Quarterly Engagement Shell, Exxon, Report April-June ArcelorMittal, 2021 National Grid, Tesco, Hanwha 2 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org CLIMATE EMERGENCY

Shell Pushed to the Brink on Climate

Objective: LAPFF has engaged with Shell and LAPFF recommended voting against • that emissions were based on for many years, including as a participant Shell’s climate transition resolution and discredited “intensity” measures in the CA100+ initiative. The objective has for the resolution of campaign group rather than absolute emissions; and been to see a clear and credible busi- Follow This. • that there were no targets for emis- ness transition path towards net zero by The Shell resolution at the 18 May AGM sions reduction by 2030. 2050, with appropriate reductions in all passed with 11% opposition, but 30% of In consequence the Court has required emissions prior to 2050 in order to reach voting shareholders voted in favour of the that Shell reduce its global absolute emis- that goal. Follow This resolution. However, on 26 sions by 45% by 2030 with reference to Achieved: LAPFF is a member of CA100+ May a Dutch Court concluded that Shell’s 2019 emissions in order to begin to meet and the Shell engagement group, and plans were inadequate on each of the Paris goals. along with several other members was points that LAPFF had highlighted. These In Progress: The company has indicated concerned about the commitment Shell were: it intends to appeal the judgment. The had to becoming net zero. The two lead • that the small print showed the current plan from LAPFF is to engage engagers entered into a non-disclosure proposal was not incorporated into with the incoming chair, Sir Andrew agreement with the company, therefore operating plans or budgets and Mackenzie. A key issue for discussion privy to Shell’s approach whilst unable that these things would only occur is why LAPFF and the Courts were able to inform other members of the group when Shell’s customers had made to draw the same conclusion despite until after the public statements in adjustments; a considerable public relations effort support were made. Shell’s approach • that the proposals for Carbon Capture to push the opposite. The key lesson was released in February 2021. LAPFF had and Storage and Nature Based solu- from Shell is that LAPFF engages as however analysed what was said perhaps tions were ill-defined (as well as not part owners of the company, not default more fully and sceptically than others, in budgets or operating plans); supporters of incumbent management. 3 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org CLIMATE EMERGENCY

on critical climate matters, such as Media coverage - LAPFF urges member disclosure, audit and other board votes. funds to oppose Shell climate strategy - As this initiative develops and investors Pensions Age Magazine gain a better sense of what to ask of UK public pension forum recommends companies, it seems likely that say on vote against Shell on climate - News, IPE climate resolutions will be an important Pension Forum LAPFF Recommends tool in the arsenal of responsible inves- Members Vote Against Shell Climate Plan tors seeking to press companies in the - ESG Today right direction on climate. UPDATE 2-Shell climate plan should be opposed at AGM -funds group - Reuters National Grid UK pensions group recommends members oppose Shell’s climate strategy Objective: A meeting was held with at AGM - Nasdaq National Grid representatives as part Shell climate plan should be opposed at Sir Chris Hohn, of The Children’s of the ESG roadshow the company is AGM - funds group - Euronews Investment Fund Management, undertaking prior to the July AGM. Shell Climate Plan Should Be Opposed At LAPFF Vice Chair Cllr Rob Chapman, AGM Says Funds Group - Checkout at AGMs in much the way that say on pay together with other lead CA100+ votes take place currently. The goal of investors, met with Steve Thompson, Exxon Board Overhauled this initiative is to allow shareholders the Environmental Sustainability Manager opportunity to hold all companies more and Nick Ashworth Director of Investor Objective: Exxon has for years been a accountable for their carbon management Relations. The primary objective for poster child for climate change denial, activities, not just those with high carbon LAPFF was to assess company progress despite evidence that extensive Exxon emissions. against the CA100+ benchmark in research had identified the harmful Achieved: While there have been mixed anticipation of questions to put to the effects of climate change decades ago. views on this initiative, there have been a chair prior to the 2021 AGM and the Consequently, investors – including number of positive outcomes from these resolution for an advisory vote on the LAPFF – have voted for a number of years votes. For example, LAPFF was able to group net zero transition plan, ie. a ‘say now to overhaul the Exxon board. use Shell’s say on climate resolution on climate’ vote. Achieved: The requests from LAPFF to to express significant concerns about Achieved: The company has now set meet with members of the Exxon board the company’s climate plans. It is also a new Scope 3 target to reduce carbon were consistently fobbed off, including as putting pressure on companies that emissions 37.5% below the 1990 baseline recently as the spring of this year. In light did not bring such resolutions to their by 2034, up from the previous target of these refusals, it was not a difficult AGMs this year to do so next year. Anglo of 20% by 2030. This target is aligned decision to issue advice to back a slate American announced at its 2021 AGM with the science-based targets initia- of four directors proposed by hedge fund that it will bring an advisory resolution tive. Scope 3 emissions are by far the Engine No.1 and vote against the election on its climate plans to the 2022 AGM, largest proportion of the company’s of other members. joining a number of other companies emissions, and, having signed up to The first signs that things were not making this commitment. Finally, this the science-based targets initiative, it is going the way the company would like initiative is driving clarity for inves- welcome to see this amended mid-term was an unscheduled one and a half hour tors on how to assess company climate concrete target. Although National Grid gap in the company’s AGM on 26 May. At initiatives. Several organisations have is buying WPD Group, the UK’s largest the time of writing, the votes have still come together to rate company plans on electricity distribution business, it is not been fully counted and announced. a number of factors, such as targets and still devoting attention to including However, Exxon has stated that three of strategy, in particular the Climate Action hydrogen in the domestic gas supply. the Engine No. 1 candidates have been 100+ benchmark. These analyses help Concerns were raised about this focus elected to the board and three of the investors to understand and evaluate and the potential of locking in stranded board nominated candidates were not. company climate plans in a systematic assets. In Progress: In light of this tremendous and strategic manner. In Progress: A meeting is scheduled result of shareholder activism, LAPFF In Progress: Some commentators have with the new chair, Paula Rasput hopes to be able to engage with new expressed concern that the Say on Reynolds in July, prior to the late July board members. Climate initiative misses the mark and AGM. deflects attention from real action, such Say on Climate Ramps Up as voting out board directors. However, ArcelorMittal we have seen this year with the Exxon Objective: LAPFF has been speaking board debacle that investors can do both Objective: At a meeting in May, Cllr with Sir Chris Hohn, of The Children’s and indeed the Say on Climate initiative Chapman led a collaborative investor Investment Fund Management, who came emphasizes the fact that ‘annual share- meeting to ascertain if there was an up with an idea to press companies to put holder votes on climate transition action increased focus on hydrogen as opposed their climate plans and strategies to vote plans are complementary to other votes to processes reliant on carbon capture 4 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org COMPANY ENGAGEMENT

