You have been head of responsible investment at London CIV for two years. Could you tell me about your role?
I develop and implement London CIV’s responsible investment strategy. Within my team there are two responsible investment managers, Alison Lee and Gustave Loriot, who specialise in stewardship and climate risk.
Alison leads our work on stewardship and engagement while Gus specialises in climate risk analytics. We all do a bit of everything, working together through ongoing and cyclical processes, starting with research and review.
At the beginning of each year, we perform ‘stock-takes’ to understand our clients’ priorities, determine what their policies stipulate, assess what our peers are doing and forecast any regulation that may be coming into force.
Then, as needed, we re-develop our own strategy documents, namely on climate and stewardship, the overarching responsible investment and engagement [RI&E] policy and the voting guidelines.
The implementation phase is ongoing. For example, we interview and meet with asset managers quarterly, while collaborating with other market participants to drive engagement.
We engage with companies directly, through our engagement partner, EOS, and through fund managers. We then disclose annually against all policies and strategies to evaluate how we are performing in terms of delivering real-world outcomes.
London CIV has more client funds than other local government pension scheme [LGPS] pool at 32. Does that mean you have 32 approaches to ESG?
We meet with our clients’ frequently to understand their priorities in order to factor them into the over-arching RI&E policy.
With regards to ESG, there are some areas where our clients disagree. The most robust approach to navigating this fact is to simply follow best practice responsible investment principles wherever possible, and to ensure that London CIV’s coverage is as comprehensive as possible.
For example, if one client is looking at human rights, while another is focusing on climate change, we should be able to provide insight, analysis and activity on both.
Similarly, our net-zero target is the most ambitious of any LGPS pool in the UK. Having set our target early means that no client should find the pool a hindrance, but rather a strong support that helps clients achieve or surpass their own targets.
Does the responsible investment strategy only apply to the £14.6bn of pooled assets? What about the assets which are not yet pooled?
I would call it more of a stepped approach. Our responsible investment policy for the most part applies to areas where we have the highest exposure and direct influence. That means our implementation strategy is focussed on pooled funds in the LCIV fund range.
Our primary focus is to liaise with our fund managers, but we also assist and advise clients wherever we can add value. For that reason, we still support clients with off-pooled responsible investment guidance and analysis where required.
That could be in terms of climate data analytics and stewardship, we might respond to consultations, or lead investee company engagements. Clients can utilise our statements, co-sign consultations or follow our lead where they agree.
However, of course, the less pooled the asset is, the lower our influence and more restricted our knowledge will be on what is contained in that fund.
That means impact and relevance is at its highest with pooled funds but that is not to say we do not support engagement and climate data analytics where clients request it.
So, if Lambeth or Camden decided to invest in a coal mine outside of their pooled assets, you might be able to speak to them about it but ultimately it would be their decision?
Given Camden’s leadership in responsible investment and Lambeth’s 2040 net- zero target, I’d be a little surprised if they clamber to invest in a new coal mine, but yes, it would be their decision. Our clients are solely responsible for their strategic asset allocation (SAA) and investment strategies.
What we can do, is help them to understand the climate risk impact of a fund, quantify that for them against the alternatives, we could even show how SAA can influence the temperature of a fund or help them understand where to prioritise engagement should they still decide to invest.
Let’s say there might be an investment in companies present in various funds, through different client investments, pooled and off-pooled.
If we had an engagement with a specific investee company on a certain topic, and the client wanted to support that engagement, we could add their investment exposure to the conversation, demonstrating the stake in the game we have collectively. It strengthens our voice when we can highlight higher exposure in partnership.
London CIV has a target of being net zero by 2040 and operationally net zero by 2025. How is that going?
It is going well, thank you. We set the target at the end of 2021 and we have since been working on our operational net-zero target.
So far, we have convened an internal working group which is comprised of a representative from each department within London CIV. Then in early February, the responsible investment team will hold a climate stocktake workshop to con- sider our progress, revise our strategy for 2023 and devise a more comprehensive roadmap that we believe will bring us closer to net zero.
We will be setting more fund and sector specific targets, as well as strategies that correspond to achieving our interim targets.
There has been a wave of downgrades of Article 9 funds. Is that a concern for you as an investor?
I am in two minds about this. It has been significant with about 1,500 funds categorised as Article 9 at risk of having that status removed because they were not investing solely in sustainable investments, or if they were, they were not providing the transparency of data needed to confirm that.
