Dear colleagues,

You may have heard allegations by email, or in the media recently, about the Welsh pension funds investing in fossil fuel companies, or companies who are involved in fracking. The Gwynedd Pension Fund, and all other Local Government Pension Scheme funds, has been named as one of those funds. We can not confirm or correct Friends of the Earth’s figures regarding our investment, as they are unclear about the definition of a company that deals in fracking, and imprecise when suggesting their figures represent sometime during 2016/17.

We can confirm that we are not investing in any company that undertakes only fracking activity.  We use global equity asset managers who are 'stock pickers', but they do not select fossil fuel companies.  Also, we have passive equity asset managers, who track the index of all 'FT' companies within their portfolios.  Some of these large companies may have a small proportion of fracking income, e.g. we understand that Shell and BP are fracking for gas in Texas.

Gwynedd Pension Fund is a long-term investor that seeks to provide a sustainable pension fund to all stakeholders.  Gwynedd Council's fundamental duty, as the Fund's trustee authority, is to act in the best interests of employers and pension scheme members.  That means producing sufficient returns from investments to pay pensions of scheme members, and to protect local taxpayers and employers from unsustainable pension costs.

In order to fulfil this trustee duty, the Fund has formed and published an Investment Strategy Statement, which was adopted in consultation with all parties involved in the Fund, clearly identifying the responsible investment policy.  The role of stock selection has been delegated to asset managers, that is, specialist investment companies that assess the long term financial prospects of individual companies when drawing up portfolios on behalf of the Fund.

Where equity shares are owned, the Fund, its advisers and asset managers engage with companies to understand the development of their business plans, including the company's plans for a low carbon future, and their risk management.  This drives investment decisions and allows the Fund to put pressure on company management to increase their efforts in some areas such as carbon, where appropriate.

Gwynedd’s Pensions Committee and the Fund's Pension Board, with Fund officials and independent consultants have recently been considering 'responsible investment', prioritising environmental, social and governance factors, and have developed principles of responsible investment.  The Pensions Committee agreed on relevant principles on 15 March 2018, which were subsequently approved by the Board.  On 8 November the Committee will discuss a revised Investment Strategy Statement, including the agreed responsible investment principles.

The Wales Pension Partnership has recently been established and the partnership has acquired a platform that will allow the 8 Welsh Funds to implement their investment strategies.  When appointing Link Asset Services as the platform operator, in partnership with Russell Investments as an investment manager, the requirements to comply with the Future Generations Act 2015 were explained.

With one eye on climate change, the 8 Welsh funds are developing their responsible investment principles, while the Wales Pension Partnership engages to develop policies that will reflect the investment principles of the 8 funds. On behalf of the partnership, Russell Investments are looking at climate change risks by considering Environmental, Social and Governance criteria.

This will include the incorporation of agreed responsible investment principles in management selection processes and in voting policies.  We will work on a common responsible investment policy for the Wales Pension Partnership, but dis-investment in categories of stock (such as fossil fuels) has not yet been considered.  Before doing so, all 8 constituent authorities would have to agree, as an aspect of a common sustainable investment policy.

Gwynedd Pension Fund, together with the other 7 Welsh pension funds, are also members of the Local Authority Pension Fund Forum (LAPFF).  We have supported LAPFF's engagement activity on issues including climate change.  Specifically, when engaging LAPFF "encourages companies to align their business models with a 2-degree Celsius scenario to push for an orderly transition to a low-carbon economy".

I trust that these details will convince you that Gwynedd Pension Fund invests responsibly, whilst appreciating that political values cannot be allowed to compromise the fiduciary duty to pension scheme members. 

Dafydd L. Edwards
Head of Finance