and storage (CCS) to ensure all proce- separation of hydrogen and ‘smart correspondence indicating that the dures were in place to input questions carbon’ in their reporting showed this. CA100+ benchmark would be referenced to the AGM, and to ask if the company However, more information was provided in their next Climate Action report. would consider a ‘say on climate’ vote at on ArcelorMittal’s electrolysis technology, In Progress: The second group-wide its 2022 AGM. the company’s Siderwin project on which Climate Action report has been much Achieved: Company representatives it is collaborating with 11 partners, which delayed but is due to be published indicated there had always been an shows a lot of potential. The company around the end of June, after which a emphasis of hydrogen, even if it wasn’t agreed to liaise on AGM arrangements. further meeting will be sought. reported in that way and the recent Subsequent to this, LAPFF received Mining and Human Rights

Objective: During the quarter, LAPFF aimed to raise the link between human rights and financial performance at mining companies. The impetus for this angle on the engagement has come from speaking with mining companies for whom law suits and fines spanning many years persist and grow while human rights issues remain unresolved. BHP and Vale are examples of this problem. BHP is facing protracted litiga- tion in the UK over its role in the Samarco dam collapse in Brazil, and both BHP and Vale are facing fines of one million Reais a day for each day they fail to make adequate and complete reparations to the victims of the Samarco dam collapse. Rio Tinto is also facing threats of bil- Some of Rio Tinto’s lions of dollars in losses at its Oyu Tolgoi problems operation in Mongolia, in part because of Top: The lead smelting poor relations with affected community plant at Kabwe, Zambia, members. And Anglo American is facing one of the ten most polluted a class action lawsuit for alleged lead poi- places in the world soning in Zambia that stems back to 1925, Right: Affected communities as well as continued operational problems in the Oyu Tolgoi operation at Cerrejon, its joint venture in Colombia in Mongolia with BHP and Glencore. (Just to note, Below: Protests against its Anglo American and BHP have recently joint venture in Colombia withdrawn from this joint venture). with BHP and Glencore Achieved: Consequently, LAPFF asked a question at the Rio Tinto AGM about whether the company would be willing to quantify the financial cost of its social failures. Noting the complexities in doing so, it would be helpful for investors to understand some of the financial conse- quences of mining companies’ social failings in order to make clear that they are losing money when companies do not respect human rights and broader social issues in their operations. LAPFF has also raised this issue with BHP and Vale in engagement meetings. For example, LAPFF issued four ques- tions on behalf of affected community members that asked for the financial 5 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org COMPANY ENGAGEMENT

