The Surrey Pension Fund Committee met to discuss investment performance, responsible investment, and the implications of local government reorganisation (LGR) for the fund. The committee agreed to note reports on investment performance, the Surrey Pension Team's activities, and recent developments in local government pensions. They also approved a draft funding strategy statement, subject to employer consultation, and delegated authority to finalise the Task Force on Climate-related Financial Disclosures (TCFD) report.

Responsible Investment and Ethical Concerns

A significant portion of the meeting was dedicated to responsible investment, particularly concerning the fund's approach to companies potentially involved in human rights abuses in Palestine/Israel.

Councillor Duncan Eastoe proposed an additional recommendation to the responsible investment update, that the committee:

engage in writing with fund managers to strongly urge them to avoid any direct or indirect investment which may be seen to be supporting or enabling genocide in Palestine, the displacement of Palestinians in the region or in the blockading of aid to Palestine.

Councillor George Potter seconded the recommendation, emphasising the fund's duty to consider the prevention of genocide and non-assistance, referencing legal advice from Doughty Street Chambers¹. He argued that investing in companies involved in the blockade of humanitarian supplies or the demolition of homes could be seen as a form of assistance with genocide. External advisor Anthony, cautioned against making a decision before receiving guidance from the Scheme Advisory Board (SAB) and the government, and in the absence of advice from the UN. He raised concerns about setting a precedent for taking steps on other global issues, such as the war in Ukraine.

It was noted that the Surrey Pension Fund invests primarily through Border to Coast Pensions Partnership² and Legal & General (L&G). It was suggested that further instruction would be required to exclude specific companies from L&G's index-tracking funds. Ultimately, Councillor Eastoe withdrew the motion. Instead, the committee agreed to an action for officers to engage with Border to Coast and L&G to seek advice on ways to avoid enabling, participating in, or supporting genocide in Palestine/Israel, to be discussed at a future meeting.

Climate Risk

Lindsay Quirbell, a member of the public, raised concerns about climate risk, referencing the draft TCFD report and the committee's view on the difficulty of climate modelling. They asked for a timetable for further planned reduction in the fund's carbon footprint to mitigate the risk of stranded assets³. The committee agreed to take this under advisement. Another member of the public, Jenny, asked about Shell's new emissions reduction target for oil production, and whether Border to Coast had put in place effective interim monitoring of Shell's target. Tim Manuel confirmed that they remained in close contact with Shell and would update the committee on any progress.

Councillor Potter raised concerns that engagement with Shell had led to active regression and questioned at what point the committee would exercise its fiduciary duty⁴ and give direction to investment managers regarding the risks of continuing to hold the investment. Neil outlined that the committee had already asked Border to Coast to clarify their definition of engagement consequences and that they would be working through their escalation playbook.

Voting Record

The fund voted on 39 AGMs⁵ and 661 resolutions, with over 70% of those in North America. The fund voted against management on over a quarter of the resolutions, mainly against proposed director candidates that were viewed as inappropriate.

Local Government Reorganisation

The committee discussed the implications of LGR in Surrey for the pension fund. Neil explained that the report outlined the nuts and bolts of our risk mitigation , referring to the safe and legal requirements and the operational work streams involved.

Councillor Harrison asked that more detail be added to the bones around the different pension positions of the different districts and boroughs that would end up within the same unitary authority⁶. Councillor Potter suggested that there should be some form of shared oversight or involvement and engagement in things over the next 18 months as a bridging period prior to vesting day for the new unitary and the new administering authority.

Councillor Powell said that a single purpose pension authority should not be considered as the preferred option without understanding the detail. They felt that the HR implications and the overhead of separate facilities and IT needed to be properly explored.

Andy Brown explained that the single pensions authority proposal, and the pros and cons for each of the options being put forward, would be on the table at the extraordinary committee meetings.

The committee agreed to note the content of the report and to work with officers to ensure that the safe and legal priorities of the Surrey Pension Fund are in place with risks mitigated ahead of any vesting day.

Surrey Pension Team Overview

The committee reviewed the Surrey Pension Team overview for quarter one, noting that the fund was now well over 150% funded. Tom reported that the online retirement process had been launched and that three-quarters of retirements were now being initiated online. He also mentioned that the team had received a substantial audit rating on the online retirement process and the administration of death processes.

Councillor Harrison asked about the transformation projects, particularly the backlog in the reconciliation of bank account receipts. Colette explained that the team were in a good position and that there were no backlogs as such on bank receipts. She said that there was a legacy backlog of about £1.5 million in the suspense account, of which £800,000 related to a payroll called S 97, which deals with teachers' added years and injury allowances.

Councillor Potter raised concerns about the fund's high funding level, noting that it was based on the return on investments and that if the discount rate dropped below 4.4%, the fund could easily end up below 100% funded. He suggested that future reports should include a bracket or variation either side of the official discount rate to give an idea of the potential volatility. He also questioned the urgency of the transformation programme, given the potential for significant changes in the local government pension scheme landscape.

Investment Manager Performance and Asset Liabilities

Lloyd reported that the fund had a very strong quarter, rising by 4.6% and taking the fund value up to £6.3 billion. He said that the last three years' annualised return was over 8%.

Councillor Harrison asked about the performance of Border to Coast Alpha since the move to Elgium. He also questioned whether the target in the equities side should be changed to move to the global sustainable versus global markets. He noted that contributions were down by £10 million and asked why.

Lloyd said that data on the Global Alpha Fund was published on their website. He said that the timing of the move to Elgium in Q1 was good because it captured most of the good performance. He agreed that the benchmarks should be reviewed as part of the review of asset allocation and the investment strategy statement.

Colette explained that the quarter four receipts included the secondary contributions and an element of catching up within the team of making sure all receipts were properly allocated towards end of year and benefits paid. She said that the comment from the previous quarter around £65.8 million going out, which was slightly higher than earlier quarters, was a push on transfers out.