The Director presented a report to allow Members to consider the Authority’s approach to exclusions of specific investments from the investment universe following discussion at the March meeting. The report set out the work that had been undertaken by officers in order to investigate and provide detail of the options and implications of each.

The Director advised Members that the choice they are faced with is between taking a decision that may make Members feel better but that cannot be implemented or taking a decision to maintain the current position and seek to influence the direction of the Partnership through building alliances with others. The Director stated that this is a decision for members, but as the principal policy adviser to the Authority, his clear advice to members is to maintain the current position and seek to influence through building alliances.

A Member raised with reference to the report and reflecting on the Members Away Day should engagement fail, should we be arguing for exclusion on whole sectors, such as the fossil fuel industry.

The Director responded that the draft guidance from the Government in preparing the Investment Strategy Statement and Pooling under the new regime makes it clear that individual funds should not be setting policies which exclude sectors or rafts of companies, this should be dealt with at the pool level.

A Member questioned what the reference to a single issue in paragraph 5.14 of the report referred to specifically.

The Director explained that what was meant was that we risk losing credibility within the Partnership if we focus too heavily on exclusion. He noted that we have successfully moved various elements of the pool’s approach both in the responsible investment sphere and wider. This has been possible through building alliances within the Partnership and the Director advised that it is his view that a very strong focus on exclusion would undermine our ability to maintain those alliances and to build new ones.

Members sought assurance for context on the positions of other partner funds.

The Director replied that three of the existing eleven Partner funds have been actively discussing this issue, none of which have taken a decision to do anything different to what they are already doing. For new funds joining the Partnership, this is not on their agenda given the other areas they need to focus on, so gaining consensus on the decision would take a very long time.

In response to further questions regarding there being no Government guidance to funds on international conflicts and occupied territories, the Director noted that the Government’s view can be inferred from the draft guidance which outlines that funds should not be taking a stance on such issues at individual fund level but that this is for the pool to determine.

The Director added that whilst appreciating that there is strength of feeling on such issues, he must remind members that the Authority’s duty is to ensure that we have the funds required to pay pensions when due. Therefore, Members in their role as quasi-trustees, are required to individually exercise their own judgement about these matters – regarding what they judge to be in the best interest of all scheme members.

Responding to a question about the scope for building alliances with some of the incoming partner funds, the Director advised that there will be scope for this but that this would likely take a number of years before these issues can be focussed on.

He explained that this is because the transition of these funds’ assets into the pooled structures will be relatively long as the Pool will rightly prioritise managing this carefully in the best financial interests of those funds over speed. This transitional period may be used to build alliances and there may be greater long?term impact in forming partnerships around, for example, climate?positive investment strategies with a higher probability of success rather than trying to secure agreement on excluding sectors like oil and gas.

He advised that the key decision is where Members want officers to focus their alliance building efforts to best achieve their objectives.

Members asked whether by adopting a policy of this sort, there is a risk that this would leave us excluded from certain debates within the Border to Coast partnership.

The Director responded that he is not able to provide a definitive answer but cannot see a justification for this being the case, noting that it would simply make the debate more difficult and reduce our level of credibility and how we are perceived by our partners.

The Chair asked Tim Manuel, Head of Responsible Investment at Border to Coast for his input on this question. Mr Manuel outlined that any partnership has limited relationship capital, and you choose how to use it to get the outcomes you wish to achieve.

From a governance perspective, there is no reason he could see why adopting a policy like this would exclude SYPA from discussions within the Border to Coast framework. He commented that the real challenge would be from the Authority’s own governance point of view if they take a decision that is considered impossible to implement.

The Chair noted that as there were no further questions, it was time to reach a conclusion before moving to the next agenda item.

The Director clarified that the report was purposefully prepared without a recommendation because this is a matter for Members to determine. Noting that Officers would find it helpful to understand whether there is appetite across the Authority for adopting a policy of this kind in order to provide them with a clear steer to inform their work on the Investment Strategy review.

The Director advised that in process terms, it may require a Member to move a proposal, for which a seconder would be required and then a vote taken.

The Chair invited members to make a proposal.

Councillor Dimond proposed that the Authority adopt a policy position that when engagement has clearly failed, the Authority would ask Border to Coast to exclude.

Members raised concerns that they did not have enough detail on this sort of policy to feel able to second or to vote on this during this meeting.

The Director advised that Members would need to agree the principle at this meeting and then if agreed, a draft policy would be prepared to bring back to a future meeting.

The Director Designate noted that the report outlines that officers have attempted to explore the detail of how we could possibly implement adopting such a policy, and that the advice is that it is not possible to implement.

The Director clarified that it is possible for Border to Coast to implement a policy, but we do not believe that the Authority would be able to achieve a position where the Partnership would agree to ask Border to Coast to implement such a policy.

The Chair observed that Members were unlikely to reach a consensus decision and requested agreement to move on. This was agreed.

RESOLVED: Members considered and debated the issues and options outlined in the body of the report.