implications of various actions Vale has and investors alike will take some time, Brazilian Investor and had to take in response to the Mariana especially given that mining companies Community Engagements and Brumadinho dam collapses in just announced unprecedented dividends Brazil. These financial implications are this AGM season in the midst of Covid Objective: Another area where community important not least because the Renova and serious on-going human rights and members affected by the Mariana and Foundation, the joint venture between environmental problems, but this issue Brumadinho dam collapses asked LAPFF BHP and Vale established to make repara- will come home to roost eventually. The to help was in connecting them with tions after the Mariana dam collapse, has clearest link for both companies and Brazilian investors who could support spent 13.1 billion Reais to date, according investors on this point appears to be the their efforts. to its website, with very little progress on struggles that companies have with joint Achieved: Last year, LAPFF made an housing by all accounts. A meeting with ventures, so LAPFF is continuing to push initial attempt to reach out to one of the the Renova CEO in late June suggested on this point whenever possible. LAPFF main Brazilian investors in Vale – Previ. that he was optimistic that house build- will also continue to track developments However, it came to light that the Vale ing and resettlement would speed up in with house building and resettlements Chair at the time was also the CEO of the coming months. following the Samarco dam collapse. Previ, so no progress was made on that In June, LAPFF Chair, Cllr Doug Media coverage - ‘Devastating’: Can Rio’s front. Subsequently, LAPFF – through McMurdo, met with Rio Tinto’s new CEO, local boss rebuild trust after Juukan Principles for Responsible Investment Jakob Stausholm, who replaced Jean- disaster? - smh.com.au (PRI) – has connected with JGP Credito, Sebastian Jacques after the company’s Rio Tinto suffers huge revolt over pay - a Brazilian investment firm that has destruction of the caves at Juukan Gorge Financial Times - ft.com an in-house ESG team. JGP Credito has in Western Australia last year. The discus- Investors oppose Rio Tinto pay report over shown significant interest in engaging sion covered Mr. Stausholm’s vision for rock shelter outrage - Reuters with the affected communities. They company culture at Rio Tinto post-Juukan asked questions from affected commu- Gorge. Cllr McMurdo also met with Anglo nity members at Vale’s AGM on behalf American CEO, Mark Cutifani, to ask LAPFF Posts Monthly Updates of LAPFF and joined LAPFF’s quarterly about Mr. Cutifani’s visit to Cerrejon, a on Samarco Dam Collapse meeting with affected community site that lost 91 production days during members to get acquainted with commu- 2020 due to a strike. This meeting fol- Objective: One area where Brazilian nity representatives. lowed a webinar with workers at Cerrejon community members have asked LAPFF LAPFF Chair, Cllr Doug McMurdo, was who cited deplorable working conditions to push in relation to reparations after also invited by PRI to participate in a at the mine and a webinar last quarter the Samarco dam collapse in Brazil is webinar aimed at Brazilian investors. He with community members affected by the on housing. Only ten houses have been was asked to speak on a panel address- mine who cited a litany of human rights rebuilt in over five and a half years in ing the ‘S’ in ESG and raised a number of and environmental violations associated three of the main areas where houses thoughts and issues LAPFF has encoun- with the project. In fact, these groups were destroyed by the sludge released tered in its tailings dam engagements in have filed a complaint with multiple from the dam according to affected Brazil. A well-known responsible investor National Contact Points of the OECD to community members and the companies. in Brazil, Fabio Alperowitch, chaired the complain about the conditions stemming Achieved: Consequently, LAPFF has panel, and LAPFF has been correspond- from the mine’s operations. started publishing monthly updates on ing with him since. Mr. Alperowitch has Glencore and BHP also faced implica- its website of the number of houses built met with affected community representa- tions from the OECD complaint regarding over five and a half years after the dam tives in Brazil after LAPFF put these two Cerrejon, but it has been announced collapse. The Forum contacts BHP and parties in touch and is looking to connect that Anglo American and BHP have Vale, the companies involved, and the LAPFF with more Brazilian investors sold their shares in the joint venture to Renova Foundation, the joint venture who might be interested in this engage- Glencore. These sales were announced entity responsible for reparations, and ment, though he suggests that respon- just days after Cllr McMurdo met with the affected communities for updated sible investors in Brazil are few and far both Glencore Chair, Tony Hayward, and information. What quickly became clear between. BHP Chair, Ken MacKenzie. Glencore’s was that the company data did not match In Progress: While affected community on-going litigation around compliance the community data by a long way, so members have expressed gratitude for was discussed, and Cllr McMurdo once LAPFF has had to publish each party’s LAPFF’s assistance and efforts so far on again pressed Mr. MacKenzie on the ESG data separately. their behalf, it is clear that local inves- failings of joint ventures, including the In Progress: LAPFF has now undertaken tors engaged on this issue would have financial implications for investors of this exercise for three months, but only better success. This is because they these failings. three houses have been built in that understand not just the local language In Progress: LAPFF will continue to time according to the companies and the but the local cultural and political levers drive home the link between social communities. LAPFF will continue to to make progress. LAPFF will therefore and environmental failures by mining press for these houses to be built well, continue to work on building a coalition companies and poor or reduced long- quickly, and in accordance with the of Brazilian investors to help take this term financial returns for investors. It is needs and wishes of the affected commu- engagement forward. clear that making this link for companies nity members. 6 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org COMPANY ENGAGEMENT

