2021 Responsible Investment and Stewardship Outcomes - For the year ending 31 December 2020
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2021
Responsible Investment and
Stewardship Outcomes
For the year ending 31 December 2020
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 3
Delivering stronger investment returns over the
long term, protecting our Clients’ interests through
contributing to a more sustainable and resilient Executive Summary
financial system, which supports sustainable
economic growth and a thriving society.
Brunel Pension Partnership Limited (Brunel) is one of eight national
22%
Local Government Pension Scheme (LGPS) Pools, bringing together
Leaders Net-zero
circa £30 billion investments of 10 likeminded pension funds: Avon,
Buckinghamshire, Cornwall, Devon, Dorset, Environment Agency,
Gloucestershire, Oxfordshire, Somerset, and Wiltshire.
Recognised as leaders in RI, Climate by 2050, 50% carbon emission greater carbon efficiency than
We would like to acknowledge the significant support and contribution of our and ESG in Europe and globally intensity reduction by by 2030 benchmark for the Brunel Aggregate
clients to our work on Climate Change, Responsible Investment and Stewardship Portfolio – up from 15% a year earlier
underpinning our mutual commitment to investing for a world worth living in.
We believe in making long-term
sustainable investments supported by
75% 20%
robust and transparent processes
35%
We are here to protect the interests of
our clients and their beneficiaries
In collaboration with all our stakeholders
we are forging better futures by
investing for a world worth living in Females on board in UK Active carbon saving and 254 jobs Reduction in water intensity (38%
and 28% in Global High Alpha – from Secured Income Portfolio below investment benchmark) by
improvement in all active equities greenhouse project Robeco (Brunel Low Volatility)
78
world’s largest mining companies
3,101 1,046
issues engaged on at 881 companies company meeting voted at, 1,666
asked to review their relationships achieving 1,050 milestones votes against or abstain
with First Nations communities and
indigenous peoples
Cybersecurity
Coalition of investors focuses on
25 companies
SDGs
Reporting pilot underway
100%
of our appointed listed market fund
managers are currently achieving
or committed to cost transparency.
Brunel is authorised and regulated by the Financial Conduct authority as a full-service MiFID firm.
We use the name ‘Brunel’ to refer to the FCA-authorised and regulated company. Company registration number 10429110 .
Authorised and regulated by the Financial Conduct Authority No. 790168.
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 4 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 5
Message from our Chair Introduction from our CEO
Welcome to our 2021 Responsible Investment and Our second Responsible Investment and Stewardship Outcomes
Stewardship Outcomes Report for the year 2020. Report reviews a year unlike any of us at Brunel have known, and
one that none of us could have anticipated. Amid the changes,
We launched this report last year to show our clients, all companies have needed to respond nimbly to the crisis and
shareholders, employees and the broader industry how we to review their practices and performance. In short, the year has
are performing against our own principles and targets. We shown the value of just this kind of report, which enables us to
advocate strongly and publicly for industry change across a go back to first principles and assess ourselves across several key
number of areas, and we believe it is fundamental that we metrics. As a result, even a global pandemic and lockdown has
Denise Le Gal not prevented us from ensuring that our stewardship activities live Laura Chappell
look at ourselves first of all.
Chair up to our own high expectations. Chief Executive Officer
The extraordinary events of 2020 enabled a strong spotlight
to be shone on several of the issues covered in this report,
among them, diversity & inclusion, human capital and We set our goals and make our Despite the global disruption of 2020, and Climate policies. We examine
climate change. We welcome the added scrutiny that has decisions as a partnership, an Brunel was able to deliver widely how managers embed ESG principles
resulted. Indeed, we believe Brunel is strongly positioned for it, approach that equips us to engage on our plans through the year. By into their investment process. We
effectively not just with clients and year-end, we had transitioned most also look at their company culture,
given both our extensive reporting practices and, on climate shareholders, but also with managers of our clients’ assets into Brunel not least in the area of diversity &
change more specifically, our involvement in enabling the and the broader asset management funds. We also launched a number inclusion. We have continued to work
launch of the Institutional Investors Group on Climate Change industry. These interactions and of new funds, including a Sustainable with the Diversity Project and the 30%
ground-breaking Net Zero Investment Framework. collaborations are crucial in enabling Equities Fund that positively targets club to encourage a more inclusive
us to meet the long-term fiduciary sustainable investments, a Diversifying culture – broader social movements
and responsible goals set by our Returns fund, and a Global Small in 2020 have offered a timely
We remain focused on our broader aim of forging better
partnership. Cap fund. We completed Cycle reminder of how much work remains
futures by investing for a world worth living in. Inevitably, that 1 of Private Market investments to be done in this area. Although
Our Responsible Investment (RI)
means thinking about issues across a range of asset classes, (35% of which are in renewables) Brunel has too few employees to be
approach is built on three pillars:
industries and geographies, and then taking appropriate and embarked on Cycle 2, which obliged to report on diversity, we
to integrate sustainability criteria
has a dedicated sub-mandate for report on this area voluntarily.
action. The results of those actions are strongly in evidence into our operations and investment
renewable energy opportunities.
