Climate policies and the UK Stewardship code

WYPF understands its climate responsibilities, our approach is best described in three points:

1. The fund sees climate change is an existential threat to the planet and recognises the need to act. To that end we have made a commitment to cut the carbon emissions of the fund to net zero by 2050. We are in the process of implementing this strategy and have published a Task Force on Climate-related Financial Disclosures (TCFD) report explaining how we identify, measure and mitigate climate change risk. We intend to publish a Paris Aligned Net Zero statement prior to the end of 1Q2022 explaining how we will achieve our ambitious goals.
2. Our transition to Net Zero will happen not through divestment but through helping those companies in which we are currently invested adjust to the new realities of climate change. We firmly believe that our power to influence companies is derived exclusively from our economic interest: as fractional owners of companies managements are our agents and we have the ability to remove managers through voting if they fail to act. Conversely, there is no realistic roadmap of how divestment leads to better corporate behaviour. The nature of the stock market is that if we sell someone else has to buy and all we have done is pass the buck to the next investor who may prove less diligent than ourselves in scrutinising management behaviour. Divestment is therefore both a missed opportunity to enact real change and an abdication of responsibility.
3. The energy companies of today will very likely be the energy companies of tomorrow. The European oil majors, led by BP and Shell, are amongst the leading innovators in new energy solutions and are investing tens of billions into wind and solar capacity, green hydrogen and Sustainable Airline Fuel, plus infrastructure, such as charging stations that will permit the adoption of Electric Vehicle technology. These companies are adapting because of a combination of investor pressure, customer interest and regulatory change. We believe that they are both enablers of the energy transition and an attractive investment to secure the pensions of our members. Decarbonisation will also create new champions which are also likely to emerge, and we are invested in a range of new companies developing a variety of fuel cell, Carbon Capture and Storage and hydrogen technology and products. Of course change not benefit all, those companies that are unable or unwilling to make the transition including some large state owned oil companies (which we do not invest in will struggle to survive. The decarbonisation of the economy will present both enormous challenges as well as tremendous investment opportunities for those companies and investors able to build a transition pathway.

Stewardship, the idea that institutional investors actively engage with and provide oversight to companies in which they invest, is well established in the UK. The discipline has emerged with the wider development of Corporate Governance over the last thirty years following the publication of the seminal Cadbury Report (1992) which articulated a framework of accountability that would encourage good governance.

The Code now comprises of 12 principles by which asset owners and managers abide. This is done on an ‘apply-and-explain’ basis, that is an investor must abide with all the Code’s principles and reporting expectations and explain how these have been applied. The approach contrasts with previous iterations of the Stewardship Code that adopted a ‘comply-or-explain’ methodology permitting companies to choose which principles to apply but requiring an explanation if an organisation has chosen to opt out of certain principles.

As a Local Government Pension Scheme (LGPS) West Yorkshire Pension Fund (WYPF) is obliged to become a signatory to the Code under the terms of the 2016 LGPS Regulations.