Investments

Overview

The regulations that govern the Local Government Pension Scheme require that the Tyne and Wear Pension Fund prepares and maintains a written Investment Strategy Statement (ISS) setting out the decisions that have been taken on the Fund's investment policies.

The ISS is intended to provide evidence that the Fund has considered the suitability of its investment policies and the approach to implementing those policies.

The Regulations require the Fund's ISS to cover the following areas:

  • The suitability of particular investments and types of investments
  • Investment of money in a wide variety of investments
  • The approach to risk, including the ways in which risks are to be measured and managed
  • The approach to pooling investments, including the use of collective investment vehicles and shared services
  • How social, environmental or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments
  • The exercise of rights (including voting rights) attaching to investments

The ISS includes a section on the six principles of decision making for occupational pension schemes and a schedule of the Fund's investment beliefs, in addition to the areas required by the Regulations.

View the Pension Fund's Investment Strategy Statement

For more information see:

Responsible investment

The Fund requires that investment managers take into account non-financial factors when selecting, retaining, or realising its investments. Financial factors take priority given that the primary responsibility of the Fund is to invest the Fund's assets to meet its pension obligations. The Law Commission's review of financial and non-financial factors in investment decision making is taken into consideration.

It is recognised that Environmental, Social and Governance (ESG) factors can influence long term investment performance and the ability to achieve long term sustainable returns. The Fund considers its approach to responsible investment in two key areas:

  • Sustainable investment / ESG factors - considering the financial impact of environmental, social and governance factors on its investments
  • Stewardship and governance - acting as responsible and active investors/owners, through considered voting of shares, and engaging with investee company management as part of the investment process

The Fund's Investment Strategy Statement, how social, environmental or corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments. It also describes the exercise of rights, including voting rights, attaching to investments.

The Fund has developed a corporate governance and responsible investment policy which provides details on how the approach to managing assets incorporates environmental, social and governance factors, and the Fund's role as an asset owner and creditor.

Corporate governance and responsible investment policy

The Pension Fund's Investment Strategy Statement highlights how environmental, social and governance considerations are take into account in the investment decision making process. The corporate governance and responsible investment policy provides more detailed information on the approach and application, and includes:

  • the development and co-ordination of policies and the approach to voting of the Fund and its investment managers
  • responsible investment in actively and passively managed investments
  • collaborative engagement on responsible investment issues

View the Pension Fund's Corporate Governance and Responsible Investment Policy

Stewardship Code

The Financial Reporting Council (FRC) has reviewed the UK Stewardship Code. The new code took effect from 1 January 2020. The new Code sets high expectations of those investing money on behalf of UK savers and pensioners.

In particular, the new Code establishes a clear benchmark for stewardship.  Organisations wanting to become signatories to the Code will be required to produce an annual Stewardship Report explaining how they have applied the Code.

The updated code has a new definition of stewardship:

Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.

The Fund had previously benchmarked its practices against the previous Stewardship Code in June 2017.  At that time The Statement of Compliance with the UK Stewardship Code was assessed by the FRC as Tier 1 which is the highest level of compliance, "providing a good quality and transparent description of the approach to stewardship and explanations of alternative approaches where necessary".

The Fund has now prepared its first Stewardship Code Report under the new Code for 2022/23 which has been submitted to the FRC to assess its compliance with the new Code.  The report draws out our Investment Beliefs and key policy documents to demonstrate how we incorporate responsible investment into investment decisions and the overall investment strategy.

Much of the Stewardship Report explains how the Fund exercises oversight of its investment managers and other service providers, to ensure its policies and expectations around responsible investment are being monitored and delivered.

PDF:  Stewardship Code Report 2022/23 (PDF) [1MB]

Passive Investments and ESG

Passive Investments

The Funds Investment Strategy includes an allocation to a range of investment funds managed passively by Legal & General (LGIM).

Passive management is an investing strategy that tracks a market-weighted index or portfolio. Passive management is most common on the equity market, where index funds track a stock market index, but the Fund also holds two passive bond portfolios.

In total the Fund has six regional market capitalisation equity portfolios, one global fundamental equity portfolio, two bond portfolios and six Future World equity portfolios.

The six regions covered by the market capitalisation funds and future world funds are:

  • United Kingdom (UK)
  • Europe (ex UK)
  • North America
  • Japan
  • Asia (ex Japan)
  • Emerging Markets

In addition, the fund is invested in a global fundamental equity fund which seeks to weight the companies in the portfolio using a range of metrics rather than purely market capitalisation.