throughout these pages. activities; to collaborate with others
across the industry and support We have worked closely with
effective policymaking; and to be managers to ensure they embed our
transparent in our activities. These RI principles across our portfolios,
three pillars underpin our operations, in line with how we designed the
providing a bedrock for our team, our portfolios. Manager selection is a
Denise Le Gal clients and our managers. central part of our RI, Stewardship
Chair, Brunel Pension Partnership
Winner:
Pension Fund of the Year,
Environmental Finance Awards 2020
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 6 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 7
Contents
Our climate ambitions were I am delighted to see how our Our role as a pension pool makes
The Big Challenge Human Capital
expressed in our work with the determination to change the industry it imperative for us to address
Institutional Investors Group on in this area is already bearing fruit, these issues holistically, in line with
Page 8 Page 42
Climate Change, when we co- ahead of Brunel’s own Climate client needs, so that the interests of
Investment principles Mental heath and Modern Human
piloted the Net Zero Investment Stocktake in 2022. To this end, we pensioners, planet and people are
Systemic risk and Brunel’s priorities Slavery
Framework ahead of an industry have begun work on Net Zero considered together. We believe
consultation. Faith Ward, our Chief benchmarks, a major gap in the this is the right approach, but we Client and beneficiary insights
Responsible Investment Officer, was industry at present and one that also believe it will enable us to Governance and oversight Responsible
named Chair of the IIGCC at the prevents wholesale change. We have reduce investment risk and deliver
end of 2020. Having ensured Brunel’s also been active in both shareholder strong investment returns over the
Stewardship
commitment to achieving Net engagement and voting, and our years ahead. Bringing it altogether Page 46
Zero before 2050, Faith was closely broader cooperation in this area has
A year of disruption has given us an
Page 14
involved in outreach to asset owners enabled significant climate policy ESG and Climate in manager
exceptional opportunity to ensure we selection - Multi-asset credit
ahead of the formal launch of the changes at both HSBC and Barclays. Chief Investment Officer viewpoint
are doing all we can to invest for a case study
framework in 2021. That outreach AUM breakdowns
Responsible Stewardship and world worth living in.
continues to mobilise asset owners Voting actions and policy update
Responsible Investment cover
and managers ahead of COP26 Engagement for change
in the autumn. We have also been
many areas, among them water, Climate change ESG data
biodiversity, cyber risk, cost
closely involved in work with both
transparency and supply chain
Page 18
the TPI and TCFD in developing good
risk. We review each of these in
practice in climate investing.
this report, since abuses or laxity Laura Chappell
Striving for Net Zero China - ESGs risk
in these areas can have grave Chief Executive Officer, Brunel Net Zero Investment Framework in China
consequences, and often severe Pension Partnership Delivering on climate targets Page 50
social impacts. Focusing on climate
risk to the exclusion of social factors
is insufficient, and we are committed Tax and Cost
to integrating social risk and impacts Transparency Cyber
into how we operate and invest. Page 33 Page 59
CACEIS case study on cost Assessing digital rights and corporate
transparency accountability
Cyber security coalition
Diversity and Inclusion
Page 35 Supply Chains
Page 65
Delivering on gender targets
Action taken on ethnic and other Plastic pollution
forms of diversity matters Water
Biodiversity, communities and
SDGs landuse
Page 40
Partnerships &
Enhancing reporting and stewardship affiliations
Additional Carbon
metrics & benchmarks
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 8 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 9
The Big Challenge The Global Risks Landscape 2021 The
F I G U RGlobal
E II Risks Landscape 2021
Global
How do survey respondents perceive the impact ↑ and
How Risks
likelihood
do survey Landscape
→respondents
of global risks?
perceive the impact ↑ and likelihood → of global risks?
The Global Risks Landscape 2021
How
How do do survey respondents
respondents perceive perceive the impact
the impact ↑ and likelihood
and likelihood → ofrisks?
of global global risks?
Infectious diseases Infectious diseases
Climate action failure Climate action failure
Infectious diseases
Climate action failure
4 4
Weapons of mass destruction Weapons of mass destruction
4
Weapons of mass destruction
Biodiversity loss Biodiversity loss
Natural resource crises Human environmental damage Natural resource crises Human environmental damage
Biodiversity loss
Responsible investment (RI) is One of the biggest challenges and the Environment Agency. These Size does matter, not just in This leads to the need to look at crises
Natural resource includingHuman Theenvironmental
Globaldamage Risk Report. The
therefore is trying to decide what organisations are at the forefront financial terms but Debtalso
crises in terms of
Livelihood crises
systemicExtreme risksweatheras well asDebt portfolio 2020 Report, published
Livelihood crises
in January
central to how Brunel fulfils its crises
Extreme weather
exactly to do – where is the best dealing with consequences, whether
IT infrastructure breakdown impact. A small company, orCybersecurity small failurebreakdown
IT infrastructure risks. Dr Ellen Quigley2, University of Cybersecurity failure
2021,
Livelihood crises slices and dices risks in many
fiduciary duty. As responsible place to target the resources you that be flooding, environmental
Interstate conflict
allocation to a company, Prolonged
can
Social have
cohesion
IT
erosion
infrastructure Cambridge,
breakdown
Interstate conflict
is a thought
Debt crises
Prolonged
leader Social
on cohesion erosion
Cybersecurity ways;
failure most
Extreme weather
importantly, it considers
stagnation stagnation
3.5 3.5
investors, we recognise have, particularly when faced with
Social security collapse
degradation, fly-tipping, waste disproportionately large impacts onSocial security collapse
how investors Interstate conflict
can address ProlongedissuesSocial cohesion erosion
stagnation
the interconnectivity of different risks.
3.5 Involuntary migration Social security collapse Involuntary migration
that every company or a multitude of seemingly equally collection or social care, to name Average risk. We see this a lot
Average when looking arising from universal ownership and The extract below illustrates strong
Interstate relations fracture Interstate relations fracture
Involuntary migration
important risk and opportunities but a few. That our approach 3.40at climate change, 3.40for example. So, systemic risk; and she presented to overlap with Brunel’s current RI and
asset we invest in operates Asset bubble burst
Average
Digital power concentration Asset bubble burst InterstateDigital
relations fracture
power concentration
from one perspective or another. So to investment considers these whilst we do look at 3.40 our financial the Brunel Board as part of a half- stewardship priorities (page 10).
interdependently with the how does Brunel go about deciding impacts and externalities1 is entirely exposure in an absolute sense, we
Resource geopolitization
day workshop in November 2020.
