Insert date www.local.gov.uk

LGPS update

Lorraine Bennett Senior pensions adviser

www.local.gov.uk

What’s on the agenda?• Impact of COVID-19

• Age discrimination – McCloud case

• Exit payment reforms

www.local.gov.uk

COVID-19• working arrangements – short term at

home, longer term hybrid • administering authorities adapted

differently to challenges of home working and returning to the office

• high level of confidence about processing core workload – not so confident about other work

• areas of concern – new requirements, recruitment, training and staff wellbeing

www.local.gov.uk

COVID-19• most committees and

boards meeting virtually - desire to return to face to face

• minority of employers in difficulty – will this be sustained?

www.local.gov.uk

McCloud – age discrimination • protections provided to older

members when schemes reformed are unlawful

• Government consultation on how to extend protection to younger members closed October 2020 – await response

www.local.gov.uk

McCloud – age discrimination

‘underpin’ protection will go beyond current protection

protection will end for all from April 2022

lots of extra work – collecting data, revisiting all leavers since April 2014

uncertainty about annual statements, transfers, tax implications etc

www.local.gov.uk

Exit payment cap - £95k cap• in force from 4 November 2020

• strain cost included in exit payments

• waiver process

• LGPS regulations not yet changed to accommodate it

• clash between exit cap and LGPS regulations

www.local.gov.uk

The exit cap ‘pickle’• LGPS authorities to decide

whether to pay an unreduced pension

• employers to decide whether to pay a cash alternative

• risk of challenge whatever happens

• judicial reviews given permission – will be heard 24/25 March

www.local.gov.uk

Further reform to exit payments• MHCLG consultation on changes to exit pay ended 9 November

2020• will introduce changes to accommodate the exit cap• also included proposals to limit amount of discretionary

compensation pay for all • over 55s offered more choice but exit packages will be reduced

for most members

www.local.gov.uk

www.local.gov.uk

Also on the horizon

Hymans Robertson LLP is authorised and regulated by the Financial Conduct Authority

Good Governance

Implementation PhaseCatherine McFadyen26 January 2021

2

Phase 1 and 2 - proposals

Managing Conflicts of

InterestRepresentation Knowledge and

UnderstandingService Delivery

Full reports are availablehttps://www.hymans.co.uk/media/uploads/Hymans_Robertson_Good_governance_in_the_LGPS_July_2019_final.pdf

https://www.hymans.co.uk/media/uploads/Hymans_Robertson_Good_governance_in_the_LGPS_Phase_II.pdf

Senior LGPS Officer, Enhanced Governance Compliance StatementStatutory Guidance

Independent Governance Review, Peer Review Process

3

Phase 3 - Implementation

Progress On Working On

• Independent governance review process

• Training requirements

• Conflicts guidance

• Specifying senior officer role

• Developing KPIs

• Sample Governance Compliance Statement

4

Timeline

November/December 2020 Collating Input

January 2021Drafting of Papers for SAB

February 2021Final implementation proposals to SAB

This Powerpoint presentation contains confidential information belonging to Hymans Robertson LLP (HR). HR are the owner or the licensee of all intellectual property rights in the Powerpoint presentation. All such rights are reserved. The material and charts included herewith are provided as background information for illustration purposes only. This Powerpoint presentation is not a definitive analysis of the subjects covered and should not be regarded as a substitute for specific advice in relation to the matters addressed. It is not advice and should not be relied upon. This Powerpoint presentation should not be released or otherwise disclosed to any third party without prior consent from HR. HR accept no liability for errors or omissions or reliance upon any statement or opinion herein.

Thank you

ESG refresher

LGA Fundamentals Training

January 2021

2Confidential | Ninety One

Target audience

Target audienceThis document is being provided for informational purposes for discussion with institutional investors and financial advisors only. Circulation must be restricted accordingly.Nothing herein should be construed as an offer to enter into any contract, investment advice, a recommendation of any kind, a solicitation of clients, or an offer to invest in any particular fund, product, investment vehicle or derivative.