prospect of having investors carry the meeting was held alongside several email necessary weight to convince them to communications. stop producing and selling cluster muni- Achieved: LAPFF subsequently wrote in tions seemed slim. June 2021 to sixteen of the companies Achieved: However, about a year later, initially engaged (Altice Europe N.V. has Singapore Technologies wrote to LAPFF been taken private since the initial round stating that the company had ceased the of engagement) requesting that they production and sale of cluster munitions, undertake human rights impact assess- in part due to pressure from LAPFF and ments (HRIAs) related to their opera- other investors on this issue. Then, in tions in the Territories. The hope is that December 2020, LAPFF began to receive companies operating in the Territories emails from another company with will understand the importance of under- which the Forum had engaged – Hanwha taking these HRIAs, not only to highlight Corporation – stating that company had where the companies might be complicit sold off its cluster munitions business. in human rights infringements, but also The company offered meetings to to provide insight on potential investment investors recently, and LAPFF Executive risks for shareholders. The Forum also member, Cllr Wilf Flynn, met with issued voting alerts for Booking Holdings Hanwha representatives to discuss the Inc, TripAdvisor Inc and Expedia Group company’s decision to dispose of its clus- Inc, all of whom have been non-respond- ter munitions business. The possibility of ers thus far in the LAPFF engagement. A “pyramide of shoes” in Paris a say on climate resolution to next year’s The voting alerts were issued after residents stacked up their old shoes in AGM was also discussed as it transpired LAPFF met with representatives from solidarity with Handicap International’s that the South Korean government is the UN including the Office of the United bid to bring attention for demands on a keen to promote sustainability and green Nations High Commissioner for Human global ban of anti-personnel mines and technology. Rights (OHCHR) to better understand cluster bombs. In Progress: LAPFF has sought clarity the methodology used in producing the on whether Hanwha would be willing to reports the OHCHR has issued on this put a say on climate resolution to its next issue in previous years. In February 2020, AGM. the OHCHR issued a listing of companies Hanwha Drops Cluster that are active in the Territories and that Munitions Business Israeli-Palestinian raise human rights concerns. LAPFF has Engagement Continues based its company engagement targets on Objective: In 2014, LAPFF was approached this list. by some of its members to undertake an Objective: LAPFF approached seventeen In Progress: The Forum will seek to put engagement with defence companies to companies in October 2020 operating in pressure on the companies with which ask them to stop producing and selling the Occupied Palestinian Territories (the it has engaged to undertake these HRIAs cluster munitions. This engagement was Territories), seeking to raise a number and will consider voting alerts on a case- difficult because these companies were of concerns based on their operations by-case basis. on government defence contracts, so the in the Territories. Subsequently, one AGMs and Voting Alerts wanted to be a leader and that another Objective: Each year, LAPFF circulates AGMS announcement on hydrogen develop- voting alerts and attends AGMs of compa- ArcelorMittal ments was imminent. In response to a nies with which the Forum is targeting As the company did not have an AGM request for a ‘say on climate’ vote at the engagement. Last year and this year have that was open to shareholders in 2020, 2022 AGM, Bruno LaFont, the lead inde- been challenging on one hand and have LAPFF had pushed for more access this pendent director, noted that they would opened opportunities on the other hand year. The company had put arrangements consult with shareholders on this. because of Covid. LAPFF has managed in place to allow written questions, but to attend several AGMs and to issue a in the event, the widespread crash of Lyondell Basell number of voting alerts to date. many internet sites on the day of the The LAPFF chair, Cllr McMurdo, partici- Achieved: LAPFF has attended AGMs AGM meant a hastily arranged zoom pated in the company AGM, as part of this year for Rio Tinto, Barclays, Anglo session gave far more open and transpar- a ‘formal discussion’ scheduled for the American, ArcelorMittal, Shell, and ent access. Aditya Mittal, the recently AGM by the CA100+ lead investors, which Lyondell Basell so far this year. Here is a appointed chief executive, gave a positive focussed on the company’s performance taste of a couple: response to providing an accelerated against the CA100+ benchmark. LAPFF timeline for implementing hydrogen noted the annual forum as the best technology, saying that the company forum for understanding a broad range 7 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org COMPANY ENGAGEMENT

