The Pensions Committee was scheduled to be provided with an update on the work undertaken in relation to responsible investment activities, and to approve the publication of the Fund’s 2024 Climate-Related Financial Disclosure Report. In addition, the committee was scheduled to receive an update on the forecast outturn against the operating budget and to be presented with the quarterly accounts to 30 September 2024.

Responsible Investment Activities

The committee was scheduled to be asked to note that the Fund’s strategy is to engage with its investee companies and other key stakeholders through partnerships, including the Local Authority Pension Fund Forum (LAPFF), EOS at Federated Hermes, and LGPS Central, in order to “protect and increase shareholder value” by engaging on a range of environmental, social and governance (ESG) investment factors.

LAPFF

The report pack says that through LAPFF, the Fund engaged 105 companies on 163 engagement issues during the quarter. LAPFF actively engaged 22 companies through direct meetings and is closely monitoring for improvements following the engagement.

The committee was scheduled to be asked to note examples of the engagement that took place, including engagement with Drax, the UK’s largest single emitter of carbon dioxide, about its “business model, environmental claims, and future viability”.

Drax’s operations rely heavily on a £500m annual government subsidy, which is set to expire in 2027, and the company’s plans for BioEnergy Carbon Capture and Storage (BECCS) would require further long-term subsidies despite uncertainties over its feasibility. (Responsible Investment Activities Report Final)

The report pack says that LAPFF has also engaged with a number of airlines including Ryanair, to explore their strategies for decarbonisation. The report pack says:

Airlines contribute approximately 2% of global CO e2issions, making their decarbonisation a critical focus for addressing climate change. (Responsible Investment Activities Report Final)

The committee was scheduled to be asked to note that LAPFF has also engaged with FTSE 100 companies “to allow shareholder votes on their climate transition plans ahead of the 2025 Annual General Meeting (AGM) season.” (Responsible Investment Activities Report Final)

The report pack says that LAPFF has engaged with a number of UK water utility companies to address pollution of rivers and coastal areas caused by Combined Sewer Overflows (CSOs).

With the UK government targeting an average of no more than 20 CSO overflow incidents per year by 2025, LAPFF aims to ensure companies meet these goals through cost-efficient investments and robust environmental and social commitments. (Responsible Investment Activities Report Final)

The committee was scheduled to be told that in the last quarter, LAPFF met with the chair of Severn Trent Water to discuss their investment plans.

The committee was scheduled to be told about LAPFF’s engagement with L’Oréal “to discuss its efforts to eliminate child labour in Egypt’s jasmine supply chains.” (Responsible Investment Activities Report Final) The report pack says that LAPFF are satisfied that L’Oréal are taking the issue seriously. The report pack says:

LAPFF’s engagement provided assurance of meaningful actions being taken, reinforcing members’ confidence in the company’s commitment to mitigating human rights risks. (Responsible Investment Activities Report Final)

The committee was scheduled to be told that LAPFF has engaged with a number of companies, including Compass Group, Hollywood Bowl, Mitie Group and Frasers Group, to understand how they use zero-hours contracts (ZHCs), and how they would be affected by the government’s proposed Employment Rights Bill, which would ban the use of ZHCs.

The committee was scheduled to be told that LAPFF has engaged with AstraZeneca, Pearson and Synthomer about the high levels of shareholder dissent on executive remuneration.

During Q3, LAPFF engaged with UK-listed companies that experienced significant shareholder dissent regarding executive remuneration during the 2024 proxy season. (Responsible Investment Activities Report Final)

The report pack says that LAPFF engaged Vistry Group “to discuss its climate transition strategy and governance practices”. (Responsible Investment Activities Report Final)

EOS at Federated Hermes

The report pack says that during the last quarter, EOS undertook 688 engagements with 242 companies on behalf of the Fund, “addressing climate change, environmental, human rights, and governance issues”. (Responsible Investment Activities Report Final)

The committee was scheduled to be told about EOS’s engagement with Associated British Foods (ABF), in particular, its Primark clothing brand, “to advance circular economy practices and reduce waste”. (Responsible Investment Activities Report Final) The report pack says that “Progress was evident by 2022, when ABF committed to sourcing all its clothing from recycled or sustainably sourced materials by 2030.” (Responsible Investment Activities Report Final)

The committee was scheduled to be told about EOS’s engagement with IQVIA, to encourage it to improve the diversity of its board, which had previously been all male.

