This meeting of the Pensions Advisory Panel included an update on the administration of the Southwark Pension Fund and discussions about a recent government consultation. It also included a number of updates on the current investments being made by the Pension Fund, and in particular its transition to net zero carbon emissions.

LGPS Fit for the Future Consultation

This item¹ considered a recent government consultation, the Local Government Pension Scheme (England and Wales): Fit for the future.

This consultation proposes a number of changes to the way that Local Government Pension Schemes in England and Wales operate, and asked whether the panel agreed with those proposals.

These proposals include the requirement for schemes to:

• Fully delegate the implementation of their investment strategies to their chosen pool. In Southwark's case, this would be the London Collective Investment Vehicle (LCIV).
• Ensure that all pools are regulated by the Financial Conduct Authority.
• Transfer all legacy assets² to the pool by 31 March 2026, and all listed assets by 31 March 2025.

The proposals also include suggestions for how to encourage local investment, and propose some improvements to the governance of both individual schemes and pools.

Investment in Conflict Zones

This item³ considered the arguments for and against divesting from investments in companies that operate in Israel.

It argued that the Council's primary fiduciary duty is to the members of the scheme, and that this must be balanced against any decision to divest.

The report identified that Southwark currently has around £4.5m invested in companies that are listed on a UN list of companies operating in the West Bank, and that:

Given the majority of the holdings are in pooled funds, (with BlackRock and LGIM) as one of many investors in these funds, we do not have any influence over the underlying holdings.

The report concluded that:

Given the complexities and limitations of the options available to the LBS fund in terms of divestment, it is not possible to demonstrate that divestment from Israeli investments would meet the fiduciary duty requirement [...] that the precise choice of investment may be influenced by other, wider factors if they do not risk material financial detriment to the fund.

Listed Assets Review

This item⁴ considered which of the Pension Fund's investments meet the government's expectations for pooling.

The report identified that, while the fund's passive equity investments and investments in Index-Linked Gilts are already held by LCIV, its investments in Active Global Equities, Active Emerging Market Equities and Multi-Asset Credit are not.

The report proposed that any decision to transition these assets to LCIV be deferred until after the government's consultation is complete.

Asset Allocation and Net Zero Strategy Update – 30 September 2024

This item⁵ provided an update on the value of the Pension Fund's investments, and described some of the changes to these investments that have taken place during the last quarter.

The report highlighted a number of changes to the Fund's investments, including:

• A significant reduction in the valuation of the Darwin Leisure Development Fund, from £25m at 30 June to £18.7m at 30 September 2024, which Darwin attributed to:

  the challenging economic backdrop and impact on costs and revenues

• Confirmation that the Fund's investment in the Glennmont Clean Energy Fund IV had been completed.

• An operational change to the benchmark used to assess the performance of the Fund's investment in directly held properties, managed by Nuveen.

The report also provided a breakdown of the Fund's investments by asset class and manager, and discussed their performance over the last quarter.

Advisors' Updates - Quarter to September 2024

This item⁶ provided reports from two of the Pension Fund's advisors, David Cullinan and Aon.

David Cullinan's report described the recent performance of a number of the Pension Fund's investments, while Aon's report provided a high-level overview of the fund's overall performance, strategic positioning and asset allocation.

Update on the Local Pension Board

This item⁷ provided an update on the Local Pension Board's meeting held on 9 October 2024.

The report described how the board discussed a number of topics, including:

• The General Code of Practice for pension schemes, and the Southwark Pension Fund's compliance with it.
• The administration of the Pension Fund, and progress on issues such as cyber risk, the National Pension Dashboard and the issuance of annual benefit statements.
• An independent assessment of the fund's approach to the 2022 triennial valuation, conducted by the Government Actuary Department.
• The Pension Fund's risk register, and the addition of a new risk, Pensions Scams.
• Recent developments in the LGPS, including the government's Pensions Investment Review.
• The reappointment of Mike Ellsmore as the Chair of the Local Pension Board.

Carbon Footprint Update - 30 September 2024

This item⁸ provided an update on the carbon footprint of the Pension Fund's investments.

The report showed that the carbon footprint of the fund has reduced by approximately 82% since September 2017, but increased slightly during the last quarter.

It discussed the carbon footprint of each of the fund's investments, and highlighted where changes to these investments have had a positive or negative impact on the fund's overall footprint.

Update on Engagement and Voting Activity

This item⁹ provided an update on the engagement and voting activities of the Pension Fund and its investment managers, covering the period up to the end of September 2024.

The report listed the key themes that have been the focus of engagement and voting during the last quarter, and summarised the activities of each of the fund's investment managers. It also described how the fund is working with BlackRock and LGIM to explore pass-through voting for the pooled equity assets, to allow the fund to better align its voting activity with its responsible investment policy.

Metrics to be considered as part of the Equality, Diversity, and Inclusion policy

This item¹⁰ described the key metrics that the Pension Fund will use to track its progress on implementing its Equality, Diversity, and Inclusion policy.

These metrics will track the diversity of the Pension Fund's governance structure and staff, and of its external stakeholders, such as investment managers and consultants. The fund will also track the number of EDI-focused training sessions provided to staff and stakeholders, and the extent to which stakeholders are implementing their own EDI initiatives.

Pension Services - admin/ops update

This item¹¹ provided an update on the work of the Pension Fund's Pension Services team.

The report provided details of progress on a number of ongoing initiatives, such as the implementation of a new tracing and mortality screening service, and the development of a new self-service portal. It also provided an update on the National Dashboards Programme, and on the impact of the Autumn 2024 UK Budget on the LGPS. The report concluded by highlighting the importance of recruitment and retention of key staff.