Report of the Town Clerk & Chief Executive
The Board received a report of the Town Clerk and Chief Executive containing a scoped and costed Climate Action Strategy for the City of London Corporation, to be considered by the Policy & Resources Committee in September and the Court of Common Council in October 2020. The Chairman introduced the item and reminded Members of the wider context surrounding the report before handing over to the Director of Innovation and Growth to introduce the report.
The Director of Innovation and Growth then introduced the report and gave the Board an introduction to the Climate Action Strategy (the Strategy), before outlining the headline figures, and key points of the strategy, principally that the City of London Corporation will work towards 2027 as a date for net zero in its own operations or what is referred to as Scope 1 and 2, and to a net zero date of 2040 for our full value chain, or Scope 3 emissions. The City of London Corporation would also support net zero by 2040 in the Square Mile and build resilience to extreme weather in our infrastructure buildings and public realm.
The Board was then advised of the action points for the Financial Investment Board to undertake as part of implementing the strategy. This consisted of four high-level actions:
1. Embed ESG Integration and Climate Related Financial Risk in Investment Mandates;
2. Ensure climate criteria are embedded in Fund Manager selection criteria;
3. Commit to having at least 60% of our portfolio Paris-aligned by 2040; and
4. Join others in signalling ambition for 100% portfolio aligned by 2030 and become signatory to Task Force on Climate-Related Financial Disclosures
The Chairman then advised that Mercer had been consulted on the Strategy’s proposals and invited Mercer’s comments on the report. Mercer advised that it was felt the net-zero ambitions were achievable and were in line with other organisations, some of whom Mercer was working with on the framework to transition. Mercer advised that implementation was easier in the equity space, due to product availability and development in passive spaces. Furthermore, full commitment may necessitate strategic or management changes. Mercer commented that more detailed analysis on the existing portfolio would be beneficial for assessing what changes were required in the short and medium term.
The Chairman then invited the Deputy Chairman of the Finance Committee to comment in his capacity working across Committees on the Strategy with Members and Officers. The Deputy Chairman of the Finance Committee stressed that the objectives of developing the Strategy were that it remain affordable, achievable and impactful, without affecting current spending commitments. The Strategy was ultimately a long-term Court of Common Council commitment, with substantive expenditure beginning in April 2021. Financial Investment Board issues were relevant to a period of 20 years, but would need to account for the Bridge House Estates Strategy and other impacts.
The Chairman then invited Members of the Board to discuss the report. A Member expressed their support for the hugely important work, but sought assurances that officers had or would have the resources required to implement the Strategy. The Member also queried whether the net-zero target of 2040 might constrain the Board’s options with regards to fund managers, for instance those who were working towards a 2050 target.
The Chamberlain advised that the Corporate Treasury team would require further resources to implement the Strategy. The proposed revenue funding earmarked for use on Financial Investments was for £100,000 (per annum for the first four years from 21/22), subject to decision at Court of Common Council, which must be used for the marginal costs associated with Climate Action. The Director of Innovation and Growth advised that the Climate Action Strategy funding arrangements also contained further resources for which impacted areas could bid. The Chamberlain added that it was vital to ensure that the appropriate level of resources were in place.
The Director of Innovation and Growth then advised that whilst some organisations had set a 2050 target for net-zero, others had set a target of 2030, and added that the target was for 60% of the portfolio, which allowed some flexibility. The Chamberlain added that there was an increasing demand for relevant products, and it was expected that managers would respond to this demand.
A Member asked, in reference to the three separate Funds, whether climate change impact scenarios would be undertaken, and whether the Board should add references to carbon footprint to the Pension Fund Investment Strategy Statement. The Chairman added that distinctions between the three separate portfolios would be a key consideration. In response, the Chamberlain advised that the Pension Fund Investment Strategy Statement was a live document and would need to be amended, and a separate Investment Strategy Statement was expected for Bridge House Estates following its review. The Chamberlain added that the Board would need to consider doing an assessment of the impact of climate change, including the impact on risk and return.
A Member commented that the situation would not be static and that products and risks would continue to change over time, but certain risks such as carbon taxes needed to be kept in mind. The City of London Corporation had a responsibility to continue taking matters forward and contribute to maintain its reputation and a voice in the ongoing discussion.
A Member then asked whether a target of 60% by 2040 was sufficiently ambitious. The Director of Innovation and Growth explained the methodology used to designate the target, and added that the target could be raised at a later stage.
The Deputy Chairman drew the Board’s attention to the four actions for the Financial Investment Board. As the Board had done significant work on ESG, he hoped ESG integration could be embedded into the relevant structures quickly, and suggested aiming for a more ambitious target on decarbonising the portfolio. However, he added this aim would need more detailed reporting on what changes would be required and their impact, plus what resources were required and how these would be obtained, noting that there were likely to be differences across the three Funds. The Deputy Chairman suggested devising a clear action plan to get to April 2021, with a platform and structure for implementation after that date.
The Chairman then noted the proposed commitments set out. Whilst some actions were more easily progressed, such as embedding ESG integration and looking at climate change criteria with fund managers, there was some limitations on making precise commitments elsewhere, without knowing objective requirements for each fund and how they might be impacted by other factors currently at play.
A Member commented that looking at future strategy on each of the three funds would be part of the Strategy work, including climate change impact. Some assessment had been done at fund level for potential pinch points. It was reiterated that a 60% target by 2040 was a Corporation-wide commitment and would allow for some flexibility between the level achieved by each Fund depending on their needs.
Members recognised the need for some caution, but felt the Board could agree on the thrust and aspirations of the Strategy, and begin on the suggested ground work to enable further work after April 2021. A Member asked what flexibility the Board had to enable and push the Strategy forward, such as reallocation or ringfencing funds. The Chamberlain advised that the position would be different for each fund. The Chamberlain further advised that ringfencing funding and addressing mandates with managers were options, but work would be required to find the right balance of actions and underpin any decisions.
Members further commented that different decisions could be taken in the future as the situation developed, and that the Board could keep an open mind on achieving the aims of the Strategy as the baseline on green products moved and became increasingly mainstream. A Member added that an annual checkpoint for the whole Strategy had been inserted, and the Strategy would be subjected to the annual budget cycle. This would enable changes to affect how the Strategy was implemented as the situation developed over time.
The Chairman, summing up the discussion, felt that the Board shared approval of the thrust and aspirations of the Strategy, but also shared concern on the need for better understanding of the current situation and impact of current direction, as well as being mindful of the consequences of prospective action on factors such as returns and risk profile. The Chairman asked whether Members were content with this position, which was agreed. The Deputy Chairman commented that it would be helpful if this summary could be reported at Policy & Resources Committee, adding that there were a number of moving parts under the Board’s remit, which made it difficult to understand easily all the factors involved in measurement, and that implementation would not be a straightforward exercise regardless of aspiration.
The Chairman advised that he was unable to attend the Policy & Resources Committee meeting, and advised that the Board could agree a resolution, or ask a Member of the Board also on the Policy & Resources Committee to report the Board’s position on consideration of the Strategy. The Board were content for the Deputy Chairman of the Finance Committee, also a Member of the Policy & Resources Committee, to report the Board’s position, also noting that the Chamberlain would be in attendance at the meeting.
The Director of Innovation and Growth thanked Members and officers for their discussion and feedback on the Strategy.
RESOLVED – That the Financial Investment Board:
a) Note the report; and
b) Provide their comment and feedback on the Strategy as above, to be reported to the Policy & Resources Committee on their consideration of the Strategy.