 

Future World Funds (ESG funds)

During 2020 the Fund moved £650 million from market capitalisation funds to the LGIM Future World Equity Index Funds.  These Funds provide similar performance and risk characteristics to the equity markets through an indexed fund which allocates more capital to those companies with good credentials on a range of ESG scores, including climate change. This product excludes investments in pure coal mining companies and reduces the exposure to high carbon companies, including fossil fuel companies.

 

Annual Active Ownership report

LGIM's Active Ownership Report sets out their approach to stewardship and the activities during the year. The report:

  • identifies key themes and emerging governance topics and explains how they have responded to these during the year, including through company engagement
  • provides progress on previously identified topics, including setting out company engagement activity undertaken
  • includes detailed case studies of company engagement activity
  • provides a regional update on activities in certain markets and more case studies of voting and engagement activities
  • summarises the work with other associations and memberships.

 

Quarterly ESG Impact report

On a quarterly basis LGIM provide an ESG Impact report providing detailed case studies of the voting and engagement activities undertaken and/or concluded.

The latest available report is available at the following link: Responsible Investing | LGIM Institutional. The reports for prior quarters prior are also available.

 

Climate Impact Pledge

Legal & General's (LGIM) longstanding climate engagement programme, the Climate Impact Pledge, is linked to tangible voting and engagement sanctions introduced in 2016. The revised Climate Impact Pledge 2.0 was launched in October 2020, where they made the targeted engagement programme even more ambitious. Details of LGIM's Climate Impact Pledge score can be accessed here.

Please also refer to the LGIM's Climate Impact Pledge: the 2023 results which highlights climate engagement activity and outlines key areas of focus and a divestment list of companies that have persistently fallen short of the minimum standards or have been included due to a lack of response to engagement requests.

LGIM have strengthened our approach by expanding the coverage of our pledge from 80 to 1000 companies in climate critical sectors, which now accounts for circa 60% of all GHG emissions from listed companies. Furthermore, climate ratings for c. 1000 companies are publicly available under a 'traffic light' system to allow companies to address gaps in strategy and disclosures. The approach also includes a new engagement model - focused on large companies with poor scores relative to their scale - to help raise standards across market.

Climate change

Climate change is a material financial risk to the Pension Fund. 

The focus and emphasis on this risk has increased substantially over the past couple of years and in November 2021 the Fund approved its first standalone climate change policy.

Read more about the policy and how the Fund is responding to climate change challenges, see Investments: Climate change

Pooling of investments

The LGPS is managed by a number of separate pension funds across the country, of which the Tyne and Wear Fund is one.  Historically, each Fund has been responsible for managing its own investments.

In 2015 the Government announced that LGPS investments would no longer be managed separately by each Fund, but would be merged into smaller investment pools to achieve economies of scale.  The objectives of the pooling of assets are:

  1. Cost savings through economies of scale
  2. Improved governance
  3. Improved approach to responsible investment
  4. Improved ability to invest in infrastructure

Responding to this initiative, the Tyne and Wear Fund joined with eleven other like-minded LGPS funds to set up an investment management company called Border to Coast Pensions Partnership, otherwise known as Border to Coast. The company's objectives include improving investment returns and reducing investment costs.

The transfer of investments to Border to Coast started in 2018 and is expected to take a number of years to complete.

Although the investments of the Fund are being pooled with those of other funds, the administration of pension benefits will remain with the individual funds, including the Tyne and Wear Fund. The value of pension benefits will continue to be set by the LGPS Regulations, and are not affected by investment pooling arrangements.

To help members and Fund Employers an FAQ has been produced by BCPP.

For the latest updates on BCPP please see  Border to Coast Partnership News.

Annual meeting information

The Fund invites it's employers and member representatives from the trade unions to an annual meeting. 

This is normally held every November. 

The purpose of the meeting is to provide updates on current issues within Local Government Pension Scheme (LGPS) and Tyne and Wear Pension Fund (TWPF).

This includes updates on:

  • the fund's latest reports and accounts
  • reports on the fund's investment performance from Hymans Robertson, our investment advisor
  • the latest fund valuation from Aon Hewitt, our actuary

Annual employer meeting information

11 November 2022

9 November 2021

10 November 2020