Dame Kate Barker, Chair USS Trustees
Dr Daniel Summerfield, USS Head of Corporate Affairs
David Russell, USS Head of Responsible Investment
Brian Hoskins , retired member, Grantham Institute, Imperial
Sue Blackwell, deferred member, Birmingham
Ceri Sullivan, Cardiff
Ellie Harrison, Dundee
Charlotte, Rae, Sussex
Andrew Jarvis, Lancaster
Paul Kinnersley, retired member, Cardiff
Introductions – All on the call introduced themselves and Ethics4USS thanked USS for their time and willingness to meet.
It was agreed – as with previous meetings – that all details of the conversation would be kept confidential until a summary had been agreed and that this could then be distributed. USS commented that they felt that Ethics4USS had a useful role in holding USS’s ‘feet to the fire’ in terms of highlighting the financial and ethical risks of aspects of their investment strategy.
USS then provided some introductory words describing the difficulties of balancing the financial demands of investment decisions along with the ethical issues around investment.
Investments and the Climate Emergency
Ethics4USS started this discussion by describing their main concern as the financial impact of the climate emergency. They asked for comments on how ESG factors should be taken into account with regard to the overall investment strategy. In response USS described what was felt to be a shift in companies approach to ESG but also that there was a need for government to lead on infrastructure changes to enable a low carbon economy to develop. USS also pointed out that the Trustees had a fiduciary duty to get good financial returns and that USS could not invest in something simply because it was a ‘good thing’ they had to consider the financial returns. USS recognised the concerns about ‘stranded assets’ as governments and consumers moved away from carbon intensive industries.
In response Ethics4USS echoed some of the frustration with the government but warned that our CO2 emissions now will affect the climate for the next 1000 years. The last time temperatures were this high, sea levels were 6 metres higher. It was great that the UK has given a commitment to net zero; now China and today Japan have given similar commitments. Coal has got to be phased out. We already have enough oil and gas and we can’t burn all that we have. Very strong moral imperative to act now, not in 10 years’ time. As Mark Carney has recognised, there is now also a very strong financial imperative – you have to be ahead of the game or you will be left with the old industries while it’s the new ones which are the successful investments.
Ethics4USS commented that they knew that USS has tried hard to engage with companies like Shell, but Shell were continuing to drill for gas in the Arctic.
Ethics4USS went on to say that they wanted to celebrate the selling-off of fossil fuels since March and stated that they would continue to hold USS’s ‘feet to the fire’ and publicise any reversal of that position! It was noted that Cambridge University has recently committed to divest its funds (£ 3.5 billion) by 2030 and Ethics4USS urged USS to set out a similar timeline. Ethics4USS commented that they will start to focus on where money is put into creating new capital assets, especially creating new fossil fuel resources – as those are the biggest risks. The private investment portfolio represents a third of USS assets and there is no information of where that is going.
USS responded to these comments by saying that they felt there was a transition away from fossil fuels. Governments around the world are committing to net zero but how they get there is important. All the research says we will need oil and gas while that transition happens. USS continue to invest in oil and gas but are also investing millions in renewables, but it can be difficult to find those companies – they need to make appropriate returns.
Ethics4USS pointed out that USS sold off about a billion worth of fossil fuels since March and that this shows that there are alternatives invested opportunities – not necessarily in renewables.
USS responded that USS had transitioned out of a very concentrated portfolio. The carbon footprint for the equity portfolio as a whole has historically been lower than the benchmark. The plan now is for a “transition portfolio” leading into one with an ESG underlay built into it, a “quant-ESG fund”.
The Young Member’s perspective
Ethics4USS raised the particular concerns of Younger Members of USS. Investments across the board, not just in fossil fuels, will underperform if we don’t address climate change. This is very likely to happen in the lifetime of members now in their 20s and 30s and they are increasingly worried that their pensions won’t deliver. Ethics4USS reported that in their view Cambridge, one of the most prestigious institutions in the country, was doing the right thing by divesting. USS as a prestigious pensions institution should do likewise. The question is WHEN. The government will follow if we lead; you create a legislative mandate.
USS responded that they were aware of the risks of stranded assets but that they also had to think about generating income to fund pensions today. USS has sent out a survey to all members to seek their views on sustainable and ethical investment. However it was also important to appreciate that they have to deal with a difficult valuation right now.
The Sustainable Investment Questionnaire
Ethics4USS welcomed the questionnaire that had been sent out to members and thanked USS for for including the ‘big’ questions like “are you prepared to take a higher risk?” Ethics4USS commented that the survey tested respondents’ knowledge of USS’ ethical funds and whether members have acted on that and that this would be valuable. Ethics4USS supported the sending of it to all members and involved UCU in its distribution. They asked to know when and where the results will be published, whether the results would be discussed by the trustees and what the threshold would be for members’ views on an investment category to influence investment decisions (including exclusion from the portfolio)?
USS responded that the results will be published when the University of Maastricht have completed their analysis. USS reported that the trustees were keen to consider the results and USS would be happy to discuss the results with Ethics4USS. They were keen to use the information in the most meaningful and impactful way – by for example making comparisons between different groups (young and old members).
USS felt it was difficult to set a firm threshold for responding to members’ views. However, if a significant majority of members were in favour of exclusion of an investment category the trustee would have to consider this seriously.
USS reported that the Trustees were due to discuss the survey results at their December 2020 meeting and suggested that USS meet again with Ethics4USS in January 2021 to discuss the survey results.
Ethics4USS responded that they would be keen to meet with USS in January so thanked USS for this offer and for the very helpful meeting.