6 January 2023
"Investing with a positive social and environmental impact is an increasingly important issue for investors and can be achieved alongside competitive market returns. Investing with impact can also help incorporate risk and return drivers which would otherwise not be considered. The Fund wishes to invest in a way that minimises negative impacts on society and the environment and, where possible, makes a positive contribution"
- one of the Fund's investment beliefs.
In line with the Fund's goals of "transparency and information sharing" and "responsible ownership and stewardship", this article has been published based on a research report written for the WPF Committee meeting on 5 September 2022.
The Wiltshire Pension Fund Committee received impact investing training from Pensions for Purpose in November 2021. Following this, at the meeting of 03 March 2022, the Committee voted for three key investment themes based on the United Nations Sustainable Development Goals (UN SDGs). One of the themes chosen was education, as defined by SDG 4:
"Quality Education - to ensure inclusive and equitable quality education and promote lifelong learning opportunities for all".
The investment team engaged with the Fund's asset managers to understand how the current portfolios were contributing to providing quality education; it was identified there are two different investable themes on education.
Firstly, the most obvious was to understand if any companies held were directly providing educational services.
However, the team were keen to consider the topic more broadly and investigate how companies were sustainably adjusting to the transition of a low carbon economy, and what this meant for ensuring that workforces were adequately re-trained. This second theme links to another UN SDG chosen by the Committee relating to climate change  and an initiative already supported by the Fund, "the Just Transition".
Analysts challenged the Fund's asset managers on these topics, and detailed the findings below:
Lightspeed Through the Cycle 2 private equity portfolio, Wiltshire Pension Fund is invested in a company called Lightspeed, a provider of essential educational software resources for schools across the UK, USA and globally. Software provided by Lightspeed gives schools web filtering, student online safety, classroom management and teaching tool solutions. This is essential for ensuring students use online resources safely and effectively. Investment in this company benefits from a growing market due to mounting concerns on student safety and well-being. WPF holding £0.3m (Jun-22).
Brunel use EOS at Federated Hermes, ‘EOS’ to engage with companies on their and the partnership Funds' behalf. EOS has developed an approach to reporting on the SDGs which attributes a direct link between one of their engagement themes and an SDG if they believe their engagement objective at a company directly supports at least one of the UN’s targets underpinning the relevant goal or is aligned with the spirit of the goal. It does not include the many engagements which would more indirectly support the ambition of other SDGs or corporate governance more broadly. This means that whilst there are currently only a small number of engagements linked directly to SDG 04, there is a much larger number of engagements indirectly linked, including on the Just Transition which is a strong focus for EOS.
The investment team will continue to push Brunel and EOS to include education as an engagement theme where possible. As the Fund moves forward with the decarbonisation strategy, the team will seek to understand how this can be achieved without compromising jobs.
EOS at Federated Hermes, ‘EOS' further analysis
Where can I find more specific information?
As mentioned previously, EOS engage directly with companies on behalf of clients and published case studies related to Human Capital, along with annual engagement reports for Wiltshire Pension Fund specifically: Stewardship, voting and engagement. Ongoing engagements can often be on corporate activity outside the public domain and therefore issue details are confidential.
|Engagement sub theme/(company engagement)||Region||Country||Sector||SDG 01: No poverty||SDG 03: Good health and well-being||SDG 05: Gender equality||SDG 08: Decent work and economic growth||SDG 16: Peace, justice and strong institution||SDG 10: Reduced inequalities|
|Human Capital Management||Europe||Finland||Mining & Materials||🍱||🍱||🍱||🍱|
|Human Capital Management||Europe||Ireland||Consumer Goods||🧀||🧀||🧀||🧀|
|Human Capital Management||North America||United States of America||Transportation||🚗||🚗||🚗|
|Human Capital Management||North America||United States of America||Mining & Materials||🥫||🥫||🥫|
|Human Capital Management||United Kingdom||United Kingdom||Consumer Goods||🏠|
|Diversity||North America||United States of America||Technology Hardware & Equipment||💻||💻|
- The table here shows engagements mapped to SDG 04: Education, by company. No engagements were mapped to Education in isolation; this table serves to illustrate the overlap of SDG 04: Education with other SDGs.