LGPS Central

The report pack says that in the last quarter, LGPS Central engaged 402 companies on 566 engagement issues. The report pack says that “Against 350 specific objectives, positive progress was measured on 58 occasions.” (Responsible Investment Activities Report Final)

The committee was scheduled to be told that LGPS Central met with building materials manufacturer and distributor CRH “to discuss how the company is managing climate-related risks”. (Responsible Investment Activities Report Final) The report pack says that the discussion with CRH covered the company’s exposure to coal, Paris-aligned accounting, and the just transition.

The committee was scheduled to be told that LGPS Central engaged with HICL Infrastructure Company “to address concerns raised [about its compliance with listing provisions] when the board's diversity stood at 22% for gender and lacked disclosure on ethnic or racial diversity”. (Responsible Investment Activities Report Final)

Voting

The report pack says that in the last quarter, the Fund voted at 304 company meetings representing 3,483 resolutions. The report pack says that the fund opposed one or more resolutions at 167 meetings.

The largest number of resolutions that were opposed concerned board structure and remuneration (usually voting against non-independent non-executive directors where the Fund or its advisors do not see sufficient independent oversight on a company board). (Responsible Investment Activities Report Final)

Climate-Related Financial Disclosure Report

The report pack says that the committee was scheduled to be asked to approve the publication of the Fund’s 2024 Climate-Related Financial Disclosure Report (05. Appendix A 11.69 by 8.27). The report pack says that the carbon footprint of the Fund’s Listed Equity portfolio is currently 50% lower than the reference benchmark, and that the fund has achieved a 45% reduction in the carbon footprint of its Listed Equities portfolio since 2019. The report pack says:

Climate-related financial risks continue to be of upmost importance in protecting the value of the Fund’s investments in the long-term. In line with the recommendations of the Taskforce for Climate-Related Financial Disclosure (TCFD), the Fund has undertaken annual climate analysis on its Listed Equities portfolio and reports progress against its ambitions and targets within the 2024 Climate-Related Disclosure Report. (Responsible Investment Activities Report Final)

Global Investor Statement 2024

The committee was scheduled to be told that in September, the Fund signed the 2024 Global Investor Statement to Governments on the Climate Crisis. This statement calls on governments to take action to accelerate private capital flows into climate-resilient investments.

Quarterly Investment Report

The committee was scheduled to be told that the West Midlands Pension Fund recorded a market value of £21.4bn as of 30 September 2024, an increase from the £21.2bn reported at the end of June 2024.

The committee was scheduled to be told that in the third quarter of 2024, the main fund recorded an absolute return of 1.1%, below its benchmark of 1.7%, resulting in an underperformance of 0.6%. In the 1-year period to September 2024, the fund achieved a return of 9.6%, which is above long-term expected returns but below the benchmark by 3.0%.

Over longer time frames, the Fund recorded an annualised return of 3.2% over 3 years and 7.2% over 10 years. In these periods, the Fund underperformed the benchmark by 1.1% p.a. and 0.4% p.a. respectively. (6.0 Quarterly Investment Report to 30 Sept 2024 final)

The committee was scheduled to be told that for the quarter ending September 2024, the West Midlands Travel Limited (WMTL) Admitted Body Separate Fund delivered an absolute return of 2.7%.

Over the past year, the performance of [the WMTL sub-fund] has been strong, with WMTL achieving a return of 12.5% [...] The LDI portfolios are designed to move in a similar fashion to the expected change in the value of the ABSFs’ liabilities in response to changes in interest rates and inflation expectations. (6.0 Quarterly Investment Report to 30 Sept 2024 final)

The committee was scheduled to be told that the Preston Bus (PB) Admitted Body Separate Fund returned 1.8% over the quarter.

