Today BP announce their highest profits in 8 years (Tax 'em)

Makes perfect sense to me

"Today BP announce their highest profits in 8 years - just as many people’s energy bills hit the roof. It’s time for the Chancellor to back Labour’s plans to cut energy bills, by bringing in a one-off windfall tax on North Sea oil and gas producer profits".

Local Government Chronicle Investment Summit 2018

Last week I went to this summit in South Wales on investment in the Local Government Pension Scheme. There was around 250 Councillors and Council pension staff from all over the country.

I am particularly interested in the latest ideas on Risk, Asset allocation, ESG (Environmental, Social, Governance - also known as socially responsible investment), investment in housing and infrastructure.

The opening speaker John Roe from Legal & General gave his perspective on the UK and global economy. He argued that he did not think that the equity market was expensive and made an observation that rising income inequality had led to the rise of fascism and the anger that caused Brexit. I asked him in the Q&A what was the solution and he said greater taxation of the international elites and an open debate on immigration. Not often do I hear calls for greater taxation in such conferences (I agree totally with him on this point)

Next we were invited to visit different briefing sessions. I went to the one on "Fixing our broken housing model". Which turned out to be an introduction to the merits of pension funds investing in purpose built private sector rental but not alas, fixing the complete and utter mess that UK housing is in.

Back in the main hall we heard of research by Hymans Robertson that following the changes in the LGPS in 2014 some scheme members had actually seen their future pension entitlement rise by 24%.  Which is mainly due to rubbish pay in the local government in recent years which has failed to match inflation.

In a focus session on ESG investing there was some compelling evidence from MSCI that good ESG is "material". Good ESG investments tend to have better cash flow, be less risky, result in greater dividends & make it 3 times less likely to suffer serious incidents such as the Volkswagon fraud and BP Deepwater disaster.

At the next focus session, Abbie Llewellyn-Waters, from Jupiter gave evidence that ESG can deliver "Alpha" performance. Also, with regard to the S (social) in "ESG", she was clear that “the better that companies treat their workers, the better the companies financial results.....without a shadow of a doubt”

Roger Phillips, chair of  LGPS National advisory board spoke to a meeting of Councillors only on its annual report. Membership of the LGPS had increased to 5.6 million members, had £263 billion in assets, 1700 different employers and enjoyed in 2017,  a 19.5% increase in investment performance. However funds need improve their data management.

At the session on “Infrastructure, urban regeneration & real estate”, to wake everyone up, I asked the panel who had spoken about the investment opportunities on investing in this asset class about the statement by Sir Howard Davies, Chair of RBS who said on Question time early this year that “PFI was a fraud on the people”.  He had argued it was always cheaper for Governments to borrow money than private organisations to spend on infrastructure. How do you respond to this statement?

The response was that Government does not want such debt on its balance sheet. Which is an argument post 2008 crisis and post quantitative easing that I have not heard for many years.

In the last session of the day with the Pension Regulator & the FRC, I asked both speakers why was it that in private defined benefit schemes, up to 50% of trustees were nominated by beneficiaries but in the LGPS, a public defined benefit scheme, there was no obligation whatsoever to have any beneficiary representation on its boards?  The regulator replied that they did support member nominated representatives in the private schemes because they can challenge "group thing" but they also have pension trustees boards that only have professional trustees on it.

I note that Labour is committed to make 50% member nominated representation compulsory in all pension schemes.

At the summit dinner the guest speaker RH Lord Winston of Hammersmith, who was as entertaining and as "nice" in real life as he appeared on the telly.

In the morning after more presentations on successful partnership working (Pooling) and protecting your equity portfolio from a future crash (which I am sure is coming sometime soon) I went to a briefing session on "Is sustainable investing just a romantic notion?" session with Newton.

Who pointed out that some $300 billion was invested in alternatives to carbon in 2017. They also compared modern day oil reserves with the 19th century slave ships which became "stranded assets" when slavery abolished

Secretary to the National LGPS advisory board, Bob Holloway, reflected on 35 years involved with local government pensions and announced a meeting with the minister for council pensions committee chairs on 15 November 2018.

In the last session on Devolution and Regionalism, Dawn Turner, CEO of the Brunel Pension Partnership talked about not investing infrastructure because the Government tells us to do it but if it fits our needs & purposes. Also, we are not impact investors but should be aware of any positive or negative impacts from our investments. Not just globally, but in the UK as well

Final speaker was Paddy Dowdall, from Greater Manchester Pension Fund about their investing in housing... “Council provides the land and the Pension fund provides the capital” also “by definition residential housing is local & who knows more about local than councils”. For many years they have invested a percentage (5%?) of fund locally and managed to avoid any "moral risk" by making sure that the actual investment decisions are made independently.

Overall, a very informative and useful summit. It has now been running for 30 years but will no doubt have to change in the future when the pools take on investment decisions from local funds even though funds will retain responsibility for liabilities and asset allocation.

Responsible Investment: A long view

(this article was published in Professional Pensions 12 September 2013 on behalf of the AMNT. There is a typo at the beginning in the web link)

"When I first became a member representative on a British Pension Scheme in the middle 1990's many advisors and fund managers saw their role as maximising return and had little or no interest in responsible investment.

Ethical or Green funds were dismissed as fit only for tree hugging, sandal wearing muesli eaters. Engagement was something couples did before they got married and most attempts to discuss the social impact of investments were blocked in hushed, reverend tones with the magical words "Scargill v Cowan".