of shareholder views and asked the Mitsubishi UFJ Financial Group Diversity Engagements and company to put its climate strategy to The voting recommendation to members Socio-Economic Task Force vote at the 2022 AGM and annually at was to vote in favour of a resolution for each AGM, in effect for a ‘say on climate’. the company to disclose an annual plan Objective: The Hampton-Alexander of the business strategy to align financing Review set a target of 33% representa- VOTING ALERTS and investments with the goals of the tion of women on FTSE350 boards and in Paris Agreement. The alert noted that the Executive Committees by the end of 2020. LAPFF has also issued several voting company continues to provide significant With this target in mind, LAPFF views alerts so far this AGM season. Alerts issued finance to fossil fuel expansion and the financial sector as a laggard in the have been for: Rio Tinto, HSBC, Glencore, deforestation, falling far short of Paris FTSE100 in terms of gender pay gaps and Barclays, Shell, Facebook, Amazon, alignment. female representation. LAPFF has also Exxon, Expedia, Trip Advisor, Booking Media coverage - https://www.reuters. sought to engage on ethnic diversity and Holdings, Mitsubishi UFJ Financial Group, com/business/sustainable-business/ approached the City of London Taskforce and Delta Airlines. Below is some detail on uk-pensions-group-says-backs-climate- on Socio Economic Diversity. a few of the alerts: resolution-mitsubishi-ufj-2021-06-28/ Achieved: LAPFF approached six compa- nies in the financial services sector in Barclays Delta Airlines the FTSE100, holding meetings with LAPFF advised voting in favour of a LAPFF advised members to support a both Standard Life Aberdeen and Lloyds resolution asking the company to imple- resolution for Delta to evaluate and report Banking Group. Both companies provided ment a strategy with improved targets on how the company’s lobbying activi- a detailed insight into the issues they to phase out the provision of financial ties align with the Paris Agreement and face in championing woman and how services to fossil fuel projects consistent how the company plans to mitigate risks they are tackling the gender pay gap. with the Paris Agreement. A company presented by any such misalignment. At Lloyds Banking Group is one of the first meeting in April had indicated the criteria the AGM, the resolution passed with a companies in the FTSE100 to post an for investing in oil sands companies was majority vote. ethnicity pay gap report and recognises for these companies to have a less than that there is work to be done in this area. average carbon emission intensity by In Progress: LAPFF will continue to issue With the City of London Taskforce on 2030, compared to other oil sands compa- voting alerts and attend AGMs as relevant Socio Economic Diversity in mind, the nies. The alert flagged up that it would and possible throughout the year. Forum also asked how social class was be helpful if Barclay’s next year’s Annual taken into account with both companies. Report disclosed the amount of fossil fuel Then in May 2021, Cllr John Gray, LAPFF dependent lending. Vice-Chair was appointed to the City of 8 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org ENGAGEMENT

London’s Taskforce Advisory Board on alongside a range of other investors, Socio-Economic Diversity. The Forum has also signed on to an expectations for also continued its participation in the the nursing home sector statement. The 30% Club Investor Group Meetings which WEBINAR statement,W coordinatedEBINA by UNI Global,R provides a space to discuss best practice calls on providers to improve standards among investors in relation to female for residents and staff in the wake of the representation on company boards. pandemic. In Progress: The Forum will extend its In Progress: The Forum will continue to engagement on diversity and pay gaps be engaging companies on this agenda to the FTSE350, looking to see where and collaboratively with the care sector as companies have not yet met targets of the part of the UNI Global initiative. Hampton-Alexander review, and where wider pay gaps exist. Cllr John Gray will COLOMBIAN3 September, WORKERS 2.00pm AT THEGMT Electric3 September, Vehicles 2.00pmand ClimateGMT also be involved in the City of London’s CERREJONBrazilian MINE Community ChangeBrazilian Community Taskforce Advisory Board, which will UNI MemberGlobal worked Update with LAPFF on to Member Update on have a series of workstreams seeking to set upCovid a webinar and with Tailings workers Dams at Objective:Covid Car useand is Taailings major contributor Dams tackle the issue of socio-economic diver- the Cerrejonregister coalher minee in Colombia. to globalTwo carbon Brazilian emissions. community Carmakers sity in the financial services sector. They reported horrendous working are facingmembers tightening will regulatory share their emis - conditions and threats to their personal sion andexperiences fuel standards with across mining the globe, safety. Cerrejon is a joint venture which will require them to move to Worker Safety during the companies in relation to between BHP, Anglo American, and electrify their fleets. LAPFF has sought to Pandemic Covid and tailings dams. Glencore. engage companies through approaching Objective: The coronavirus pandemic this challengeYou can and register pushing her for eemission. has highlighted the importance that CLIMATE LAW WEBINAR reductions in the short term and longer- companies must place on the S in ESG LAPFF teamed with Hausfeld LLP to term commitments to net zero. The Forum to safeguard workers and protect and run a webinar on developments in has also been engaging through Climate enhance shareholder value. The height- climate law. The following week, the Action 100+ with US companies. ened exposure of workers and others to Dutch courts handed down a ruling Achieved: After meeting with General the pandemic in some sectors potentially that Shell must cut its global carbon Motors in January 2021, LAPFF joined a poses serious investment risks for LAPFF emissions by 45 percent by 2030 based collaborative call alongside CA100+ this members. It also goes to the heart of on a 2019 benchmark. June to further discuss the company’s LAPFF’s objectives of promoting responsi- approach to electrifying its product line ble investment and the highest standards “I am noticing a worrying and its position on climate lobbying. of corporate governance. Engagements trend of asset disposal without General Motors produces several large sought to ensure that proper processes consideration for the conduct of sized vehicles including trucks and SUVs. have been in place during the crisis and The pivot for these to a 1.5C pathway is that boards were providing proper over- the entities to which the disposals necessary for the company to align itself sight as the crisis has unfolded. These are made. This phenomenon with its competitors in transitioning to engagements have focused on sectors cuts across coal businesses a net-zero economy. This was the main most at risk including the outsourcing sold to small and unaccountable topic of discussion at the meeting. and social care sectors. businesses without knowing In Progress: LAPFF will continue its Achieved: LAPFF met with Capita and whether emissions will be cut engagement with vehicle producers Serco. The meeting with Capita covered around changing regulation and their to cluster munitions businesses the safeguarding of staff and the balance approach to electrifying product lines. of working from home and from call sold to entities with no promise of General Motors appears to be lagging centres. At the meeting with the new working to cease the production behind competitors in this area, and the chair of Serco, LAPFF discussed how the and sale of cluster munitions. Forum will continue to push for quicker board managed the pandemic. There was Sweeping issues into another production of electric vehicles. a discussion around PPE and cleaning room will not solve the world’s in hospitals, as well as organising video problems, nor will it create better Anglo American on Climate calls for prisons. Alongside the outsourcing sector, the investment opportunities for Objective: The mining sector poses care sector has been identified as facing investors.” considerable climate risks to investors. specific risks. The Forum met the chair of The sector’s operations are often carbon Target Healthcare REIT. Although provid- LAPFF Chair, Cllr Doug McMurdo intensive and some minerals extracted, ing the buildings rather than the care, notably coal, are of great harm to the property companies play an important environment. LAPFF, as part of Climate role in ensuring high standards. The need Action 100+, has sought greater disclo- to engage both tenants and landlords sure on Scope 3 and emissions data, was discussed at the meeting. LAPFF, an emphasis on reducing thermal coal 9 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org ENGAGEMENT