Asset bubble burst Resource geopolitization
Digital power concentration
Public Public Resource geopolitization The outcome of the Board workshop
economy, civil society and on its responsible investment and State collapse
unsurprising but incredibly important. also consider infrastructurethe materiality
failure
Youth disillusionment
of the State collapse The purpose of the
infrastructure
failure
Public
workshop was
Youth disillusionment
State collapse infrastructure Youth disillusionment was that our current priorities and
the physical environment. stewardship priorities? sustainability risk to Geophysical that company, disasters
to assess our overall failure approach to RI
Geophysical disasters
Speaking to our clients directly, to Backlash against science
Adverse tech advances
Backlash against science
Adverse tech advances Geophysical disasters approach to stewardship were
Commodity shocks as well as the risk that Backlash the company
against science Commodity andshocksto develop our risk framework
The starting point for all our work is their employers through AGMs and Commodity shocks
Adverse tech advances appropriate and effective, but
and its operations mayfailure
Tech governance present to Digital inequality relating to climate change. Tech governance failure
The Digital inequality
our Investment beliefs, which were forums, and working with other Price instability Multilateralism collapse Price instability Multilateralism collapse Tech governance failure that we need to proactively seek
Digital inequality
Industry collapse the broader economy and Price society.
instability Board
Industry collapse workshop
Multilateralism also
collapse looked at
drafted in collaboration with our stakeholders individually or in groups, additional opportunities to amplify,
3
This is sometimes referred 3
to as Industry collapse
Brunel’s priorities in relation to the
clients. Brunel’s shareholders (and enables Brunel to be close to a range 3
and add to, our work on biodiversity.
‘doubleMental health deterioration
materiality’. UN Sustainable Mental health deterioration
Development
Mental health deterioration Goals
clients) are nine Local Authorities of stakeholder issues and concerns. Biodiversity is currently a sub-theme
as well as the work ofTerrorist World
the attacks
Impact →
Impact →
Terrorist attacks
Another concept we have embraced captured under supply chain
Impact →
Terrorist attacks
Economic Forum (WEF), which
as economic
Illicit helping to define our priorities is
activity Illicit economic activity management, but later in the report,
produces a number
Illicit economic activity of reports,
that of the ‘Universal Owner’. Whether we outline our next steps to respond
2.5 3 3.5 2.5 4 3 3.5 4
Brunel is big enough to be classified 2.5 3 3.5
to this request.
4
Likelihood → Average Likelihood
Likelihood →→ Average
Average
Brunel Pension Partnership Investment Principles as a universal 3.28 owner can be debated, 3.28
3.28
but it is a useful framing in recognising
• Long-term investors • Leadership and innovation that, as diversified investors, we
• Responsible investors • Right risk for right return
Visible area Methodology
are exposed to risks Visible areaarea
Visible
arising from Methodology
Methodology Risk categories Top Risks Risk
Risk Top Risks
categories
categories
5 the 5 by likelihood by impact
werewhole
asked to economy andoffrom right Survey
5 Economic Economic
Survey respondents assess the likelihood the individual Surveyrespondents
respondents werewere asked
askedtotoassess assessthe thelikelihood
likelihood of
of the
the individual
individual Economic
• Best practice governance • Full risk evaluation global risk on a scale across of 1 to 5, 1 representing
financial a risk that is
markets. very unlikely to global
Universal riskrisk
global on on
a scale
a scale of of
1 to
Environmental
1 to5,5,1 1representing
representingaarisk riskthat
that isis very
very unlikely
unlikely toto
Environmental
Environmental
happen and 5 a risk that is very likely to occur over the course of the next ten happenhappen andand5 a5risk
a riskthat thatis is verylikely
very likelytotooccur
occuroveroverthethe course
1 course
Extremeof the next
next ten
weather ten Infectious diseases
ownership recognises
of each global the risk onimpact one 5, years. They also assessed
Geopolitical the impactofofeach eachglobal
globalrisk risk on
on aa scale ofof 11 to
to 5, Geopolitical
Geopolitical
• Decisions informed through experts and • Responsible stewardship years. They also assessed the impact a scale of 1 toyears. They also
1 representing
assessed
a minimal
the impact
impactand catastrophic2impact.
and5 5a acatastrophic Climate
impact. action failure
To ensure
ensure
5,
Climate action failure
assetimpact
1 representing a minimal or component
and 5 a catastrophic of impact.
our portfolios
To ensure 1 representing a minimal
Societal
impact To Societal
Societal
knowledgeable officers and committees legibility, the names of the global risks are abbreviated. legibility,
legibility, thethe names
names of of thethe globalrisks
global risksare
areabbreviated.
abbreviated.
• Cost effective solutions 1 5 has on another asset 1 1 (for example, 5 5 Technological
3 Human environmental damage Weapons of mass destruction
Technological
Technological
• Evidence and research at the heart of flood risk in real estate exacerbated 4 Infectious diseases Biodiversity loss
• Transparent and accountable
investments by climate change arising
Methodology
from 5 Biodiversity loss Natural resource crises
Source: World Economic Forum Global Risks Perception Survey 2020
• Collaboration Source: World Economic Forum Global Risks coal fired electricity
Perception Survey 2020 Source: generation).
World Economic It Forum Global Risks Perception Survey 2020
Survey respondents were asked to assess the likelihood of the individual 6 Digital power concentration Human environmental damage
also recognises the globalimpact to the
risk on a scale of 1 to 5, 1 representing a risk that is very unlikely
The complete wording for these principles is available on our website: www.brunelpensionpartnership.org economy and society and 5 a riskmore that isbroadly.