Followed by the explanation that the law forbids any mention of such evil thoughts on pain of instant surcharge. I do of course exaggerate but only slightly.

Since then there has been on the face of things, a profound change in attitudes towards responsible investment and governance. We found out that the Judge who presided over the infamous Scargill v Cowan case had actually hinted in his judgment that pension funds could have an ethical policy.

The report by international legal firm Freshfields in 2005 said not only was it permissible for funds to have an ethnical policy it was arguable their fiduciary duty to do so and trustees could find themselves sued if they didn’t have one! Nearly all investment houses now have (or claim) a responsible investment team.

There is also increasing recognition that pension funds should be focused on the long term and not simply obsess on short term volatility. The concept of “engagement” with companies by shareholders has become pretty mainstream. Schemes have a duty to try and ensure that the companies they invest in are properly run and well managed.

This is not only a duty but self interest. The 18th Century Father of Economics, Adam Smith, warned investors that they will be ripped off by those they employ if they do not play an active part as “owners”. But has it all really changed from “the bad old days”?

Pension trustees were accused of being asleep on duty during the lead up to the financial crisis of 2007. Lord Myners "Where were the owners when these disastrous decisions were taken...?”

How much influence do the corporate governance teams actually have? Is it only a marketing ploy and mere “window dressing”?

BP had a pretty rotten record for many years on environmental issues. So why didn’t investors change the company culture and prevent the Gulf oil disaster and the resulting shredding of billions of pounds of shareholder value?

Have any fund managers or advisors been sacked due to poor performance on engagement? If not, why not?

If responsible investment issues are so important why don’t pension advisors start each trustee meeting with this as their first agenda item?

Why do most managers reports to trustees make no reference whatsoever to Responsible investment?

I think on balance it has been a case of two steps forward and one step back. There is acceptance of engagement even if it is too often noise not substance. So there is still a job of work for trustees to do.

I think that it is easy to blame trustees and to forget how isolated many pensions trustees feel at their meetings. It takes a lot for lay people to feel confident enough to challenge professional advisors and fund managers. Yet this is a fundamental part of our job as trustees.

While we should not be micro managing those we employ to advise us we should be holding them very firmly to account.

Finally, never forget that Responsible investment is actually all about maximising return. Our mantra must be that such investment in companies with good governance will produce superior returns".

(Great picture of Miners Union leader, Arthur Scargill after a visit to a coal mine. Arthur sacked the union's legal team and unwisely represented himself at court in "Scargill v Cowan" case)

National Express & the pension fund risk of it killing American children?

This morning I went to a breakfast seminar in London run by the North American transport trade union the Teamsters. This was before the start of the annual Pension Governance conference run by PIRC

The collection and return home of school children by the iconic yellow buses is a huge business in the USA.  There are 500,000 such buses transporting 24 million students per day.

What the Teamsters are concerned about is the USA arm of the British listed transport Company National Express (Durham School Services).

Which is accused of not only treating its school bus drivers very poorly as employees but also consistently breaks health and safety rules for its staff and student passengers. Who often have to endure overcrowded, badly maintained and potentially unsafe buses.

The Teamsters had brought two of their actual yellow school bus drivers to the UK to speak to us about the awful, bullying, nasty and unsafe work practices they have to endure. They told us first hand of their unacceptable experiences while working for National Express in the United States.

Not only were they treated with contempt and disrespect by their management, it is also clear that the safety of drivers and the children is at risk due to overcrowding, defective and poorly maintained equipment, worn tyres and drivers forced to work despite being ill.

The National Express model is to win school bus contracts by the lowest price tender and then make profits by cutting wages and maintenance to the bone and beyond.

This is a disaster waiting to happen. Apart from the absolute morale argument that we do not want   companies we invest in on behalf of our pension scheme members to act in such a way, nor do we want them to face the risk of legal or even criminal action.  There is also ongoing financial reputational risk to the company for being such a poor and irresponsible employer.

The USA has a reputation as a litigious Country. If there was to be a mass tragedy on a yellow school bus which had been previously reported to be unsafe or if the driver was sick but had been forced to work to save his job you will expect at the least a massive law suit.

The experience of the disaster in the Gulf with BP tells us that safety should be a key issue for UK pension trustees. As asset owners it is in our own long term interests to contact our fund managers and make sure that they investigate these complaints.  Then they need to take action against National Express to make it act in a responsible and safe way.

Gotta a pension? Wanna save the planet? Give just 2 mins to BP & Shell Tar Sands Campaign

A few weeks ago I went to a planning meeting organised by Fair Pensions which was held at Amnesty International headquarters in Shoreditch. Fair Pensions had done an excellent job on organising trade unions, charities and NGO’s to join together in submitting shareholder resolutions at the company AGMs of oil giants BP and Shell over Tar Sands exploitation.

Check out links here why so many think this process is so wrong. In a nutshell it’s ecologically an extremely dubious process to extract oil which will devastate the local environment and result in 3x as much carbon emissions as other sources of oil. Because of carbon emissions costs, reputational risk and legal costs this it is a real potential threat to shareholders investments in BP/Shell. It just doesn’t make sense to continue.

If you have a pension policy you can click here on the Fair Pensions web site and within minutes send an email to your pension trustees asking them to support the shareholder resolutions. I have 4 diffferent pension policies I can chase.

If you don’t have a pension policy then you can email via this site major investors in BP and Shell about your concerns.

Go for it.