General risksThe value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor's home currency, returns may increase or decrease as a result of currency fluctuations.Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made.

3Confidential | Ninety One

Today’s agenda

ESG refresher

1. ESG Terminology and Jargon Busting

2. Why is it important for the LGPS?

3. Case study

4. What to keep an eye on in the coming months

5. ESG presents risk and opportunity

Climate change: A closer look

Joshua KriskinansManager, LGPS Client team

Atul ShinhInvestment Director, Multi Asset

4Confidential | Ninety One

Key takeaways

ESG is crucially important and part of your

Fiduciary duty as Board and Committee members

Challenge your managers to evidence ESG integration.

Watch out forgreenwashing

ESG factors present risk and opportunity

5Confidential | Ninety One

Terminology and Jargon Busting

Source: MSCI

Environment Social Governance

- Climate Change - Natural resources- Pollution & waste- Environmental Opportunities

- Human capital- Product Liability - Stakeholder opposition- Social opportunities

- Corporate Governance - Corporate Behaviour

What is ESG?

6Confidential | Ninety One

Terminology and Jargon Busting

Source: Ninety One

- Companies that do not consider and disclose the likelihood and impact of material sustainability factors (including climate change) attract engagement attention.

Types of engagement

Our engagements are categorised into

– Strategic

– Communication

– Advocacy

Why do we engage?

To preserve and grow our clients’ capital over the long term

– Sustainability of earnings and the creation of capital

– Improve transparency of information

– Improve governance

– Benefits to society

Our philosophy

Engagement is a process of diplomacy and research –more of an art than a science. There is no single approach that will fit all cases

Divestment Vs Engagement

7Confidential | Ninety One

Terminology and Jargon Busting

Source: Creating Impact: The promise of Impact Investing, International Finance Corporation

ESG integration- Ensure the analysis of ESG risks and opportunities are integrated into the investment process

Impact investing

- Intent - Investing to generate a positive impact as well as investment return

- Contribution – The actions of the impact investor contribute to the achievement of the intended goal

- Measurement – Can you measure the impact?

- Doesn’t mean you have to sacrifice investment returns- Can be achieved through public and private markets- As the age profile of LGPS funds change, likely to see increased demand for impact investments

ESG integration to Impact investing

8Confidential | Ninety One

Why is ESG important for the LGPS?

Source: London Borough of Southwark Pension Fund, Investment Strategy Statement 2019/20

- Fiduciary duty – The primary responsibilities of local authority pension funds is to pay members’ pensions.

- Regulatory requirement – Investment Strategy Statement

- Reputational risk – Scrutiny of fund holdings

- Pooling - Collaboration

9Confidential | Ninety One

Why is ESG important for the LGPS?Integrating ESG within investment strategies

Source: Ninety One

Universescreening

Fundamental Analysis

Active ownership

Portfolio constructionand monitoring

2 3 4 1

– Ensure the analysis of ESG risks and opportunities are integrated into the investment process

– Each asset class and capability is unique, and so too is the way in which ESG considerationsare integrated

Outcomes fed back for continuous integration

10Confidential | Ninety One

Case Study

Source: Bloomberg

Investors’ reaction to the Volkswagen Emissions saga

11Confidential | Ninety One

What to keep an eye on in the coming months

Source: Ninety One

- SFDR - Sustainable Finance Disclosure Regulation and EU Taxonomy

- TCFD - Taskforce for Climate Related Financial Disclosures

- UK Stewardship Code

- Increasing focus on net zero movements and alignments for asset owners and asset managers

Rules and regulations are increasing

12Confidential | Ninety One

Risk and Opportunity

Source: Financial Times, June 2020, Trustnet, September 2020

2020 was a strong year for ESG investing

13Confidential | Ninety One

Key takeaways

ESG is crucially important and part of your

Fiduciary duty as Board and Committee members

Encourage your managers to evidence ESG

integration. Watch out forgreenwashing

ESG factors present risk and opportunity

14

Disclaimer

All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an adviser or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only.

