We held our 2015 annual meeting on 6 November 2015 at Cedar Court Hotel in Wakefield. About two hundred members joined us for the usual comprehensive analysis of our investment and administration performance over the year. Councillor Andrew Thornton, chair of WYPF, chaired the meeting, and delegates heard presentations from director Rodney Barton and fund investment advisers Noel Mills and Mark Stevens. The panel answered questions from people at the event. You can read the answers we gave below. Our guest speaker this year was Chris Joyce from West Yorkshire Police Authority. For clarity the numbers/organisation of the questions of the meeting have been amended for this report. Question 1 A recommendation by financial experts after the recession was there should be more financial transparency. Councillors and their partners, MP’s and even our Prime Minister make a public declaration of interests. Why then, aren’t the members of the WYPF investment team required to do so please? Answer 1: Councillors and MPs are subject to the rules that apply to those who seek public office. Investment staff are employees, and entitled to normal standards of privacy. However, the nature of the work undertaken by Investments staff, and the requirement to ensure that their integrity is not open to question, mean they must adhere to certain conditions in their private and work dealings. These include handling of inside and price sensitive information, private conflict of interests, acceptance of gifts and hospitality, the handling of shareholder benefits accrued from assets held by the Fund and personal dealing in investments. Staff complete a declaration every 6 months that they have notified all personal dealings. This information is retained by the Director of WYPF and is highly confidential and therefore not publicly available. This information is available to the WYPF auditors. Question 2: The pension newsletter refers to nine new private equity funds. Regular press coverage describe private equity funds as asset strippers selling off assets rather than developing businesses. Please explain what a private equity fund is and is it wise to invest in new funds without a track record of good performance? Answer 2: Private Equity funds raise a pool of capital from institutional investors which they use to buy businesses. They then seek to strengthen management and provide additional capital to grow the business and its profits. This is generally done on a five to seven year plan which concludes with a sale of the improved and more profitable business, which realises the profit for the investors. Where the newsletter refers to new funds, the funds being raised are new, but are managed by experienced private equity managers with a track record. Question 3 There are 7 questions that relate to answer 3 Question 3.1: Can we hope for a more ethical investment plan for the future, I marched against Shell because of their plans to drill in the Artic and I am also not happy about the funds’ investments in a tobacco firm? Question 3.2: What steps, if any, will the Fund consider taking to remove members' money from unethical investments - in particular, to divest the very large holdings in British American Tobacco and the fossil fuel industry? If members wish to influence policy on these matters, to whom should their representations be directed? Question 3.3: “Fiduciary duty” is rightly and legally a core concern for pension funds. Recent LGPS legal advice and Law Commission guidance say fiduciary duty rules do allow pension funds to consider ethical factors in investment decisions, so long as these do not negatively affect financial performance. The Environment Agency Pension Fund recently made the following statement in regard to fiduciary duty: ‘Pension Funds have a fiduciary duty to act in the long term interests of their members and to do so requires them to recognise that environmental, social and governance issues can adversely impact on the Fund’s financial performance and should be taken into account in the funding and investment strategies and throughout the funding and investment decision making process’ Source: UK Environment Agency policy to address the impacts of climate change, October 2015 (references Law Commission Fiduciary Duties of Investment Intermediaries and Investing in a Time of Climate Change) mercer-climate-change-report-2015.pdf Therefore please can you tell me if the WYPF will act in the long term interests of their members and divest from fossil fuels in the following ways:- Immediately freeze any new investments in fossil fuel companies. Divest from any company which is involved in the exploration or production of coal and unconventional oil or gas within two years, and from all fossil fuel companies within five years. Work with the member local authorities of the West Yorkshire Pension Fund to develop and fund a low-carbon investment programme for these districts?" Question 3.4: In a landmark move the Environmental Agency Pension Fund has become the first scheme to manage its assets in accordance with a 2 degrees scenario. The Funds’ Chief Investment Officer described the need to address the risks and opportunities as the impacts of climate change materialise, resulting in an agreement to divest 90% of fossil fuel investments and 50% of oil over a 5 year period. Given the significant holdings the WYPF has in fossil fuel related investments what steps is the Fund taking to divest holdings in areas of activity such as these that have a demonstrable negative impact on climate change, the financial security of the fund and consequently on the lives and livelihoods of WYPF scheme members both active and retired? Question 3.5: Mark Carney, Governor of the Bank of England, has said investors need to wake up to the potential for huge losses from a sudden shift in regulations designed to curb global warming and the use of fossil fuels. Fossil fuels companies are valued based on the amount of fossil fuels they hold in reserve. Regulations on carbon emissions would make the vast majority of these ‘assets’ unburnable and worthless. Fossil fuel investments are therefore overvalued giving rise to a ‘carbon bubble’ which may burst at any time. This is recognised by many leading economists and even BP. In addition to the Paris talks governments are under pressure from other forces including: The ‘Obama climate pledge’: many large corporations have voluntarily pledged to cut carbon emissions which is building momentum for regulations to be introduced. Legal rulings forcing governments to act e.g. Netherlands case. Potential legal action against fossil fuel companies for damages associated with climate change e.g against Exxon Mobil for hiding research on climate change and lying about it I am concerned that my pension will lose value if it is invested in fossil fuels. Will the WYPF divest from fossil fuels in order to protect my pension? Question 3.6: Climate change is a threat to all of our future security. I am concerned that our pension fund invests in companies which are making climate change worse. I am delighted that Bradford council decided to review its carbon