mining, setting Scope 3 goals and targets, Governments on the Climate Crisis in LAPFF signed. and ensuring lobbying aligned with net advance of the United Nations Climate zero. Change Conference (COP26) taking place BEIS White Paper on Audit Reform Achieved: Anglo American has commit- in November this year. There are five In 2018 LAPFF made a submission to ted to carbon neutrality by 2040 across all main asks, including a request for gov- the Financial Reporting Council (FRC) assets for Scope 1 and 2 emissions which ernments to strengthen their nationally dealing with governance of companies represents a step forward and is a recog- determined contributions (NDCs) for 2030 which presented serious concerns about nition that 2050 was too far away. The to limit warming to align with 1.5 degrees the FRC and its own governance. That led meeting covered how Anglo American is Celsius. to a period of circumspection which then seeking to reduce emissions from mining led to the Kingman Review. The Kingman and included a discussion of capital CONSULTATION RESPONSES Review concluded that the FRC was not allocation and mining activities required fit for purpose and would be replaced by to support the transition to net zero. LAPFF Just Transition Inquiry a new body, the Auditing, Reporting and In Progress: LAPFF is seeking to engage Governance Authority (ARGA). further with Anglo American on its Scope The All-Party Parliamentary Group for This White Paper deals with some 3 emissions. There is work to be done on Local Authority Pension Funds’ inquiry of the issues relevant to the transition measuring emissions and fully account- into ‘Responsible investment for a to ARGA. Some of the issues around ing for carbon emissions that are present just transition’ continued. The LAPFF- accounting and auditing standards have in the value chain. supported APPG inquiry, chaired by Clive not been addressed. The problem LAPFF Betts MP, held its third evidence session identifies in its response is not so much COLLABORATIVE in May. The meeting heard from Colin reform of the law, but implementation of ENGAGEMENTS Baines (Investment Engagement Manager, existing law. Some parties have argued Friends Provident Foundation); Sarah that the law is different to the position of IOPA engagement meetings Teacher (CEO, Impact Investing Institute); LAPFF. However, that approach overlooks LAPFF has continued to participate in the Andy Gouldson (Chair of the Leeds the fact that what the law states is merely Investors for Opioid and Pharmaceutical Climate Commission) and Peter Brierley an articulation of economic facts. Accountability (IOPA) meetings. The (Lead Organiser, Citizens UK). The call for Central to the preparation of the group has run a number of Vote No evidence has now closed and the inquiry accounts is whether they should be pre- campaigns, notably at Cardinal and is reviewing the evidence to be discussed pared on a going concern basis. Several AmerisourceBergen . The group also at the next meeting before the final report basic principles are relevant to the wrote to the chairs of compensation is published in October ahead of COP 26. determination of that. Phantom ‘profits’ committees at eleven companies, scruti- and phantom ‘net assets’ will create a nising how executive compensation had DWP Consultation – ‘S’ in ESG risk of a phantom ‘going concern’ and if been handled in light of charges being LAPFF responded to the DWP’s consulta- auditors sign accounts without bottoming brought for opioids settlements. tion on ‘consideration of social risks and these considerations then their opinions opportunities by occupational pension will be wrong. Collaborative initiatives on Climate schemes’. Although the consultation did Being able to distinguish between The SEC was seeking input to proposed not cover LGPS funds, as pension regula- cash or near cash (realised) or non-cash climate change disclosure. LAPFF, as tion and legislation for the Forum’s sector (unrealised) items is essential to deter- a CERES member, co-signed a letter tends in the end to mirror DWP’s LAPFF mine whether a company is capable of supporting essential principles, including submitted a response. The Forum’s being a going concern or not. A company basing disclosure rules on the Taskforce response outlined LAPFF’s policy may not be a going concern if it cannot on Climate-related Financial Disclosure approach to social issues and how and service debt and cover ordinary costs (TCFD) guidance, having industry specific what themes we engage companies on. and – absent additional sources of funds metrics, promoting emissions disclosure LAPFF’s response also stated that social or guarantees – that requires cash flows and the inclusion of material climate issues are often overlooked and there from profits, not unrealised gains. disclosures in financial filings. was a need for much greater company The same applies with the matter of In April, LAPFF co-signed an investor disclosure. effective internal control, including the call for methane and flaring regula- absence of material fraud. tions at federal level in the US. The aim Investor Letter to SEC on Proxy Unfortunately, both International is to support and encourage the Biden Voting Rules Accounting Standards (IFRS) and administration to enforce strong methane The Biden Administration SEC has International Auditing Standards (ISA) regulations for the oil and gas industry. It signalled that it plans to support inves- water down, or even go against, such is considered regulation will be low-cost tors’ ESG aspirations, not least by failing basic principles. Some other issues are for industry. Methane emissions are to enforce the Trump era imposition of also covered on the LAPFF website. potent greenhouse gases, 84 times more obstacles to filing shareholder resolutions Media coverage - LAPFF questions powerful than carbon dioxide in the first on ESG. However, US investors remain UKEB’s approval of accounting standards - two decades after release. concerned that the US proxy voting rules Pensions Age Magazine LAPFF, as in previous years, has will not facilitate ESG-related resolutions signed a Global Investor Statement to and sent a letter to this effect which 10 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org ENGAGEMENT ENGAGEMENT DATA