very likely to occur over the course of the next ten
7 Digital inequality Livelihood crises
years. They also assessed the impact of each global risk on a scale of
Interstate relations fracture Extreme weather
Our approach therefore seeks not
1 to 5, 1 representing a minimal impact and 5 a catastrophic impact. To
8
ensure legibility,the names of the global risks RiskarePerception
abbreviated. Survey 2020
only to contribute to managing risks The Global Risk Report 2021,
9 Cybersecurity failure Debt crises
relating to individual Source: investments,
World Economic Forum but Global Risks World Economic
Perception Survey Forum 2020 10 Livelihood crises IT infrastructure breakdown
to benefit the market and economy
Source: World Economic Forum Source: World Economic Forum
more broadly. Global Risks Perception Survey 2020 Global Risks Perception Survey 2020
The Global Risks Report 2021 12
2
E.Quigley, 2020, Universal Ownership and Systemic Risks - latest update on work https://www.cambridge.org/engage/coe/article-details/5fadc
1
An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer 442ad40b800113d6637
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 10 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 11
Brunel RI and Stewardship Priorities
Top down
• Investment risks
• Client priorities
Climate change
Annual Brunel RI and
Stewardship Heart prints decorate
Policy and UK policy framework
Brunel RI Outcomes Report
Queen Square, Bristol, to
regulation
Strategy support social distancing
Diversity and inclusion delivered by Quarterly RI and
• Brunel Team Stewardship updates,
Human capital • Asset Managers portfolio dashboards,
Best
• Engagement voting records and
practice engagement highlights
providers
Cost and tax transparency
• Partnerships and
Collaborations
Presentations, workshops,
Cyber
training, podcasts,
Stakeholder
blogs and articles We have had to navigate how The probability of success is a key The timing of engagement is critical.
views Supply chain companies approach effective consideration in how we prioritize. Good timing enables us to galvanize
management
shareholder engagement in a virtual Whilst this does not stop Brunel raising widespread investor support for
world; the challenge of mental health issues that may not have widespread action, thereby massively increasing
in the workforce; and the problem traction in the investment industry, the effectiveness of our stewardship
Bottom up from
of modern human slavery in supply it does have an impact at the level activity. This was demonstrated
Brunel portfolios chains. The risks linked to these issues of resourcing. However, we are by the rapid investor-led response
• Asset specific risks were exacerbated by the various informed and flexible enough to to the 2019 Brumadinho dam
• Event risk
lockdowns imposed around the world deepen our expertise on key topics disaster in Brazil, which resulted
– plans therefore needed adapting. when the need arises or when in ground-breaking interventions
Overall, the team just worked harder events highlight a topic’s urgency. and progress that will save lives in
The whole organisation uses and the Brunel Investment
to absorb the increased activity, One example was the death of communities worldwide that live near
resources like the WEF reports, Committee, and at a strategic level
but some areas of legislation and George Floyd in 2020, which led to an tailings dams.
daily news feeds, input from our as part of Executive Committee and
regulation were put on hold, such as outpouring of emotions in America
asset managers and other service Brunel Board meetings (page 12).
gender pay gap reporting in the UK. and, subsequently, worldwide. His
providers. Combined with talking to
Whilst we set our priorities, the death shone a spotlight on racial
other investors, policy makers and
exact magnitude of activity on inequality. Inevitably, it made us think
academics at events and private
different themes does vary year on more deeply about the issue in the
meetings, it equips us to be aware
year, but also adapts to changes in investment industry, and dedicate
of new and emerging risks. The
circumstances. The rise of COVID-19 more resources to this element of our
opportunity to discuss such risks is a
in 2020 added a new dimension to Diversity & Inclusion theme.
standard agenda item of both the
our priorities, and we had to make
Brunel Investment Risk Committee
adjustments to our workplan.
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 12 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 13
Client outcome focus
As illustrated in the diagram ‘Brunel opportunity for deeper discussion on 2020, workshop topics included In 2020, Brunel clients conducted
RI & Stewardship Priorities’, we are Responsible Investment topics. We the requirements of the new an independent assurance review
heavily influenced by the views and specifically ask this group to assess stewardship code, and sustainability- of Brunel, which included an Walking the Talk
concerns of our clients and their whether our reporting, such as in this based investment outcomes assessment on the Responsible
Our responsible investment policy commits Brunel to integrate RI in
beneficiaries. report, is what they need and is fair, and benchmarks. Investment Service. On this latter
everything we do, including our own operations. There are examples of
balanced and understandable. part, 90% of clients rated it ‘good’
Brunel’s Client Group is made up The Brunel team also presents this throughout the report but, more broadly, we work in partnership with
or ‘very good’4. We did, however,
of Client Fund Officers who put We also believe that it makes our frequently at pension committees, Future-Fit, a-not-for-profit organisation that aims to encourage business
reflect on the qualitative feedback,
Responsible Investment updates on reporting ‘fair and balanced’, as well investment sub-groups, employer alignment with the Sustainable Development Goals (SDGs); we have
including requests for portfolios
the agenda on a monthly basis. In as more outcome and investment forums and dedicated responsible committed to sustainable leadership by become a Future-Fit ‘Pioneer’.
aligned with the Paris Agreement
addition, the Responsible Investment relevant, to report most of our metrics investment training events. Taken Becoming a Pioneer demonstrated our commitment to embedding
across all asset classes and reporting
Sub-group meets monthly and acts on a weighted average basis.3 together with Brunel Investor sustainability throughout our organisation and walking the talk across our
on the Sustainable Development
as a forum for consultation and review Days, these provide a great many own operations.
We conduct client workshops Goals. Both have been actioned in
of all RI and stewardship policies opportunities to respond to questions
to enable deeper awareness or the latter half of 2020 and progress We have made progress across a number of our Future-Fit goals and aim
and reporting. It also provides an and listen to clients’ areas of concern.
training on a particular topic. In covered in this report, although work to improve where “minor” action was flagged in our Future-Fit assessment
continues in 2021. from 2019.
Board and Sub-committees Shareholder Group
Brunel Oversight
Board
Board
5 4+
Audit, Risk & Compliance
Remuneration Committee
Committee
2 4
Executive Committee Client Group
8 12
Responsible
Operations Risk & Compliance Investment
Investment
Committee Committee Committee
Sub-Group
6 5 12 12
Operational
x Numbers of
Committees Investment Risk Committee meetings a year
4 Stonehenge, Wiltshire
3
Weighted average is an average resulting from the multiplication of each component by a factor reflecting its importance 4
Brunel Client Assurance Survey, conducted by Mercer, July 2020.