investments, which include those with the WYPF. Please could you tell me if you will? Immediately freeze any new investments in fossil fuel companies. Divest from any company which is involved in the exploration or production of coal and unconventional oil or gas within two years, and from all fossil fuel companies within five years. Work with the member local authorities of the West Yorkshire Pension Fund to develop and fund a low-carbon investment programme for these districts Question 3.7: I am a deferred member of the West Yorkshire Pension Fund. I understand that data released in September revealed that West Yorkshire Pension Fund West Yorkshire Pension Fund Has 6.5% of its pension fund invested in fossil fuels, the third largest fossil fuel holdings of all UK local authority pension funds. Has over £671 million invested, at least £300 per West Yorkshire resident in fossil fuels. Has £207 million invested in BP and £171 million invested in Shell. I also understand that just three weeks ago Kirklees Council called on the West Yorkshire Pension Fund to ‘wind down exposure to the Carbon Underground top 200 fossil fuel companies over a 5 year period.’ Please could give me an indication of how you may respond to Kirklees Council’s decision to ask its representatives on the WYPF Investment Advisory Panel ‘to call on all Pension Trustees to exercise their fiduciary duty and to call for a review of WYPF fossil fuel investments in the light of climate risk posed by fossil fuel equities’? Answer 3: The fiduciary duty of the Investment Advisory Panel is to maximise returns for the Fund, as advised in a Counsel’s Opinion obtained by the National LGPS Advisory Board in March 2014, and that member authorities should not seek to influence the investment process for any other purpose. WYPF has a clear Statement of Investment Principles, which includes a section on Socially Responsible Investment. It is a member of the Local Authority Pension Fund Forum, the Institutional Investors Group on Climate Change and is a signatory to the Carbon Disclosure Project. WYPF does engage with companies where there are concerns about the business model or its sustainability, more information on this is given in response to the next question. Question 4: Does WYPF accept that investor “advocacy and engagement” will not lead to change in the core business model of the fossil fuels sector? Answer 4: WYPF does not accept this premise, and as evidence would offer the fact that WYPF, together with other concerned investors, co-filed a resolution for both Shell and BP Annual General Meetings which reflected the need to balance the short and longer term aspects of shareholder value creation and investment risk concerns deriving from climate change, which were passed virtually unanimously, with support from management. Question 5 There are 2 questions that relate to answer 5 Question 5.1: I understand that the Government is looking into the question as to whether the structure of local authority pension funds needs to change in order to ensure that investment performance in each fund is standardised in some way. No doubt the WYPF managers are engaged with the government on this issue and will understand how interested scheme members will be to hear details and thoughts on the various issues being raised by the Governments proposals. Question 5.2: At previous annual meeting I attended questions were asked about the morality of investing in tobacco and arms manufacturing companies. The reply from the stage was that it was the legal duty of the Fund to invest in companies where returns on investment were best for the members of the pension scheme. Are directed investment instructions by the government into 5 British wealth funds truly in the financial interests of the members of the WYPF, and contrary to previous and existing WYPF investment policy? As I assume the funds are ultimately and actually owned by the contributing members, when will we be given the opportunity to vote on whether we want to invest in British Wealth Funds? If legally members are not allowed to vote directly on the British Wealth Funds issue, and the Fund has the duty of making the decision for the members, what plans have has the Fund if any, for consulting the members before hand on this important change to directed investment policy by H.M.G. Government? In the opinion of the Fund is the suggestion of investment into British Wealth Funds by H.M.G. the thin end of a very dangerous wedge into the WYPF’s financial independence? Answer 5: The budget said: "Local Government Pension Scheme pooled investments – The government will work with Local Government Pension Scheme administering authorities to ensure that they pool investments to significantly reduce costs, while maintaining overall investment performance. The government will invite local authorities to come forward with their own proposals to meet common criteria for delivering savings." The Government intend to issue proposals for consultation in November, although there has been considerable press speculation particularly following the party conference season. WYPF will endeavour to keep members informed, but because of the timescales being discussed this is likely to be through the website. Question 6: What involvement does WYPF have in the Northern Powerhouse? Has it been invited into any discussions to use some of its funds to help rebuild West Yorkshire? Answer 6: WYPF has no direct involvement in the Northern Powerhouse, but as a significant institutional investor is likely to make investments in major infrastructure opportunities where they provide the required rate of return. Question 7: Could you tell me whether the WYPF has lost money due to the crash in the value of the world’s coal mining companies over the past 18 months and, if so, what the scale of that loss is? Answer 7: Although WYPF has holdings in a number of mining companies they all have less than 15% exposure to coal. The one company it holds in the coal sector has 60% exposure to coal, and its share price has fallen in the 18 months to 31 October by 32%. The WYPF holding in this company was down by just under £0.65million compared with the Fund value of over £11billion. Question 8: For several years we have been subjected to many stories in the news about the activities of large banks, financiers, economists and others in charge of our money. This has caused huge mistrust, fear and concern. Stories of pension funds being attacked and restructured have also caused significant concerns for public sector workers. In this climate, I would like to know what assurances you can give members that our investment funds are being handled securely? Answer 8: Member benefits are determined by regulations and are absolutely secure. The investments of WYPF are managed by our internal team who are themselves members of the scheme, not by city financiers. Investment policy decisions are determined by the Investment Advisory Panel which is made up of elected members from the West Yorkshire district councils, trade union and member representatives, and their close involvement will ensure that the Fund remains secure.