Agenda item

The Committee considered a comprehensive report on the Fund's shareholder voting arrangements and activity, and engagement activity for the period 1 July to 30 September 2013.

The Committee was informed that Pensions and Investment Research Consultants Ltd (PIRC) act as the Fund's proxy and cast the Fund's votes on its investments at company shareholder meetings.  PIRC were instructed to vote in accordance with their guidelines unless the Fund instructed otherwise. 

It was noted that the Fund had voted on 2,866 occasions during this period and had opposed or abstained in 29% of votes.

Officers agreed to review the information provided in the PIRC report with a view to future reports being adapted to provide greater context and relevance to the Fund and its investments. 

The Committee’s attention was drawn to the potential class actions in relation to companies in which the Lancashire Pension Fund owned or had owned shares.  It was noted that the Fund was keeping a watching brief over developments in relation to Royal Bank of Scotland in relation to alleged actions that, it is argued, caused investors to suffer losses relating to a subsequent Rights Issue on 30 April 2008.  The Fund would need to determine its position prior to the deadline for filing a claim which remained April 2014.

The Committee’s attention was also drawn to recent developments relating to fiduciary duties, much of which had arisen from many authorities taking on responsibility for Public Health from April 2013.  It was noted that the Committee had in March 2013 considered the question of whether a conflict arose between the County Council’s imminent public health responsibilities and the Fund’s responsibilities regarding fiduciary duty.  The Lancashire Pension Fund’s position was similar to that of the Norfolk Pension Fund e.g. to maintain a policy of voting and engagement with companies whose shares were held.

Members were informed in March that in order to meet its fiduciary duties, the Pension Fund could not unilaterally decide to divest from an individual investment type without regard to the overall objectives of the Fund, or without taking appropriate professional advice including risk and return considerations.  A decision to exclude particular investments on ethical grounds and thus affect potential return could be subject to legal challenge.  Securing a decent financial return in order to meet future commitments to beneficiaries was the primary objective of a pension fund.

The Committee was informed that since then, work across the LGPS had been on-going in relation to this issue.  In October 2013, a sub-committee of the newly created LGPS Shadow Advisory Board considered the issue and decided upon a number of actions:

•  The approach taken by Norfolk Pension Fund should be circulated to LGPS Funds as the basis of interim information;

•  Counsel’s opinion should be sought on the legal status of LGPS funds with regards to fiduciary duty and the limit of broader ethical considerations.

Subsequently the Law Commission had issued a consultation paper on fiduciary duty as it applied throughout the investment chain with a closing date of 22 January 2014.

Following a discussion around the issue of ethical investment and the Fund’s fiduciary duty, the Committee welcomed the prospect of greater clarity over fiduciary duty that the recent developments would provide and it was agreed that the Fund would review the position when the outcome of the Law Commission’s review was published. 

Resolved:

(i)  That the report be noted.

(ii)  That the Law Commission’s review of fiduciary duty be welcomed and that the position with regard to ethical investment and returns be reviewed when the findings of the Law Commission are published.