AFL-CIO and EU Tax Letters ENGAGEMENT TOPICS There are continued concerns that country-by-country-reporting laws on Human rights tax are not addressing the full scope Climate change of the reporting gaps. For example, a recent AFL-CIO letter on this issue to the Environmental risk US Congress called for laws requiring Governance (General) that companies report their taxes for all Employment countries in which they operate, not just standards a general ‘rest of the world’ category. PRI Audit sent a letter on this issue to the European Other Union shortly after the AFL-CIO letter was Supply chain sent in the US. LAPFF signed both letters. management Board composition Facial Recognition Technology 0510 15 20 25 30 35 Investor Statement Human rights concerns surrounding ACTIVITY facial recognition technology have Meeting surfaced in the last few years. LAPFF Sent correspondence issued a voting alert to Amazon on this Received topic both last year and this year and correspondence signed an investor statement circulated Alert issued by Candriam on this issue this quarter. Press release Media coverage - https://www. 0510 15 20 25 30 professionalpensions.com/news/3076049/ lapff-supports-majority-amazon- shareholder-resolutions MEETING ENGAGEMENT OUTCOMES

HM Treasury Consultation on Dialogue Aviation Tax Reform Awaiting response In its response to the consultation, Moderate improvement LAPFF called on the Treasury to review Small improvement the current position of air tickets being VAT free and aviation fuel incurring no No improvement duty. A price signal of reducing domestic Change in process air passenger duty (APD) would likely Substantial improvement encourage more flights. This outcome Satisfactory response is in stark and direct opposition to the 0510 15 20 25 30 government’s own climate change target to reduce emissions by 78% by 2035 over POSITION ENGAGED 1990 levels. LAPFF has long recognised 35 the imperative to address climate change Chairperson as a systemic investment concern for investors. With aviation expected to grow Specialist staff to be the biggest source of UK emissions by 2050, it is a significant contributor Exec Director or CEO to the material financial risks of climate Non-Exec Director change with the potential for loss of 0102030405060708800 shareholder value. Media coverage - LAPFF urges Treasury to COMPANY DOMICILES review position on APD amid ‘contradictory GBR signalling’ - Pensions Age Magazine USA FRA ISR NLD LUX BRA CHN KOR JEY JPN SGP IND THA AUS IRL HKG 010203040 11 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org COMPANY PROGRESS REPORT

