Tyne and Wear Pension Fund, South Shields, England, incorporated five new environmental, social and governance principles into its investment strategy, according to a document published following a pension committee meeting on Nov. 25.
The new principles include effective responsible investment oversight, which requires the fund and its managers to monitor ESG and climate-related metrics in its portfolio. Executives at the fund also believe climate change provides investment opportunities as well as risks, the document said.
The £10.7 billion ($14.2 billion) U.K. local authority fund also expanded its responsible investment policy beyond equities into holdings in bonds, real estate and private markets, according to the document.
The fund also vowed to protect shareholder value through engagement with companies on climate-related issues over divestment.
Under the fifth new principle, the fund added a requirement on its external money managers to ensure each manager has an effective engagement process on climate-related issues. Each of the pension fund's managers is required to prepare a policy document on responsible investment and on its use of voting rights. The pension fund will review each policy to determine if it agrees with its managers on how it should be applied on the fund's behalf.
The managers' policies aimed at U.K. listed companies must take into account the U.K. Corporate Governance Code and Stewardship Code principles. Managers are also expected to apply the principles of the U.K. Stewardship Code and other international standards to overseas assets. The fund wants its managers to apply a consistent policy towards listed and unlisted companies when possible. Each manager must report policy changes to the fund for approval and must provide a quarterly report that sets out how the firm's policy has been implemented. The fund said it could influence a manager's policy.
The pension fund is part of the £45 billion pool of local authority pension funds, Border to Coast Pension Partnership, Leeds, England. Some of its assets are run by the pool and the Tyne & Wear committee expects those assets to be run in a way that complies with the Stewardship Code, the document said. The pool will be monitored annually.
Previous ESG principles in the fund's investment strategy were focused on climate change as a long-term financial risk and were applied to passively and actively managed equities.