The NESPF takes its role as a responsible investor seriously and is constantly striving to make positive strides in its investment strategy. As a long-term investor the Fund has a duty to engage with the companies we invest in on environmental, social and governance (ESG) issues, and to work with others to effect change.
ESG in practice
There are several things that we as an investor can do to make changes for the better. Some examples of these are below:
- Climate Statement
NESPF recognises the risks associated with climate change and the potential for these to impact on the long-term value of the Fund investments, but also the opportunity for investment reward, for example in green energy investments, particularly during the period of transition to a lower carbon economy. We believe that company level engagement continues to successfully drive behaviour, an outcome we do not believe divestment would have to the same effect. The Fund’s approach to managing climate-related risks and opportunities involves both its asset allocation decisions and a robust approach to engagement and voting.
- Direct Investment
The Fund has been increasing exposure to renewable energy opportunities since 2017, including wind, solar and energy from waste infrastructure projects. Approximately £200 million in dedicated renewables has been funded to date, with a new $100 million commitment made to a Global Renewables mandate currently being drawn down. The Fund continues to seek further investments in low carbon and sustainable initiatives where there are opportunities to meet the Fund’s return requirements and risk parameters.
There are limits to what we can achieve as a single investor and believe greater progress can be made through collaboration with other investors. To accomplish this, we are members/signatories of the following ESG initiatives:
- Climate Action 100
- Carbon Disclosure Project
- Principles for Responsible Investment
- Local Authority Pension Fund Forum
- We also engage with our Fund Managers on a regular basis.
By working together, we can use our collective size to influence decision making and promote better standards of corporate responsibility.
Recent Examples of Positive Engagement
Objective: Plastics continue to pollute the environment and drain resources associated with the fight against climate change. Rising levels of plastic found in our ecosystems are quickly becoming more and more hazardous to environments, animals and humans. This year, Local Authority Pension Fund Forum (LAPFF) joined a collaborative engagement, which seeks to tackle the problem of microfibers coming away from clothes during a wash cycle and entering marine ecosystems through our waterways. An estimated 9.4 trillion microfibres are being released every week from washes in the UK, resulting in 63 percent of shrimp in the North Sea containing synthetic fibres.
Achieved: The Forum teamed up with Legal & General Investment Management (LGIM) to engage with Dixons Carphone and Sainsbury on their sourcing policies and application of these microfilters in white label goods. After some initial hesitancy, Dixon’s has now started stocking washing machines with microfiber filters and Sainsbury has stated a preliminary intention to stock these products as the emerging technology develops.
Objective: LAPFF has been engaging with Persimmon over several years following serious concerns about excessive executive pay, customer care and build quality. The Forum has also identified housebuilders as an important sector for climate change engagements, given the level of emissions from residential property.
Achieved: The meeting covered inspections of properties following historic build quality concerns and the company’s improved customer ratings. The issue of executive pay was covered, including resolving issues that led to the high pay award of the former chief executive. On climate change, Persimmon’s targets to reach net zero were discussed, they have made a commitment that all new homes will be net-zero by 2030 and for the company, including its operations, to be net zero by 2040.
Asset Specific - Solar Panel Installation
The Fund is investing just under £1 million to install 3,000 photovoltaic solar panels on to the roof of a distribution warehouse owned by the Fund in Wolverhampton.
Once finished, the panels will be able to produce 979,200 kWh of electricity per annum, which is enough to boil a kettle 8,901,818 times or supply electricity to 268 UK households for an entire year. The electricity generated will save 248 tonnes of CO2 emissions per annum, which is comparable to planting 1,550 trees.