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 14 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 15
Breakdown of Brunel Assets Under Management
Bringing it all together – 6% 5%
CIO perspective 8%
3%
32% As at 31
The global financial crisis (GFC) of 2008 left an indelible mark December 2020 46%
Active Listed Equity
on financial markets; the scarring of the economic system, Passive Listed Equity
subsequent regulations and the actions of participants ultimately Property
David Vickers
influenced the path of returns for the next decade. The outbreak CIO Infrastructure
of Covid and the government and central bank response is also Other (DRF)
Private Equity
likely to shape the future of the market, indeed the response
function has in several ways accelerated the previous themes of are exposed to. We discuss the that are needed to radically move us easily deal with events they have
debt and government intervention. probabilities of these longer-term forward. It is estimated by National not seen, specifically the potential
themes across our virtual desks and in Grid that getting the UK energy of nonlinear event compounding,
our investment committees, tackling network to net zero for example will creating tipping points and thus
first the macro outlook and probability cost the UK £3trn and that retrofitting cascading effects. Removing a
of events (as nothing should be insulating to the UK housing stock relatively simple piece of the puzzle
In addition, after years of generally Why is this important? Developed in some areas are still constrained. taken as certain) and then discussing perhaps another £2trn so says the such as insurance can create
disinflationary trends it may have market government debt is All of this is before the $1.9trn US the likely impact on asset classes, energy technological institute. catastrophic effects as we saw
sown the seeds for eventual inflation. considered low risk and we use the stimulus package and infrastructure thinking through what is priced in and Financing is clearly needed in order during the GFC. It is a very real threat
It has also helped, alongside other term ‘risk-free rate’ as foundation bill have flowed through to markets. ultimately working through the range to achieve Net Zero ambitions. that some business, property and
developments, to provide a renewed to measure ‘risk’ other asset classes. This combined with a rebasing effect of potential impacts on our portfolios. President Biden’s proposal of a new risks become uninsurable under
focus on sustainability. The spread and As in any area of life, if you mess from the lows of last year has already Fundamentally investment is about global tax regime therefore comes at numerous and credible scenarios,
response to Coronavirus has certainly with foundations, you can expect and could continue to move the understanding all the risks that you an important time. creating a litany of stranded and
served to highlight issues of inequality significant knock-on impacts. As an expectations of inflation higher. are exposed to, formulating a view as impaired assets and business
Greening the economy will create
and show how interconnected example, if property offers a return to the distribution of potential returns ecosystems. Working with our
Some inflation would be welcome in winners and losers, but the path will
the world is both politically and of 5%, then that might be lower and ensuring that the compensation investment partners, academics and
order to erode the large debt burden, not be smooth or linear, as despite
financially, providing a timely than historic returns but should be on offer is appropriate. such focused groups like the
but the issue is that if inflation rises by these inexorable trends, valuations of
reminder that one must build into compared to what you can receive Principles for Responsible Investment
more than is deemed comfortable The ramifications of climate change ‘clean or green’ stocks will inevitably
models both “traditional” and ESG from a government bond which (PRI) and Institutional Investor Group
by the market and the central banks have always been a long-term run ahead of fundamentals and
risks when making strategic decisions is close to zero. If suddenly you on Climate Change (IIGCC) to trace
it will drag bond yields and finally theme that we believe investors today’s energy stocks will not all be
about how to deploy capital. can receive 2% from the risk-free these fault lines is truly important as it
interest rates higher making the debt needed to embrace. However, it in terminally decline, many have the
rate, then a 5% return doesn’t look can shine a light on where a new
Looking forward the social, economic less financeable. does feel that the conflux of new resources and increasingly the focus
as attractive. As such that asset, series of systemic risks may lie. This is
and investment landscape will be reporting requirements, change to be part of the solution. Successfully
property in this example, has to As we think about these long-term important as even though we are
driven to significant extent by the in US government policy, societal navigating the investment landscape
adjust by falling in value until the themes it is important, we view them aligned achieving net zero in our
conditions of today, not least the fact changes and evolving investor as we transition to net zero will
compensation above the risk-free through the lens of the portfolios portfolios, much like covid it will not
that International Monetary Fund (IMF) demands, which have driven capital therefore require an understanding of
rate is restored. we have built for our partner funds matter if we do this in isolation, as in
estimates that global debt stands at flows, accelerated through COVID. the long-term themes, the relationship
and the factors that our portfolios isolation our efforts are not enough.
$270 trillion, or 350% of global GDP, a It may well be inflation, or at least The outcome being that these between technological feasibility
figure we have not seen since the end the expectations of inflation that is issues have grown in prominence and profitability, but also the interplay
of World War Two. In conjunction with the biggest risk to investors meeting Brunel Asset Allocation to a greater extent than I have between medium term valuation
this it is also important to note that their outcomes. If the post GFC Geographical Split witnessed previously. What the considerations and shorter-term
interest rates around the developing was a decade of monetary policy, response to covid has shown us is investment flows. This narrative all
0.2% 1.0% that where there is a political will,
world are at or close to zero. That arguably what has changed now assumes that we achieve net zero,
10.4% significant financing can be found clearly there are significant systemic
point is spectacularly important for is the introduction of traditional
88.5% and governments and corporations risks if we do not manage to achieve
Next steps
medium term investment returns. The fiscal stimulus – using public debt
past decade of quantitative easing to stimulate the recovery. Money from every region can, largely, work the Paris targets. As mentioned earlier • Private
Debt portfolio
together towards a common goal. there are many potential futures and
(government purchasing of assets), during this crisis has been channelled to launch in 2021
austerity and fiscal prudence drove directly to the consumer as opposed It certainly provides a blueprint for as an investor, we must consider them
yields lower and covid pushed them to the banking sector and money tackling climate change, which all and think about both probability • Fixed
income portfolios
hitherto was often put by some and magnitude of impact.
to all time lows. Indeed, by December supply has increased markedly. This to launch in 2021
2020 $18trn of government debt had has sparked concerns of inflation as in the “too big to tackle” camp.
