Questions from members of the public 

Question 1 – Ms Janet Milton 

With the potential for a new government from 5th July, does the committee expect there to be any changes in how the path to net zero will be achieved?? Might it be hastened - do they foresee any barriers or opportunities? 

Response 

Without the detail of how policy might change under a new government of any party it is not possible to definitively answer this question. However, the Authority continues to believe that investment in the climate transition represents a significant opportunity to deliver the returns required to meet the liabilities of the Pension Fund and this belief is reflected in the current strategic asset allocation.  

Question 2 – Mr Finn Cross 

In the past two years Border to Coast Pension Partnership (BCPP) has built a £50 million position in ConocoPhillips (COP) in the Global Equity Alpha fund. This company is a major player in the Athabasca Tar Sands and has recently doubled its tar sands assets to become the largest or second largest owner of tar sands reserves in the world. However, it is able to avoid breaching the exclusion test applied by BCPP as, even though it has such a large stake in tar sands, they do not constitute 25% of its revenue. 

We understand that South Yorkshire Pension Authority are opposed to tar sands investments. What measures will you take to ensure that you are able to exclude the worst culprits, such as COP, from your investment portfolio? 

Response 

SYPA has exposure to Conoco Phillips (COP) through its holding in the Border to Coast Overseas Developed Fund.  

Border to Coast’s rationale (as the fund manager) for the position in Conoco Phillips is as follows: 

COP has built a reputation for disciplined, shareholder return focused capital allocation and operates in areas with relatively low levels of geopolitical risk. COP’s large proven low-cost reserves give the company a competitive advantage at low crude oil prices while limited use of hedging should lead to strong cash flow generation during higher commodity price environments.  

•         COP is one of highest quality oil producers with low leverage, relatively higher ROIC and strong capital allocation policy – including in the Permean Basin (relatively cleaner oil) but also returning capital to shareholders. 

•         Current and future revenue expected to have meaningful contribution from Natural Gas/LNG – considered a key component in the energy transition.  

•         As a result, meaningful growth investment is being made by the company into LNG (e.g. Qatar) and in areas of lesser carbon intensity (e.g. Permean Basin).  

•         Set targets to reduce operational GHG by 2025 and has expanded its intensity targets to include non-operated assets. A 2050 Net Zero target is also in place, with a goal to reduce operational emissions intensity by 35-45% by 2030.  

o        The Company’s methane emissions were reduced by 72% from 2015 – 2022.   

o        MSCI rate the Company as “AA”, recognising the firm’s net zero target, improving emissions to sa       les, and firm commitment to achieving a best-in-class safety record – and is assessed as being above-average on managing carbon emissions, Toxic Emissions/Waste and community relations. MSCI note it has a lower operational carbon intensity compared to global peers. Additionally, the company reports a gender pay gap and links compensation to ESG targets. COP’s AA rating is above peers Exxon and Chevron  

•         TPI gives COP their highest rating for Strategic Assessment – which includes board oversight of Climate Policy, support for international efforts to mitigate climate change and verified emissions data.  

Border to Coast explain the operation of the revenue threshold approach in relation to this company as follows: 

Our exclusions approach included in our RI Policy is a tool to help achieve our responsible investing and net zero aims. In January 2024, as part of strengthening our responsible investment policies to support ESG considerations (including climate change) we lowered exclusion thresholds on revenue generated from thermal coal and oil sand production, from 75% to 25%. In addition, we extended our exclusion policy to cover thermal coal power generation, reflecting Just Transition principles by differentiating between developed and emerging markets.  

With regards to COP, in 2023 Oil Sand/bitumen reserves significantly increased from 216 MBOED (t Millions of Barrels of Oil Equivalent) to 410 MBOED following completed acquisition of Surmont. COP’s Canadian assets (including Tar Sands) accounted for around seven percent of 2023 total liquids production, and three percent of natural gas. COP’s total proven Bitumen reserves of 410 MBOED account for around six percent of the company’s total proven reserves. These statistics are produced by COP and can be found in the annual 10k form.  

Lag in updates to CDP and MSCI mean we do not currently have 2023 figures for % oil sands/bitumen revenue. COP produced 81 million barrels per day of Bitumen in 2023 accounting for approximately 13% of COP’s revenue, with the fall in Bitumen prices and expected higher oil revenue we do not expect COP to breach the 25% revenue exclusion policy but will review when updated data is available.  

We will continue to monitor the impact of our strengthened policies and as part of our annual RI policy review process we will analyse the impact. We are also closely monitoring the status of the consultations on the newly released UK Transition Plan Taskforce’s sector-specific guidance for preparers and users of climate transition plans. 

Border to Coast engages extensively with companies in the oil and gas sector and this year’s voting guidelines include a strengthened voting approach to these companies including publicly pre-declaring climate votes ahead of AGM’s which builds momentum in relation to particular resolutions to be debated. 

In May Border to Coast made public that they would be voting against the re-election of the Chair of the Board of COP, explaining that this was due to the company not including relevant Scope 3 emissions in its net zero targets, its target not being aligned with limiting global warming to 1.5OC, and that the company fails to meet key benchmarks for its decarbonisation strategy. 

The Authority is not, acting alone, able to change the way in which exclusion policies such as that in relation to tar sands are set. However, it has been successful in the last two years in influencing a significant reduction in the revenue threshold (the most common means of defining exclusions) applied to companies operating in this space. The Authority will continue to push in debates on the revision of the relevant collective policies for the setting of the revenue threshold for pure coal and tar sands at 0.