The Pension Board of Tower Hamlets Council met on Monday 22 November 2021 to discuss the progress of audited pension fund accounts, receive training on renewable energy infrastructure, and review the council's risk management policy. Decisions were made to defer the discussion of the risk management policy to the next meeting to allow for more in-depth consideration.

Pension Fund Accounts and Audit

Miriam Adams provided an update on the pension fund accounts, stating that the audited 18/19 and 19/20 pension fund accounts are still in progress. However, an unqualified ISA 260 report from Deloitte has been received for both periods. The report highlighted issues related to pricing used by a fund manager and the previously discussed cancelled payroll data matters. It is anticipated that the audited accounts for 18/19 and 19/20, along with the draft 2021 audit plan, will be presented by March.

Councillor David Stephen Thompson, representing retired and deferred pension fund members, sought clarification on the audit planning for 21/22. Miriam Adams confirmed that the audit plan from the auditors had not yet been received, as they preferred to issue it once the 18/19 and 19/20 audits were complete. This delay means the council will not meet the statutory deadline of 1st December to issue the annual report of the fund, a situation shared by other authorities nationally. The Scheme Advisory Board is aware of this delay.

Aon Governance Review

Daniel from Aon provided an update on the governance review, which commenced a few weeks prior. His team has been meeting with council officers to assess compliance with The Pensions Regulator's (TPR) current code of practice. The review also incorporates draft recommendations from TPR's forthcoming code of practice, including areas such as cyber risk. Aon will observe the Pension Board and Pension Committee meetings as part of this review, with a draft report expected in January and a final report in February.

Member Training: Renewable Energy Infrastructure

The board received a training session on renewable energy infrastructure from Mark and Rosalind of Quinn Brook. This session followed the Pensions Committee's work on renewable energy, initiated in September 2019 with a request to the London CIV for a renewable energy fund, which was established in March 2021. The London CIV renewable energy fund comprises four managers: Arestore, Quinn Brook, Foresight, and Blackrock.

During the session, Councillor David Stephen Thompson inquired about the limited growth outlook for geothermal energy, particularly in the context of London's aquifers. Questions were also raised about the potential of tidal flow energy in the Thames Estuary and Swansea Bay, and the longevity and certainty of returns from renewable energy investments, particularly concerning wind power contracts.

Member Training: Hyman's Academy

Miriam Adams provided an update on the Hyman's Academy, a training platform for board members. She asked members to share their experiences with logging in, taking tests, and any concerns they might have. Councillor David Stephen Thompson reported completing three out of six modules, noting the high density of facts and the time required for absorption, which often exceeded the estimated half-hour duration. He found the content to be of high quality but recommended dedicating significant time and concentration to the material. Councillor Michael Alderson had not yet engaged with the training.

Risk Management Policy and Quarterly Review

The discussion on the risk management policy and quarterly review was deferred to the next meeting to allow for a more in-depth discussion. Miriam Adams explained that the policy is reviewed annually, while the risk register is reviewed quarterly. No new risks were identified during the quarter, with the focus being on the policy document. However, several red risks remain, primarily linked to data quality and staffing. These are expected to move towards an amber stage within the next six to nine months.

Councillor David Stephen Thompson raised concerns about the transition of risks from red to amber, particularly regarding the recruitment of permanent staff, suggesting that underway status might not yet signify a settled outcome. He also requested more specific details on external challenges impacting funding and investment, rather than general statements. Miriam Adams clarified that the F1 Funding and Investment risk has remained on the register due to the inherent nature of market and economic factors that can impact the fund, even with a healthy funding level of 114%. She highlighted the fund's equity protection measures and the recent development of a climate change policy and upcoming decarbonisation strategy as factors contributing to the risk's mitigation. Regarding AG and AG2 data risks, she acknowledged ongoing work with employers, including the council, to improve data uploads to the iConnect portal, noting progress in reconciling contributions with payments.

Voting and Stewardship Update

The board reviewed the voting and stewardship update, noting an improvement in the report's clarity. A question was raised regarding LGIM, a tracker fund, and its holdings in National Grid, Frasers, and BHP. It was confirmed that as a low-carbon fund benchmarking against MSCI World, LGIM would hold stocks in line with the index, and the NA (Not Applicable) for Frasers Group and BHP indicated they were not held.

Councillor David Stephen Thompson inquired further about the stewardship interventions, noting that most interventions focused on director matters, covering governance and board composition. He sought reassurance that managers were not avoiding stewardship responsibilities in other areas, particularly concerning LGIM's low-carbon remit. Miriam Adams explained that the report covers a quarterly cycle and that the fund has transitioned to a Paris-aligned Global Equity Fund, aiming for net-zero targets. She clarified that while low-carbon funds may have fewer energy stocks, they are not divestment funds and engagement continues. She also noted that some topical issues, like those involving BHP or Rio Tinto, might not always appear on the LAPFF radar if they are not the most risky or topical companies, but engagement is ongoing. The board noted the report.

Board Work Plan

The board's work plan was presented and agreed upon without further questions.

Pension Committee Agenda

The Pension Board noted that the Pension Committee agenda for their upcoming meeting would include many of the reports and issues discussed during this meeting. The Chair confirmed they would share their draft report for the Pension Committee meeting.