As it stands today, governments,
negative yields (I.e., an investor paid a fiscal stimulus has fuelled retail sales However, whilst showing the way the
corporations and institutions that bind
premium, as opposed to receiving one and increased savings rates which debt burden created has arguably
the economic ecosystem are not
for giving the government money!) could be unleashed as additional left governments in a worse state
prepared for a warmer world, neither
demand as societies re-open, all at Developed Markets Frontier Markets
financially to put into place the
are current risk models, as they can’t
a time when bottle necks and supply funding, incentives and programmes
Emerging Markets Other
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 16 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 17
Timeline
April 2019 March 2021
Quarterly Portfolio dashboard Signed the IIGCC’s Net Zero
reporting for ESG and carbon metrics Investment Commitment
May 2019 2021
July 2017 Climate Position Statement Exploring Net Zero
Brunel Pension Partnership formed Benchmarks
Brunel joins the Sustainability
Accounting Standards Board (SASB’s)
November 2017
Joined The Institutional Investors
Investor Advisory Group
2021
SDG Reporting in
Group on Climate Change (IIGCC)
and registered as Task Force for
September 2019 development
Climate related Disclosures (TCFD) Published our Tax
signatory and supporter Position Statement
2030 target
December 2017 50% reduction in carbon intensity
Board supports joining Diversity
Project and 30% Club
2020 2021
2019 2022
2018 2030
January 2020
2017 Public launch of Climate
Change Policy
2050
March 2020 October 2022
March 2018 UN PRI Transparency Report
Climate Change Stocktake
First LGPS pool to become a
signatory of UN backed Principles
of Responsible Investment
May 2020
First Responsible Investment and
2050 target
May 2018 Stewardship Outcomes Report
published Net Zero investment Portfolios
Five Year Responsible
Investment Policy
Summer 2020
October 2018 IIGCC’s Net Zero Investment
Framework testing and consultation
Launch of our Stewardship Policy
End of 2018 November 2020
Brunel’s First Annual Report and Brunel is founding signatory
Financial Statements including TCFD to the Financing the Just
& paygap report Transition Alliance
Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 18 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 19
Climate Change
Using our strengths and our position in the market to
systematically change the investment industry so that it is fit
for purpose for a world where the temperature rise needs to
be kept to well below 2°C compared to pre-industrial levels.
Policy Advocacy
We want policy makers to establish
comprehensive and robust climate
change policy frameworks that deliver
Product Governance
significant reductions in greenhouse gas We want to increase the number
emissions, accelerate progress towards and range of products available to
the low carbon economy, and enable our Clients and the wider investment
Climate change presents an World governments have started effective adaptation to the unavoidable market that deliver substantial
immediate systemic and material to respond. The signatories to the impacts of climate change. climate change benefits.
risk to the ecological, societal and 2015 Paris Agreement committed to Brunel has
financial stability of every economy keeping global temperature rise this
and country on the planet. It has century to well below 2°C compared committed to Persuasion
Making Designing
direct implications for our Clients and
their beneficiaries. It is therefore a
to pre-industrial levels, and to aim
to limit the increase to 1.5°C. The
becoming Net We want the companies and markets climate
transition
other entities in which we invest work
strategic investment priority for us. signatories agreed to adopt and
implement nationally determined
Zero by 2050 and contract with to support
solutions
Pro
Scientific evidence suggests that the transition to the low carbon icy du
contributions (NDCs) that set out the ol E C Portfolio
our climate is changing faster than economy, and to ensure that they AT HA
P
N
ct
actions they would take to reduce LIM
Management
s
at almost any point in history. The are resilient to the unavoidable
G
C
greenhouse gas emissions, and Systemic
E
world is already at approximately impacts of climate change.
to strengthen these efforts in the change in the We want our investment
P e rs u a s
1°C of warming above pre-industrial
investment
li o s
years ahead. portfolios to be resilient
levels. This is causing more frequent Convincing industry Investing
rtf o
under a range of climate
and more extreme weather events, Yet we are currently heading others to where it
Po
ion
matters change scenarios
significantly affecting rainfall and towards a world of 4°C of warming change
Po (both mitigation and
sea levels, and impacting agriculture compared to pre-industrial levels. sitive Impact adaptation). We want to
and food supply, infrastructure, To avoid catastrophe, governments Positive Impact adopt best practices on
flooding and water supply. That leads and all sectors of society (individuals,
We want to enable investments in climate risk management
to rising migration and resource- companies and investors, among
activities that directly support the low Delivering & and to work with our
based conflict. others), will need to do much more.
carbon transition and that enable evidencing managers to further
To transition to the low carbon
effective adaptation to the unavoidable progress improve and develop
economy, we must reshape of our
impacts of climate change. our processes.
economy, eliminate almost all fossil
fuel use, and reach Net Zero by 2050.Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 20 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 21
Climate risk and real estate
Net Zero Investment Framework – Testing the methodology
We worked with three property looking at the valuation impact
What action have we The Paris Aligned Investment Initiative The project took an investment-
led approach and delivered managers that were able to provide under different climate change
taken? We have been actively involved Develop working definitions of
• data for a set of properties that scenarios, the ‘Brunel Test Portfolio’
recommended frameworks for
Following the launch of our Climate with the Institutional Investors Group concepts, terms and pathways achieving Paris alignment by represented a typical UK property performed better under all three
Change policy in January 2020 we on Climate Change (IIGCC) in the relevant to achieving Paris- decarbonising portfolios and portfolio. We then used that dataset scenarios compared to a typical UK
have made significant progress development of the Paris Aligned aligned portfolios increasing allocations to climate as our ‘Brunel Test Portfolio’. When commercial property portfolio.
against all five areas. Highlights Investment Initiative. We have also solutions.
