9. Responsible Investment (RI)

APF integrates Environmental, Social and Corporate Governance (ESG) issues into investment processes and ownership practices, in the belief this can positively impact financial performance.

APF is a responsible steward of its assets and aims to be transparent and accountable. Our approach to Responsible investing is based on the following beliefs:

• Management of ESG risks is consistent with APF’s fiduciary duty to members
• Climate change poses an existential threat to long-term investments as well as to the planet
• We believe in investing responsibly to make a real world impact
• There is increasing convergence between financial returns and climate aware investments
• Working with like-minded investors to collectively engage companies and policymakers can drive positive change

APF expects its Pool to engage with company management on ESG issues they have identified as being a risk to the investment case. Managers report to APF on their engagement activities and other ESG initiatives regularly. While we believe engagement and responsible stewardship will influence corporate behaviour more effectively than divestment, APF does employ limited use of activity-based exclusions on the grounds of financial risk. The exclusionary criteria are set out in the table below. 

APF will consider non-financial factors alongside financial considerations provided that doing so will not involve significant risk of financial detriment to APF and where it can reasonably conclude that members would support the decision.

APF recognises that climate change presents a systemic and material financial risk to APF, as well as society more broadly. It is a strategic investment priority for APF. We aim to be net zero across all of our assets by 2045 and have adopted a number of interim targets in partnership with Brunel to underpin this long-term objective (see below table).

[1] Climate solutions investments are investments in economic activities considered to contribute to climate change mitigation (including transition enabling) and/or adaptation, in alignment with existing climate related-sustainability taxonomies and other generally acknowledged climate related frameworks source: Net-Zero Asset Owner Alliance (NZAOA). The stated objective allows for a “look through” of the Fund’s portfolios.

[2] Currently in scope are listed companies on the Climate Action 100+ focus list; companies in high impact sectors consistent with the Transition pathway Initiative sectors; alignment assessment based on the Institutional Investors Group on Climate Change (IIGCC)’s Net Zero Investment Framework (NZIF).

APF endorses and supports collaborative engagement and climate policy advocacy work through membership of various industry leading climate advocacy bodies to drive positive change including investor led initiatives such as ClimateAction100+ and the Institutional Investors Group on Climate Change (IIGCC) to increase pressure on companies and governments to align with the goals of the Paris Agreement.

APF monitors and discloses its carbon exposure annually to inform strategic decisions relating to climate change and to chart its progress towards its long-term climate change objectives. 

The scale and resources arising from pooling enables improved implementation of responsible investment and stewardship across all APF’s assets. The Pool’s Investment Principles clearly articulate its commitment and that of each client in the pool, to be responsible investors and as such recognises that ESG considerations are an integral part of portfolio construction, the selection, non-selection, retention and realisation of assets. Every portfolio explicitly includes responsible investment and an assessment of how social, environment and corporate governance considerations may present financial risks to the delivery of the portfolio objectives. The approach undertaken will vary to be the most effective in mitigating risks and enhancing shareholder value in relation to each portfolio and its objectives.

The Pool is tasked with the development of investment portfolios and the appointment of managers for the portfolios that are consistent with and accommodate APF’s wider RI objectives and long-term asset allocation decisions.  Proprietary Pool policies covering ESG factors such as climate change, voting and stewardship have been developed in conjunction with its clients to ensure the needs of the respective client funds are adequately met in respect of RI. APF monitors the portfolios managed by its Pool to ensure they continue to deliver against strategy.

Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries. 

APF believes that voting is an integral part of the RI and stewardship process. Under the current arrangements voting is delegated to the Pool and its agents. APF monitors how the Pool undertakes voting and engagement activities in comparison to relevant codes of practice. Where practicable, they are required to vote in all markets and vote at all company meetings on behalf of APF. 

The Pool has a single voting policy for all assets under its management held in segregated accounts. In addition, the Pool will actively attend and vote at company meetings (AGM/ EGMs). 

A third party voting and engagement service provider, Federated Hermes EOS, enables APF to gain access to specialist expertise and participate in a broad range of engagement themes.

APF recognises the importance of collaboration with other investors in order to achieve wider and more effective outcomes. In this respect, APF is a member of the Local Authority Pension Fund Forum (LAPFF), a membership group of LGPS funds that focuses on corporate governance issues, and the promotion of high standards of corporate governance and responsibility.

APF publishes a Responsible Investment Report annually which includes analysis of the voting and engagement activity across the portfolios.