The launch of this new document sets out the Fund's approach to investing responsibly in all our asset classes, and our position on climate change and the carbon transition.
Lothian Pension Fund (LPF), Scotland’s second largest Local Government Pension Scheme fund with over £8 billion assets under management, announces the launch of its new Statement of Responsible Investment Principles. The statement can be viewed here.
The Pensions Committee on 24 June 2020 at City of Edinburgh Council adopted a new Statement of Responsible Investment Principles for the Lothian Pension Fund. Committee Chair Councillor Alasdair Rankin explains: “The last few years have seen enormous growth in the acceptance of the importance of informed stewardship and responsible investment of the assets at Lothian Pension Fund. Today we implement an entirely new policy document – our Statement of Responsible Investment Principles. This document sets out our approach to investing responsibly in all our asset classes, and our position on climate change and the carbon transition.”
Lothian Pension Fund’s Chief Investment Officer Bruce Miller adds: “While our statutory Statement of Investment Principles incorporates elements of our approach to responsibility, we feel that it’s in the interests of our members to be transparent in the methods we use to foster responsible investment as an organisation. We’re very clear that our primary responsibility is to be able to pay the future pensions of our members, but it’s important to all stakeholders that we invest in a manner that the average member sees as fair and reasonable. While some of our members will have very strong views on particular companies or sectors, this document articulates how we aim to invest in a responsible manner on behalf of all members whilst not overly emphasising the specific ethical viewpoints of individual members, trustees and portfolio managers.”
Key to adoption of the new Statement of Responsible Investment Principles was David Hickey, a European Equity manager at LPF who has been leading on the firm’s overall approach to responsible investment since 2015. David emphasises the approach to climate action the fund is taking: “Climate Change is undoubtedly one of the defining issues of our time. LPF has recognised this in our actions in recent years, with co-filing a successful climate resolution at BP last year, and in joining collaborative engagement effort Climate Action 100+ where we have become a key part of the team engaging with Finnish utility company Fortum. We make some specific commitments going forward – to measure the carbon intensity of 100% of our assets by 2022; to cease any primary investment in companies that aren’t aligned with the goals of the Paris agreement; and to continue engaging with non-Paris aligned companies until 2025 with any companies making little progress towards the goals likely being divested at this point. We’ll use Transition Pathway Initiative tools to derive Paris compliance in our stocks. The mantra we’ll follow from now on is very clearly ‘Engage our Equities, Deny our Debt’. Lothian Pension Fund will no longer supply new funding to non-Paris aligned companies either through new bond issuance or through new equity issuance.”
Fixed Income analyst Miko Zhou expands on this: “Traditionally carbon footprints measures have only been applied to equity holdings, but the reality is that new capital fundraising happens in the debt markets far more than the equity markets. It’s this bond issuance that’s often used to finance new capital projects. Where a company is not aligned with the Paris Agreement this new capital could be used to build a project that doesn’t consider the need to limit carbon emissions. This is not only against our values as an organisation committed to the goals of the Paris Agreement, it’s also a huge business risk, tying capital to assets that are likely to become stranded in a decarbonising economy and therefore increasing the risk of capital impairment of our investments. Neither of these are acceptable outcomes.”
CEO Doug Heron has driven the shift towards transparency since taking on the role in April 2019: “Lothian Pension Fund has always tried to be at the forefront of transparency in our approach to responsible investment, with our commitment to Principles for Responsible Investment, the UK Stewardship Code and more recently in publishing figures aligned to the Taskforce for Climate-related Financial Disclosures (TCFD). Our new public Statement of Responsible Investment Principles is a natural next step in that approach. This is the first edition of a working document that will evolve over time to best reflect how we wish to act as responsible asset owners. We also hope that this could be the start of an open conversation around collaboration that will lead to other funds implementing similar statements and we’re happy for this document to become a basis for wider adoption of such standards throughout the Local Government Pension Scheme space.The team at LPF take our responsibility as an asset owner very seriously, and we believe that asset owners have a unique ability in driving the changes in governmental and corporate behaviour to bring about an acceleration in the sustainable energy transition and a decarbonisation of the global economy.”