External Audit Update

The committee was scheduled to be told that Grant Thornton LLP, the Fund’s external auditors, are expected to issue an unqualified audit opinion for the Fund. The committee was scheduled to be asked to note the publication of the Fund’s 2023-24 Annual Report, which is available on the Fund’s website.

Budget Monitoring

The committee was scheduled to be told that the West Midlands Pension Fund is forecasting an additional spend of £3.5 million at the year-end, incorporating a £1.6 million additional spend relative to budgeted operational costs and £1.9 million additional spend relative to budgeted investment management costs.

The forecast operational overspend took into account additional short-term capacity for the period, to support with processing of outstanding casework. (08. Budget Monitoring Report Final)

The report pack says that the forecast cost for investment management expenses is an additional spend of just under £2.0 million.

Investment management costs are by their nature heavily influenced by market movements, investment performance, and strategy changes and will therefore fluctuate during the year. (08. Budget Monitoring Report Final)

The committee was scheduled to be told that the net assets of the fund were estimated to be £21.6 billion at 30 September 2024.

Pensions Administration Report

The committee was scheduled to be asked to approve 19 applications for admission from employers into the Fund as detailed in Appendix B of the report (09. App B).

The report pack says that the number of scheme member records in the Fund on 30 September stands at 355,128, and that there was a net increase of 2,608 member records over the previous quarter.

The committee was scheduled to be told that the volume of transfer casework outstanding has “significantly decreased” since the end of the last reporting period, and is now “at pre-system transition levels.” (09. Pension Administration Report Final) In addition, the committee was scheduled to be told that over 4,792 workflows were completed within the payroll team, a 20% increase from the previous period.

The committee was scheduled to be told that 92 individual transfer payments were made between 1 July 2024 to 30 September 2024, resulting in a total amount transferred of £4,479,507. Of those payments, 13, totalling £529,152, were to non-LGPS schemes. 77 payments, totalling £3,904,303, were to other LGPS Funds.

The committee was scheduled to be told that the gross annual value of pensions in payment to September 2024 was £683 million.

The report pack says that the number of employers participating in the Fund stands at 854 as at 30 September 2024, and that there has been an increase of over 100% since March 2014.

Customer Engagement Update

The committee was scheduled to be told that between 1 July 2024 to 30 September 2024, 1,559 members attended the Fund’s presentations, webinars, workshops and other events.

Our events are delivered at various times throughout the day to accommodate attendance around member and work commitments. (10. Customer Engagement Report Final)

The committee was scheduled to be told that during the same period, the Fund delivered 6 satellite support events to 111 hard-to-reach members, and that the Fund’s roadshow vehicle supported 592 members at 11 locations across the region.

The committee was scheduled to be asked to note that the fund is proposing to continue hard-to-reach member events, and that complaint numbers have continued to increase since the previous quarter. The committee was scheduled to be told that the total number of outstanding complaints has reduced over the period since April.

The total number of complaints received during the scheme year to date (April to October) represents 0.2% of the total membership of the Fund. (10. Customer Engagement Report Final)

The committee was scheduled to be told that the fund is in the process of developing a dashboard to capture member interaction over a variety of channels.

Risk and Assurance

The committee was scheduled to be asked to note the latest Strategic Risk Register and compliance monitoring activity undertaken during the quarter.

The report pack says that the fund is aware of the potential for wider industry and regulatory/policy change which could impact on how services are shaped for both the Fund and its customers. The report pack says that the fund is supportive of the government’s plans to increase investment in UK growth, and is working with its stakeholders to support their outcomes and mitigate impacts on members.

WMPF Strategic Business Plan 2025-2028

The committee was scheduled to be told that the Fund is at an advanced stage of implementing its new investment strategy following changes to the strategic asset allocation approved in March 2023. The report pack says:

Working with the LGPS Central pool, mandates have been developed to support implementation with lessons learned from these exercises being reviewed and discussed to increase pace and streamline processes for the future. (12. WMPF Strategic Business Plan 2025-2028 final)

The committee was scheduled to be asked to note that work is ongoing to develop the Strategic Business Plan for 2025-2028, which is scheduled to be presented to the Committee for approval in March 2025.