59 Companies engaged over the quarter

*The table below is a consolidated representation of engagements so reflects the number of companies engaged, not the number of engagements Company/Index Activity Topic Outcome ABBOTT LABORATORIES Sent Correspondence Environmental Risk Awaiting Response AIR LIQUIDE SA Sent Correspondence Climate Change Dialogue ALSTOM SA Sent Correspondence Human Rights Dialogue AMAZON.COM INC. Alert Issued Human Rights Dialogue ANGLO AMERICAN PLC Meeting Human Rights Change in Process APPLE INC Sent Correspondence Environmental Risk Awaiting Response ARCELORMITTAL SA Received Correspondence Climate Change Substantial Improvement BANK HAPOALIM B M Sent Correspondence Human Rights Awaiting Response BANK LEUMI LE-ISRAEL BM Sent Correspondence Human Rights Awaiting Response BARCLAYS PLC Meeting Climate Change Dialogue BARRATT DEVELOPMENTS PLC Sent Correspondence Climate Change Awaiting Response BEZEQ THE ISRAELI TELECOMMUNICATION Sent Correspondence Human Rights Awaiting Response CORP LTD BHP GROUP PLC Meeting Governance (General) Moderate Improvement BOOKING HOLDINGS INC. Alert Issued Human Rights No Improvement BP PLC Meeting Environmental Risk Awaiting Response CHARTER COMMUNICATIONS INC Meeting Environmental Risk Awaiting Response COMPAGNIE DES ALPES Sent Correspondence Environmental Risk Awaiting Response CONSTELLATION BRANDS INC. Meeting Environmental Risk Change in Process CRH PLC Received Correspondence Climate Change Small Improvement DBS GROUP HOLDINGS LTD Sent Correspondence Climate Change Dialogue DELEK GROUP LTD Sent Correspondence Human Rights Awaiting Response EXPEDIA GROUP INC Alert Issued Human Rights No Improvement FACEBOOK INC. Alert Issued Governance (General) Moderate Improvement FREEPORT-MCMORAN INC. Sent Correspondence Human Rights Dialogue GENERAL MILLS INC Sent Correspondence Human Rights Awaiting Response GENERAL MOTORS COMPANY Meeting Climate Change Small Improvement GLENCORE PLC Meeting Governance (General) Moderate Improvement HANWHA CORP Meeting Human Rights Substantial Improvement HUADIAN POWER INTL CORP LTD AGM Climate Change Change in Process HUANENG POWER INTERNATIONAL AGM Climate Change Dialogue IMPACT HEALTHCARE REIT PLC Sent Correspondence Employment Standards Awaiting Response INDORAMA VENTURES PCL Sent Correspondence Human Rights Awaiting Response ISRAEL DISCOUNT BANK LTD Sent Correspondence Human Rights Awaiting Response LLOYDS BANKING GROUP PLC Meeting Governance (General) Moderate Improvement MITSUBISHI UFJ FINANCIAL GRP Sent Correspondence Climate Change Dialogue MIZRAHI TEFAHOT BANK LTD Sent Correspondence Human Rights Awaiting Response MORRISON PLC AGM Other No Improvement MOTOROLA SOLUTIONS INC. Sent Correspondence Human Rights Awaiting Response NATIONAL GRID PLC Meeting Climate Change Substantial Improvement NEXTERA ENERGY INC Sent Correspondence Climate Change Dialogue PAZ OIL CO LTD Sent Correspondence Human Rights Awaiting Response PERSIMMON PLC Sent Correspondence Climate Change Dialogue RIO TINTO PLC AGM/MEETING Human Rights Change in process ROYAL DUTCH SHELL PLC Meeting Climate Change Dialogue SAINSBURY (J) PLC Meeting Climate Change Moderate Improvement SANOFI Meeting Environmental Risk Awaiting Response SERCO GROUP PLC Meeting Employment Standards Small Improvement SHUI ON LAND LTD Sent Correspondence Environmental Risk Awaiting Response SONIC HEALTHCARE LTD Sent Correspondence Climate Change Awaiting Response STANDARD LIFE ABERDEEN PLC Meeting Board Composition Moderate Improvement TARGET HEALTHCARE REIT LTD Meeting Employment Standards Moderate Improvement TAYLOR WIMPEY PLC Sent Correspondence Climate Change Awaiting Response TOTALENERGIES SE Received Correspondence Climate Change Moderate Improvement TOYOTA MOTOR CORP Sent Correspondence Environmental Risk Awaiting Response 12 LAPFF QUARTERLY ENGAGEMENT REPORT | APRIL-JUNE 2021 lapfforum.org COMPANY PROGRESS REPORT

59 Companies engaged over the quarter

*The table below is a consolidated representation of engagements so reflects the number of companies engaged, not the number of engagements

Transco (National Grid) Meeting Climate Change Small Improvement TRIPADVISOR INC. Received Correspondence Human Rights Small Improvement VALE SA Meeting Climate Change Dialogue YES BANK Sent Correspondence Human Rights Awaiting Response YUHAN CORP Sent Correspondence Environmental Risk Awaiting Response

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