issues that exists across our borders, such as the illegal settlement of Palestinian land or human rights concerns within the mining industry, and within our borders, such as the human rights concerns associate with data from social media. As asset owners, we take responsibility over the assets we hold by applying the Responsible Investment Framework and appropriate due diligence to ensure these issues are identified, monitored and addressed.

These challenges can be difficult to address, hence the Fund leverages collaborative engagement as a mechanism to work with like-minded investors to pursue action. Through Local Authority Pension Fund Forum (LAPFF), EOS at Federated Hermes and LGPS Central, the Fund can directly engage with companies on their human rights assessment and due diligence.

Sustainable Food Systems

Ensuring the development of a sustainable food system that delivers food and nutrition security for all in such a way that the economic, social and environmental bases for future generations are not compromised.

Responsible Financial Management

Establishing a practice of responsible financial management that criticises tax avoidance by some large multinationals.

Engagement through partnerships

The Fund firmly believes that partnership and collaboration, with companies, fund managers, regulators and other influential bodies, is required to improve investor outcomes over the long-term. Accordingly the Fund may: - engage in dialogue with policymakers, investors and companies to accelerate the shift to a low carbon economy - enter into dialogue, participate in consultation processes for RI-related regulations - engage with companies, through partnerships, as part of our stewardship approach

As a founding authority of the Local Authority Pension Fund Forum (LAPFF), we are a longstanding advocate of collaborative engagement and aim to protect and enhance asset values over the long term through increasing dialogue, transparency, and disclosure. Further partnership and collaboration include:

Voting Globally

The Fund’s Voting Principles deals with issues not covered by the UK Corporate Governance Code; requiring greater emphasis or left open for shareholders to resolve with company boards. For the remaining markets, we endorse PIRC's International Shareholder Voting Principles.

The Fund uses a proxy voting agency for analysis of governance issues and executing its proxy voting rights across all markets in which it invests.

Voting activities are disclosed on a vote-by-vote basis. Quarterly summaries of the Fund’s voting activities are disclosed as part of the quarterly Pension Committee meeting with historic reports available on ModernGov.

Code and Principles

Industry standards encourage investors to be effective stewards or owners of their assets. Therefore, the Fund strives to meet best practice in all areas of its operations including responsible investment.

We were one of the first UK pension funds and asset owners to attain signatory status to the UK Stewardship Code and have maintained our signatory status since, reflecting the Fund’s commitment to the highest levels of stewardship against the Code’s 12 principles. The Fund also adheres to the UK Corporate Governance Code and is a signatory to the United Nations-backed Principles for Responsible Investment (PRI).

Responsible Investment 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. 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. For more details regarding the findings of the LGA review please visit LGPS Advisory Board Publications, while further information regarding the Law Commission findings can be found by visiting Law Commission.

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 recognises 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.

To view Pensions Committee papers please visit ModernGov.

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. For further detail regarding the Fund's engagement approach please view Annual Stewardship Report.

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 view Voting Globally.

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 view Climate Change.

What is the Fund's stance on the issue of divestment from carbon-intensive stocks and Oil and Gas companies?

At the present time, the Fund does not believe that divesting its investments from carbon-intensive stocks would be in the best interests of our members. This is a position that the Fund continues to re-evaluate as the market dynamic changes. The Fund believes that there is a chance of re-pricing of oil and gas assets but remain unsure as to the exact timing and quantum. In the short to medium term, the Fund favours intensive and robust engagement, where we believe there is opportunity to add value to the portfolio over the short to medium term by working with the companies (and indirectly through our fund managers) to help them reshape their business models.

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

For any Responsible Investment query, please email the team directly via responsibleinvestment@wolverhampton.gov.uk

WEST MIDLANDS PENSION FUND

Stewardship

Engagement through partnerships

Voting Globally

Code and Principles

Member specific content

Responsible Investment Policies and Reports

Climate Change

Engagement and Voting

Position Statements

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