LPPI is a provider of investment management services to public sector pension funds within the UK.

We strive to be a responsible long-term investor via an investment approach which is driven by the circumstances of our clients and their specific investment needs. Our clients are long-term investors with a duty to safeguard the cumulative pension savings of their members through the investment arrangements they put in place. Ensuring sufficient funds are available to pay retirement benefits as they fall due is a liability which stretches decades into the future and which ultimately requires a cost effective and sustainable investment approach.

Our Responsible Investment Policy sets out our investment beliefs as these relate to a commitment to integrating material ESG considerations within investment decision-making (as part of evaluating risks and opportunties) and actively utilising ownership rights to engage with investee companies where this is warranted to protect investment value and encourage corporate sustainability.

Our first investment belief encapsulates this as follows:

LPPI has a fiduciary duty to act in the best long-term-term interests of client pension funds and their beneficiaries. Fulfilling this duty requires a governance structure, culture and investment approach collectively focussed on adding value over the long term.

LPPI is committed to the integration of material ESG considerations within investment decision-making. We have identified climate change as a material, systemic and idiosyncratic risk and have begun to identify and consider transition and physical risks as part of our investment procedures. 

Internal definitions of transition and physical climate risks based on Bank of England, TCFD and other industry reports have been produced and presented to our Investment Committee. We recognise transition risk will primarily impact transport, buildings and industries with high carbon emissions, and will also arise where alternative technologies exist and where there are existing regulatory mechanisms. Physical risks arise from where assets are located and on the stability of the markets they serve. They feature flooding and the consequences of extremes of temperature and are lower (in the short term) than within medium and long term scenarios,

Our overall approach is to integrate climate change consciousness into all our investment products, reflecting that climate change will affect all markets, sectors and asset classes and cannot be avoided through tilting, exclusion or sectoral divestment, though there are some obvious areas facing a more significant impact. The identification of sectors most likely to be negatively impacted by climate change led us to focus first on the traditional energy sector and specifically our portfolio's exposure to extractive fossil fuels.

For our Global Listed Equities Fund we have placed restrictions on investments in thermal coal and imposed qualitative conditions on investments in extractive fossil fuel companies, requiring managers to be able to evidence companies are demonstrably planning for the global transition to a low carbon economy and have a strong strategy in place to manage the physical, regulatory and transition risks faced from climate change.  We are significantly underweight in Energy versus the benchmark.

We have introduced an approach to extractive fossil fuel companies within our private market asset classes which excludes new investments in thermal coal, favours a progressive reduction in existing exposure and requires managers to  provide reporting on remaining exposure to fossil fuel extraction. 

For direct investments in real assets (real estate and infrastructure) our approach to climate change risk management focuses on detailed context specific due diligence which incorporates physical, transition and regulatory dimensions as part of the consideration of location, market, sector, product and company fundamentals.

Within Real Estate our Investment Adviser is including green lease clauses within new leases to increase the number of properties reported upon and is also developing a long term work-plan to bring the portfolio up to the energy efficiency standards expected to be mandatory by 2030.

We are in progress with but have not yet concluded a full quantitative assessment of likelihood and impact.

Our objective is to move forward from a qualitative understanding of climate change risks which has focussed on understanding scope and identifying hazards (how, when and where climate change may have an impact and create risks and opportunities) to a more quantitative understanding of the portfolio's exposure to these hazards.

Nevertheless, where investing directly we do seek to consider a variety of risks through scenario analysis and this where relevant will include assessment of both the probability and impact of different scenarios including those driven by climate change.  An example being when underwriting a possible investment in the airport sector.  In this case our internal team engaged with a series of external advisors to assess the likely impact of changes to behaviour and fiscal policies on the performance of the airport.  This included an assessment of both impact and likelihood of these risks and enabled our Investment Committee to better judge the opportunities and risks of the proposed investment.

LPPI has taken steps to identify and (where appropriate) seek to adapt its portfolio to mitigate climate risk.

Our organisation-wide strategy originates from LPPI's Responsible Investment Policy - Annex on Climate Change. Here we state our Climate Change beliefs, and make a statement of intent regarding implementation based on quantification and integration into key investment processes such as investment selection, portfolio monitoring and voting and engagement.

A recent step in our ongoing process is agreement to convene a Climate Risk Panel which will initially consist of representatives from our Risk, Investment Strategy and Responsible Investment teams. The Panel will jointly discuss and seek to meet the interdisciplinary challenges associated with systematically identifying and quantifying climate related opportunities and risks in order to be able to plan for building these into strategy policy and practice.

LPP Investments Ltd is authorised and regulated by the Financial Conduct Authority and has a Conflicts of Interest Policy which establishes the parameters of good governance in the management of conflicts.

The Policy identifies the types of conflicts (and potential conflicts) which may arise and the approach to managing these. The Policy confirms that LPPI will take all appropriate steps to identify and to prevent or manage potential and actual conflicts of interest to avoid a material risk of damage to the interests of our clients.

Arrangements to manage potential conflicts of interest include:

• Robust governance arrangements which are overseen by the LPPI Board;
• Management reporting;
• Maintenance of a Conflicts Register;
• Segregation of functions and independence;
•  Information barriers;
• Avoiding inappropriate influence being brought to bear in the way clients are treated;
• Declining to act;
• Policies in relation to staff activities and other interests for example personal account dealing.

All staff have a duty to report any actual or potential conflicts as they occur. An annual Disclosure of Interests Statement must also be completed by all staff. Further details are set out in LPPI’s Conflicts of Interest Policy which is available on request.