It will be interesting to see how that goes. Will Article 9 funds tighten up their own investment criteria or will they just re-classify as Article 8?
Both approaches are fine and in some cases it is possible to allow funds to launch with Article 9 as the goal yet identify as Article 8 until outstanding questions are clarified.
In some instances, it is better if managers have downgraded or a fund is re-classified, which in some instances could be in the best interest of shareholders.
It is sometimes better to have the right momentum in terms of greening funds instead of assuming that everything is already in place.
There is nothing wrong with investing in funds where you have influence to improve its ESG credentials. That is the point of an activist owner, who has the opportunity to influence change through targeted, effective and focussed engagement.
London CIV is a prominent investor in infrastructure. How do you monitor ESG factors in those investments?
In my experience, incorporating ESG into infrastructure you need a sharp focus on good governance. Obviously, that is the absolute bare minimum for successful private operation of public interest assets in infrastructure investing programmes and, I would say, the starting point for robust responsible investment considerations with regards to environmental and socio-economic impacts.
How infrastructure investors respond to environmental and social issues can also be indicators of leading practice. Infrastructure projects can have a direct impact on biodiversity and natural resources while the use of the local environment can potentially have significant effects on the energy transition. We invest in renewables as quite a large chunk of our infrastructure investments.
We monitor all of this by having quarterly meetings with infrastructure fund managers, which are included in our quarterly investment reports, at a fund level, that we share with our clients.
Typical questions we might ask during manager meetings will relate to the corporate governance of the manager and their sub-managers. We will then think about the environmental and social impact footprint and consider how well they are doing in terms of disclosure, transparency and stewardship.
Are they engaging with the investee companies or with the infrastructure investing programmes on a thorough basis? Are they generating improvements in the way those infrastructure assets are operated or managed?
We have quite a detailed set of scoring criteria that we use to ask these questions on a quarterly basis. This happens in the investment mandate design and the due diligence that takes place before a manager is selected. Then it continues throughout the investment lifecycle, on a quarterly basis.
As a fine artist who works in finance, it is possible to say that I work cognitively differently to other members of the team.
As an artist, diversity and inclusion are issues that are close to your heart. What are you doing to address that in your role at London CIV?
My boss bought me Freakonomics [by Steven Levitt and Stephen J. Dubner] for Christmas. It has a great quote at the beginning that says: “Morality is how we think the world should work and economics is how it actually works.”
Ironically, I believe that equality and diversity is not just the right thing to do ethically, but there are also financial and socio-economic benefits to it.
Some research I have been doing for a project has found that women’s equality, for example, will be achieved 136 years from now.
Whilst our attention shifts to issues around war, energy security or climate agreements, potentially the key to solving a lot of the world’s problems lies in the hands of those who think differently to the norm, and those who would make up a diverse business or boardroom.
It is for that reason, issues around diversity and inclusion are close to my heart at London CIV and something that should be at the top of all investors’ priority lists.
We were one of the founding members of the Asset Owner Diversity Charter and we have encouraged all our asset managers and other broader industry participants to sign up.
I am working with Andreas Hoepner to develop COPy, which is going to be a conference on parity, where we hope to encourage businesses to sign up to net-zero targets on inequality to see if we can truly beat the abysmal 136-year forecast. As a fine artist who works in finance, it is possible to say that I work cognitively differently to other members of the team.
In my personal experience, I have only ever found it helpful to have people from different professions, disciplines and backgrounds in order to solve key problems because none of us think in the same way.
We have used a myriad of people working with London CIV with different professions and backgrounds in terms of their academic practice and they come up with some great solutions to the problems we face.
What will be the main engagement topics you will be focussing on this year?
Coupled with our focus on climate change risk, we will prioritise interlinked themes such as biodiversity and reforestation.
Human rights remain important to us as we continue to engage with companies accused of a range of activities, from benefiting from forced labour of Uyghurs to supporting human rights abuses in Palestine or providing arms to commit war crimes in Yemen or maintaining business relationships with military affiliated Mytel or Viettel in Myanmar.
We have a lot on the agenda in terms of human rights so we have to take it one theme at a time. It can be quite a long process to understand where our exposure lies and to come up with a statement on our position with regards to each topic.
Only after that can we start engaging with managers to understand how they will factor our concerns into their conversations with investee companies.
The opinions expressed in this interview do not necessarily reflect those of London CIV.
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