£40bn UK pension pool lays out responsible investment policy

First-of-a-kind document cites TCFD, Transition Pathway Initiative and 30% Club Investor Group

The UK’s new £40bn LGPS Central pool plans to encourage companies to adopt the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and will expect its external managers to report to it on responsible investment and engagement activities. 
The measures have been laid out in LGPS Central’s new responsible investment and engagement framework, based on the investment beliefs of its nine local-authority pension fund clients: Cheshire, Derbyshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, West Midlands, West Midlands ITA pension fund and Worcestershire.
It suggests a big push on responsible investment for one of the UK’s largest new investment pools – one of eight being established under new government rules to ‘pool’ the assets of the country’s 91 local authority pension funds. LGPS Central is expected to be operational from 3 April 2018.
The five-page document, seen by RI, outlines LGPS Central’s three responsible investment pillars: selection (of investments), stewardship, and transparency & disclosure.
On stewardship, LGPS Central will sign up to the UK stewardship code and be in support of industry engagement initiatives such as the Transition Pathway Initiative.
It also expects external managers to report to it on responsible investment and engagement activities, as laid out in investment mandates.
LGPS Central specifically outlines its approach to stewardship and climate change, including supporting climate change shareholder resolutions where appropriate. 
On transparency and disclosure, LGPS Central will aim to report on its responsible investment and engagement activities. On climate change disclosure, it will report using TCFD guidelines and encourage companies and asset managers to do the same.LGPS Central will manage around £5bn internally, initially. Michael Marshall, Director of Responsible Investment & Engagement, told RI a key factor was improved oversight and the ability to directly implement its responsible investment & engagement programme on internally-held assets. 
“Responsible investment is hard-wired into the way we run money,” he said.
The pool is also currently assessing managers for a £2.5bn equities mandate, saying that managers must demonstrate that “responsible investment [is] at the heart” of their investment process in order to be considered.
Along with explicit support for climate change stewardship, Marshall has said that LGPS Central has joined the 30% Club Investor Group that campaigns for more female board members at listed companies.
“Diversity is linked to better decision-making and improvements in performance, so it is only natural that, as a long-term investor, we would use our delegated ownership rights to hold investee companies to account,” said Marshall.
LGPS Central is chaired by Joanne Segars, former Head of the UK’s Pensions and Lifetime Savings Association and its CEO is Andrew Warwick-Thompson, former Executive Director for regulatory policy at the Pensions Regulator.
Marshall, who holds a seat on the investment committee and reports directly to the Chief Investment Officer, told RI: “A feature of our approach to responsible investment is that all members of the investment team are responsible for integrating it into their decision-making. We do not wish for responsible investment to be side-lined to a duty that one person undertakes in isolation – integration needs to be achieved holistically, rather than in silo.”