You became senior investments officer in January. How has your first year been?
It’s been a learning curve. Learning how the local government pension scheme (LGPS) works, how the fund operates and how it works together with other funds in our pool. It’s been interesting and a challenge to learn a new way of working.
The people and culture within the LGPS are particularly interesting, coming from a diverse range of backgrounds and the breadth of knowledge they bring.
Could you tell me about the challenges you mentioned?
The biggest challenge has been getting to know how the pension fund works. My previous experience has been in private client investment management, so running model portfolios for financial advisers. Coming to a pension fund and learning technical elements of how this world works and how the public sector works has, for me, been the biggest challenge.
I still feel like I am learning new things every day. I am now overseeing the investment strategy and the oversight function, so it’s a bit of a change on what I did previously.
What attracted you to the role?
The opportunity to develop my skills. I was looking for something that is different from private client investment management but retained a strong element of investment. When I received the email about this job, I thought it ticks a lot of boxes for me.
I get the opportunity to look at, particularly on responsible investing, something that perhaps is more forward thinking than the private client world, where financial returns are the main driver and responsible investing, or any form of ESG criteria, comes secondary.
Coming from the outside, what do you make of the LGPS and pooling?
I have been impressed, particularly from a responsible investment point of view, as it is embedded in everything we do. I was perhaps surprised at how much emphasis there is on responsible investment and stewardship.
Brunel Pension Partnership [Avon’s pool] is leading in this area. There are 10 partner funds within Brunel and I sit in a lot of meetings with those funds. There is a huge amount of collaboration between Brunel’s funds.
Are the government’s grand plans for the LGPS, which could see them create super-funds, a good idea?
It’s a topical issue. We are going through the consultation at the moment. Investment in the UK is happening already. We have a huge private markets portfolio that directly invests in the UK. Our local impact portfolio is an example of how we specifically target the UK, and where possible the southwest [of England].
We might be asked to do more in the future, but, as a fund and as a pool we have good foundations already.
Your role is to oversee the fund’s responsible investing, particularly on climate, and implement local impact investments. What have you undertaken to fulfill these responsibilities?
I am building on great foundations. As I mentioned, responsible investment is embedded in everything we do and the fund has made huge strides in decarbonising the portfolio.
That’s only part of the story. Perhaps decarbonisation and nature solutions go hand in hand. Perhaps removing carbon from the atmosphere is the next stage of how we will meet our targets.
So we have been doing a lot of work this year on nature-based solutions. We have been working with some of the other funds and Brunel on creating a nature-based or natural-capital portfolio. Directly targeting sustainable agriculture, forestry and emerging technologies that help the energy transition has been a focus this year and that work is ongoing. We hope to make good progress on that.
On the responsible investing front, natural capital is the next step of our evolution.
On local impact, shortly before I joined the fund, we agreed to commit 3%, around £170m, of our assets towards local impact solutions. And we have made good progress in a year.
That kicked off with the appointment of Schroders for the Wessex Gardens investment, which aims to drive renewable energy initiatives and foster local economic growth. We partnered with five other funds on that and we committed £50m.
We also invested in a portfolio of 17 solar farms across the southwest. That has been positive and a good demonstration of working with other firms doing local investment within the Brunel region to create positive impact.
We implemented an affordable housing solution, investing in the Octopus Investments Affordable Housing Fund. In July, we made a £50m commitment to that fund which will generate around 250 affordable homes.
We are working on another element, which is SME funding. We are in the process of appointing a manager who will run an SME fund.
What are your net-zero ambitions?
There was a lot of work done just before I joined looking at our net-zero targets. Basically, the headline is that we have committed to being net zero on financed emissions by 2045 across the whole fund.
There has been good progress on the interim targets that were set around 2019/20. They include from 2025 to 2030 a commitment to divest from high-impact companies if they cannot show evidence that they have, or they will have, a credible alignment strategy before 2030.
So divestment is an option?
There is a point where we will divest because companies are not meeting our requirements. We are working with Brunel, who are helping us with that, as they are managing the portfolios and engaging with the underlying companies.
How effective, in your view, is the investment industry in addressing ESG issues?
As providers of capital, the investment industry has a huge role to play in influencing companies and getting them to respond to ESG considerations.
There has been huge progress made in this area over the past two decades, which has accelerated since the pandemic. Companies have increased the ESG metrics and the disclosures they are making in their annual and suitability reports.
We have seen developments through institutions such as the International Sustainability Standard Board and the Global Reporting Initiative. These are helpful to work towards forming standards to help
incorporate these into the investment process. Increased standards have a big part to play – the more standards there are, the more the industry has to comply with. Within the LGPS, Brunel continues to demonstrate leadership in the ESG field.
Is the anti-ESG investment backlash in some quarters worrying?
It’s something that has been rumbling for a little while. It has been getting a lot of media attention in the US but is not conned to there. Some oil and gas majors have been quite vocal about their opposition to ESG policies, which they claim are harmful to their business models.
It poses a challenge, and we may see a shift in the way companies talk about ESG. We may see companies talk about sustainability and responsible growth more. Maybe it won’t change the way companies do things, but it might change the way that they communicate and report on things.
The standardisation of reporting will help deal with the greenwashing claims. And it has all been compounded by the economic climate as well. Perhaps this has prompted some investors to question the validity of ESG strategies. Larry Fink from Blackrock has said he is not going to use the term ESG anymore. But ultimately, it won’t affect Blackock’s policies on ESG.
But ESG investment, if you want to call it that, has huge support from a broad spectrum of stakeholders. And it is critical in shaping a sustainable future.
Fundamentally, we still believe that investing in companies that are genuinely sustainable are going to give the greatest shareholder return to our members over the long term.
What for you is the most important part of your work?
I would say the most important part of what we do is our fiduciary duty to pay the pensions of our members. And to do that, we need to generate stable long-term returns.
That’s what we are trying to do. But also it’s important to do that in a financially responsible way, managing those financially material, environmental, social and governance risks. We are trying to be responsible stewards of capital.
Do you have any other ambition in the responsible investing space?
It is around the natural capital of the earth. There is a lot of work that we need to do around that to ensure that anything we invest in has the utmost highest integrity.
We want to put together a portfolio that is leading edge within natural capital and goes beyond forestry and agriculture and looks at emerging technologies and is net-nature positive. So basically we are trying to leave the world in a better place than we found it.
What has been the biggest lesson of your career?
I would love to say something hugely profound. But it comes down to the fact that change is inevitable: businesses change, your personal life situation changes, companies evolve, grow, get taken over and you just have to adapt. Change doesn’t have to be bad.
So as part of that, being open to new ideas and new opportunities is important. The world is evolving and you have to adapt with it. That applies to all facets of life.
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