Ninety One Investment Platform is an authorised financial services provider.

Climate Change: A closer look

LGA Fundamentals Training

January 2021

The problem facing us all

The current pace of investment falls way short of meeting the 1.5°C scenario

17

Accelerated investment needed to stay within 2°C2100 Warming projections

Forecasts are inherently limited and are not a reliable indicator of future results.Source: Climate Action Tracker Project, 2017, *UN IPCC estimates, 2016 – 2035, thttps://www.climate-kic.org/news/no-more-excuses-financing-1-5c.

Glo

bal g

reen

hous

e ga

s em

issi

ons

GtC

O2e

/Yea

r

Historical

No Action =c.~5°C rise by 2100

Current policies c. 3.4 °C

1.5 °C by 2030 needs~ $2.4 trillion p.aInvestment (2016-2035)*

“The challenges currently posed by climate change pale in significance compared with whatmight come. . . the more we invest with foresight; the less we will regret in hindsight” Mark Carney, Governor of the Bank of England

18

The current pace of investment falls way short of meeting the 1.5°C scenarioRequires both private and public capital to meet the funding gap

Source: Climate Policy Initiative - Global Landscape of Climate Finance UN IPCC. November 2019.https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2019/

19

2020 was the third hottest year on record“Lockdown-related fall in emissions is just a tiny blip”

Source: World Meteorological Office, ERA5. Credit: Copernicus Climate Change Service/ECMWF

The drivers of decarbonisation

Regulation, Technology and Consumer Behaviour

21

Regulation: 2020 – the year that “net-zero” policies went globalNew policy announcements across Asia countries and stronger commitments from Europe

Source: As at 31 December 2020. Goldman Sachs Global Investment Research, Emissions Data for Global Atmospheric Research. Based on 2018 global emissions estimates.

China, 30%

Japan, 3%

South Korea, 2%

EU-28, 9%

New Zealand, 0.1%

No Net Zero policies, 56%

of global emissions now covered by “net-zero” commitments

c.45%

New US administration appears encouraging too with Biden promising to re-join the Paris Climate Agreement

22

TechnologyCosts have fallen considerably as technologies have improved

Source: Bloomberg BNEF, 31st December 2019.

Levelized cost of energy (USD/MWh, nominal) – wind and solar

0

50

100

150

200

250

300

350

Dec

-09

Jun-

10D

ec-1

0Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

Jun-

16D

ec-1

6Ju

n-17

Dec

-17

Jun-

18D

ec-1

8Ju

n-19

Dec

-19

USD

/MW

h

Offshore Wind Onshore Wind

Solar PV - No Tracking Solar PV - Tracking

Li-ion battery pack price and demand

1,400

1,200

1,000

800

600

400

200

0

2000 2012 2014 2016 2018 2020

700

600

500

400

300

200

100

0

$/kWh (2019 real)

18% learning rate

GWh

132

23

Consumer behaviours continuing to change EV/Hybrid sales overtook diesel sales in Europe in September for the first time

What does a solution look like?

25

What is a Carbon Footprint?

– Carbon footprint is the total climate change impact of all the greenhouse gases caused by an item or activity rolled into one and expressed in terms of the amount of carbon dioxide that would have the same impact (CO2e)

– Methane for example is 25x more potent per Kg than CO2

– Nitrous Oxide is about 300x more potent

– In the UK, the total impact on the climate is 86% CO2, 7% methane and 6% Nitrous Oxide

– The average person in the UK has an annual carbon footprint of around15 tonnes (emerging markets are lower and Americans are higher)

– Beware carbon toe prints!