Develop and assess methods
•
include: been closely involved in drafting A B C D E F G
and approaches for measuring The Net Zero Investment Framework 100%
the Net Zero Investment Framework,
• Investment in innovative alignment and the transition of was released for consultation to
which aims to set a global standard
climate solutions in our private asset classes the wider investment community
75%
for investors to demonstrate they are
Share of portfolio
markets’ portfolios (case studies Paris-aligned. Test the financial implications of
• in September 2020 ahead of being
50%
throughout the report) aligning portfolios to the goals of published in 2021. Brunel was also
The Paris Aligned Investment Initiative one of five investors that supported
• Significant milestones achieved the Paris Agreement, using real- 25%
had three main objectives: testing the methodologies supported
in climate risk related corporate world portfolios and quantitative
modelling by Avon Pension Fund.
engagement (case studies 0%
All UK non-domestic Brunel Current Brunel Aligned
throughout the report) The next phase of the project
Net Zero Investment Framework
entails creating frameworks for
• Breaking new ground in the Forecast policy Delayed Immediate
Governance & Strategy infrastructure and private equity 0
integration of climate risk
(Climate scenaro relative to current policy baseline)
Net zero commitment | Beliefs, strategy & mandates asset classes and will be used to
into manager selection and
Climate risk assessment | Monitoring & reporting develop guidance on how to support
Change in valuation
appointment – see the interview -1
investors with implementation. A
with Daniel Spencer, the portfolio Portfolio and
Portfolio Reference Targets dedicated Paris Aligned Investment
manager for the Multi-asset credit fund level
Emissions reduction | Investment in climate solutions Initiative microsite has been
portfolio (page 48) -2
Structure for established to support investors.
• Support of the development Paris Alignment
Strategic Asset Allocation
Aligned Investment Initiatives Net Scenario Analysis | Portfolio optimisation -3
Zero Investment Framework Asset class variants | Review constraints UK Commercial Brunel Current Brunel Aligned
• Excellent progress in
decarbonising our listed equity We also used the data to create climate change scenarios versus
portfolios working with our asset Asset Level Assessment & Targets Springbok solar farm, Kern a ‘Hypothetical Aligned Portfolio’, the ‘Brunel Test Portfolio’ and typical
Alignment & engagement targets & metrics County, California so that we had an approximation UK commercial portfolio, illustrating
managers
Asset assessment criteria | Recommended methodologies
Asset class level
Springbok is a 448 Megawatt- of a portfolio that has undergone the potential benefits of sustainable
• Publication of a separate, Shifts alignment
dc solar development in Kern sustainability improvements and property. However, it still experienced
Climate Action Plan Report Implementing Alignment of assets to meet
Portfolio Construction | Engagement & Stewardship portfolio goals County California, one of the green retrofits. The ‘Hypothetical a negative financial impact under all
based on the recommendations Selective Divestment | Direct Management largest solar developments Aligned Portfolio’ saw a lower level three climate scenarios.
of the Taskforce for Climate- in the world. The fund is of value impairment under all three
related Financial Disclosure, invested, through Cycle 1, in
supplementing our reporting in the development through the Assessing physical and adaptation risk as a result of climate change is one of
our Annual Report and Financial Stakeholder & Market Engagement Capital Dynamics Clean Energy our priorities for 2021 and beyond.
Statements on the governance, Asset mangers or clients | Data & service providers External Infrastructure VII-A fund. Adapted from IIGCC Net Zero Investment Framework: Portfolio Testing Results (March 2021)
strategy and risk around Influences enabling
climate change Policy Advocacy environment to
Global & national net zero policies facilitate alignment
Disclosure & shareholder rights
Brunel was a founding signatory of the Financing the Just Transition
Alliance which has the vision to identify concrete steps that the financial
sector can take to scale up climate action which also delivers positive
social impact, both in terms of maximising the social benefits of net zero
and also making sure no one is left behindBrunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 22 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 23
Scope 1, 2 and 3 definitions
Listed Equities – metrics and targets
We integrate climate risk into Improving reporting on carbon metrics
the selection, monitoring and CO2 SF4 CH4 N2O HFCs PFCs
management of all our portfolios. In We use carbon footprinting, Working with our clients and
line with the Taskforce for Climate- alongside other tools, to provide responding to the request to provide
related Financial Disclosures (TCFD), essential analysis on the carbon more detailed metrics, we have
we support the setting and tracking performance of Brunel Portfolios and made a number of enhancements
of metrics and targets against appointed managers. The data helps to our Carbon Metrics Reporting
which to monitor and evidence us identify major contributors and over the past 12 months. This has
Employee
progress. Brunel’s largest allocation engagement opportunities. included more granularity around the
Business Travel
is in listed equities, an area where following metrics: Company
We report on a Brunel Aggregate Owned
there is sufficient comparable data Portfolio using a customised • Carbon intensity broken down by Vehicles
to make target-setting meaningful. benchmark composed in the same scope 1, scope 2 and tier 1 scope Purchased
Product
This is therefore where we have proportions as the investments (see 3 emissions Electricity for Use
prioritised action. appendix). We also produce detailed Own Use
• Industry breakdown of fossil
Metrics and targets for listed equities carbon metrics report for each Brunel
fuel related activities for various
Portfolio, examples are provided
• Portfolio decarbonisation of our energy and extractives industry
below, but all can be found in our
listed equity portfolios by no less activities
Carbon Metrics Report. Each client
than 7% per year from a fixed also has a dedicated report relating • Future emissions from reserves Waste Fuel
baseline of each respective to their holdings. All data is as of broken down by fossil fuel type Disposal Combustion Production
portfolio benchmark emission December 2020. of Purchased
intensity as at 31/12/2019 – Our carbon footprinting incorporates Materials
in cases where the market scope 1, scope 2 and first tier scope
benchmark decarbonised 3 emissions; the diagram illustrates
more rapidly, parity may be an what the different these terms mean.