– For example an online carbon calculator may calculate your carbon footprint based on your energy and travel but ignore all the goods you purchase, the same thing happens with companies and portfolios

Source: How Bad are Bananas? The Carbon Footprint of Everything by Mike Berners Lee, 2010.

CO2

26

Fancy a cuppa?

Black tea (boiling only what you need) 21g

Tea or coffee with milk (boiling only what you need) 53g

Tea or coffee with milk (boiling double the water you need) 71g

A large cappuccino 235g

A large latte 340g

95% of the carbon footprint of the latte is the milk!

Source: How Bad are Bananas? The Carbon Footprint of Everything by Mike Berners Lee, 2010.

A large latte every day is almost 1% of your annual carbon footprint

27

Assess carbon risk.

Source: Ninety One, Urgentem, November 2018

Scope 1 carbon emissions are the direct emissions from owned or controlled sources

● Fuel burned on site

● Owned vehicles

Scope 2 carbon emissions are the indirect emissions from the generation of purchased energy

Purchased electricity, steam, heating and cooling for own use

Company vehiclesCompany facilities

1 2Scope 1Direct

Scope 2Indirect

What is a Scope 1 & 2 footprint?

28

Scope 3Indirect

Carbon risk

Assess carbon risk

Source: Ninety One, Urgentem, November 2018

There are 15 separate categories of scope 3 including3

1. Purchasedgoods and

services

9. Downstreamtransportation

and distribution

5. Wastegenerated inoperations

2.Capitalgoods

4. Upstreamtransportation

and distribution

6. Businesstravel

7. Employeecommuting

8. Upstreamleased assets

3. Fuel andenergy related

activities

10. Processingof sold products

12. End-of-lifetreatment of

sold products

13. Downstreamleased assets

14. Franchises 15. Investments11. Use ofsold products

7 relating to the emissions of the

products once they are sold/used

8 relating to the supply chain

What is a Scope 3 footprint?

29

Samsung versus Apple

FY20

10

FY20

12

FY20

14

FY20

16

FY20

18

15m

14m

13m

12m

11m

10m

9m

8m

7m

FY20

10

FY20

12

FY20

14

FY20

16

FY20

18

0.831m Total GHG Emissions

0.8m

0.7m

0.6m

0.5m

0.4m

0.3m

0.2m

15.173mTotal GHG Emissions

Scope 1 & 2 methodology massively favours outsourced manufacturing

Source: Bloomberg, November 2019. This is not a buy, sell or hold recommendation for any particular security. For further information on specific portfolio names, please see the Important information section.

30

Production 29g/km 57g/km

Use Phase 111g/km 2g/km (100% renewable)

Total 140g/km 59g/km

Favour carbon avoidedCarbon avoided compares products to the status quo

Source: Ninety One, Urgentem, Volkswagen as at April 2019

Standard small car – combustion engine

Total Carbon

avoided

81g/km

Status quo

Carbon efficient product

Small plug-in electric car

Carbon avoided is the carbon emissions avoided by using a product that has less carbon emissions than the status quo

thereby contributing to decarbonisation

31

Focus on companies exposed to environmental revenues

No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. This is not a recommendation to buy, sell or hold a particular security. For further information on specific portfolio names, please see the Important Information section.

Two stage screen:

1. Companies with at least 50% of their revenue from the sectors above. Companies with >5% revenues from oil, gas and coal excluded

2. Quantified carbon avoided

Renewable energySolar / Wind / Clean Power Utilities / Smart Grids / Networks

Resource efficiencyEnergy efficiency / Water and land efficiency

ElectrificationElectric and autonomous vehicles / industrial electrification / hydrogen economy

12

3

32

2020 was the third hottest year on record“Lockdown-related fall in emissions is just a tiny blip”

Source: World Meteorological Office, ERA5. Credit: Copernicus Climate Change Service/ECMWF

Thank you

Atul ShinhInvestment Director, Multi Asset

Joshua KriskinansManager, Institutional