acceptable minimum
Outsourced Contractor Owned Investments
• Fossil fuel revenues and exposure Activities Vehicles
no greater than that of each
respective benchmark
• Climate governance using SCOPE 2 SCOPE 1 SCOPE 3
TPI, targeting all our material INDIRECT DIRECT INDIRECT
holdings1 to be at TPI level 4 or
above by 2022
• Engagement with our material Scope 1 emissions account Scope 3 emissions are all other
Scope 2 emissions are indirect
holdings to persuade them to for all direct greenhouse gas indirect emissions with the
emissions from electricity
advance at least one level (up emissions from the activities of exclusion of scope 2 (see left).
purchased and used by the
to 4*) per year against the TPI an organisation. This includes These emissions occur from
organisation. These emissions are
Management quality framework activities on site such as the activities or sources that the
created during the production of
Springbok solar farm, use of gas boilers for heating organisation do not directly own
the energy.
Kern County, California buildings, emissions from or control. These include activities
company vehicles, leaks from air- such as business travel, employee
conditioning units and emissions commuting, waste and water
from any onsite processes such as services and investments.
cement manufacturing.Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 24 Brunel Pension Partnership Limited Responsible Investment and Stewardship Outcomes 25
Weighted Average Carbon Intensity (WACI)
The WACI shows a portfolio’s exposure As of 31 December 2020, the Brunel index tracking funds, except low
Case Study: Portfolio Management – Working with our managers
to carbon-intensive companies. This Aggregate Portfolio had an efficiency carbon, match their benchmark. to achieve decarbonisation
measure is determined by taking the of 22% versus the Custom Benchmark, The priority action for 2021 is looking
carbon intensity of each company up from 15.4% on 31 December 2019. at low-carbon, potentially net-zero
and weighting it based on its holding benchmarks for all our index-tracking
Invesco and Brunel Pension Partnership: Building a multi-factor, low-carbon UK
We outline the Weighted Average equity portfolio
size within the Portfolio. The WACI is portfolios. As part of our product
Carbon Intensity (WACI) of each
one of the measures recommended governance review, we are reviewing Over the past 18 months, we have been working Invesco was able to develop a bespoke low-carbon
of Brunel’s listed equities portfolios
by the TCFD and is a useful indicator our low carbon index portfolio closely with Invesco, one of our UK managers, in order solution within the existing multi-factor strategy, which
below. All active equity portfolios
of exposure to transition risk, such in relation to the products and to decarbonise our UK Active Equity Portfolio. has significantly reduced carbon emissions – and aims
have achieved at least a 7%
as policy intervention or changing opportunities in the market. to keep them below that of the FTSE All-Share Index.
emissions intensity reduction. All Invesco uses an approach called quantitative
consumer behaviour.
investing, also known as systematic investing. This The outcome from this work has been a significant
approach uses proprietary modelling and data reduction in the carbon intensity of the Brunel UK
analysis to deliver the investment objectives. The Active Portfolio from when first measured in March
We aim to reduce the carbon intensity
solution to looking at the climate risk, therefore, had 2019 when it was 362 tCO2e/mGBP). The Portfolio as of
of our portfolios by 7% each year to follow the same quantitative approach, rather than December 2020 was 199 tCO2e/mGBP – a reduction in
using tools such as engagement with the companies. intensity of 45% over this 21 month time period.
Along with Invesco, we identified several project Turning to relative efficiency, as of December 2020, the
Portfolio Benchmark objectives, including: stable and predictable carbon Brunel UK Active Portfolio had a relative efficiency of
500
emission reductions over time; minimal impact on 28.4% versus its benchmark, the FTSE All-Share Ex-IT – an
458
expected performance; and the ability to quantify improvement from an efficiency of 8.8% in December
Carbon Intensity (tCO2e/mGBP)
400 419 419
402
the low-carbon impact on portfolio risk and return. 2019. Over the last 12 months the Portfolio saw a
300 Exposures to quality, momentum and value factors decline in carbon intensity, from 259 tCO2e/mGBP as of
286 278
244
273
244
278 278
246 246
273 269 were maintained, which was important because they December 2019 to 199 tCO2e/mGBP in December 2020
224
200
199 194
represent the targeted factors of the strategy. – a 23.2% reduction.
174 179
143 145
100
0
Brunel Brunel Active Brunel Active Brunel Active Brunel Active Brunel Passive Brunel Passive Brunel Passive Brunel Passive Brunel Global Brunel Global
Aggregate UK Global Emerging Low Volatility Low Carbon Smart Beta UK World Sustainable Smaller
High Alpha Markets Developed Equity Companies
Portfolio Portfolio
UK Active Equity
Relative Efficiency (%)
-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Carbon intensity 2020 vs December Brunel UK Active
Portfolio 362
2019 Benchmark Baseline Mar Portfolio - 45% emissions
2019
Brunel Aggregate Portfolio -33.1% 316 intensity reduction
Brunel UK Active Portfolio -29.6% March 2019 to
Dec 259
Brunel Global High Alpha Portfolio -52.4% 2019 December 2020
282
Brunel Emerging Market Equity Portfolio -29.4%
199
Brunel Active Low Volatility Portfolio -41.9% Dec
2020 278
Brunel Passive Low Carbon Portfolio -51.9%
Brunel Passive Smart Beta Portfolio -24.5% 0 50 100 150 200 250 300 350 400
Carbon Intensity (tCO2e/mGBP)
Brunel Passive UK Portfolio -1.2%
Brunel Passive World Developed Portfolio -18.7% Portfolio Benchmark Relative Efficiency
Brunel Global Sustainable Equity Portfolio* n/a
Brunel Global Smaller Companies Portfolio* n/a
Meeting target Action underway
*Portfolios launched in 2020. We are in the process of establishing an appropriate benchmark dateYou can also read