- NB Ongoing engagements can often be on corporate activity outside the public domain and therefore company names and issue/objective details are confidential.
Beside investment holdings, Brunel are providing educational workshops delivered by webinar and available on YouTube. A detailed programme designed by industry professionals to provide the insight, knowledge and direction needed to pursue a career in the investment industry. Their goal is to tackle underrepresentation across the industry and increase social mobility - by addressing the intersectionality between ethnicity and social mobility. Research shows that diversity in boards contributes towards better decision making, and considerations of different viewpoints can lead to improved risk management.
It was pleasing to learn that education is an area of focus for Partners Group in the Private Infrastructure sector - Partners Group have a specific Social Infrastructure investment subgroup which encompasses education as an investable theme. Partners Group specifically sees the trend towards continuous self-improvement and lifelong learning as drivers of demand for education software and personalized education solutions.
Partners Group will assess education under their ESG engagement strategy; however, they are disciplined when mapping ESG credentials to the UN SDGs. This is to ensure a measurable contribution can be made before declaring they are fully aligned to a specific goal. "While we have some investments in the education space, they do not contribute in a measurable way to UN SDG 4". Two examples of education assets follow:
International Schools Partnership ISP provides private education operating 50 schools in 15 countries, however as they operate in countries that provide free state-run schools, this does not incrementally contribute to SDG 4. WPF holding €1.83m (Jun-22).
Parmaco Parmaco is a leading provider of high-quality modular buildings for the public education sector. The company provides modern and sustainably constructed buildings for 343 schools and day care centres. With ageing educational building stock in many countries and constrains on new investment, these modular building solutions are benefiting from market tailwinds. WPF holding $2.8m (Jun-22).
Ninety One do not specifically consider all investment rationales with an SDG lens, but stated that "The value of education is unquestionable". In general, "where an SDG theme, including quality education, is a material issue for a given company or sector, it is considered by the analyst as part of their integrated fundamental research". This forms part of their ESG scoring framework.
There is reassurance that education feeds into the work on assessing current and long-term operational performance of companies, but at this stage it is not covered by a distinct area of analysis unless an apparent issue with education arises, in which case Ninety One would engage with the relevant company in the same way they would any other issue.
Ping An - Offers intensive training for new insurance sales agents. But in addition runs a variety of health information resources for both its customers and potential customers. It is one of China's most important provider of health-care information. WPF holding value £3.4m (Jun-22).
Hon Hai Precision - A major employer of unskilled labour which it then trains in basic employment skills. Hon Hai invested NT$ 151m in Foxconn University and provided 73.08 million hours of training, resulting in 77.2 hours of training for each Hon Hai employee, facilitated graduations of 1,010 employees with undergraduate degrees and above. Hon Hai's education drive is to ensure that employees continue to improve and expand their skill base. Labour underpins nearly all business operations, so improvements in labour skillset at a firm that continues to expand its revenue streams from being a legacy Apple assembly manufacturer, to now a sustainability lead Electric Vehicle manufacturer, means that this education will also help guide transition to a low carbon economy. WPF holding value £3.7m (Jun-22).
Ninety One were unable to provide examples of engagements directly related to SDG 4 over the past 12 months (within the Emerging Markets Equity Fund). This may suggest no issue has been surrounding education has been flagged, however moving forward it is anticipated that wider analysis will be conducted in the education space.
Wiltshire Pension Fund, as asset owners, understand and are committed to a that delivers positive social impacts where possible alongside competitive market returns, and that is aligned with the Fund's strategic vision goals. The investment team acknowledge the potential pitfalls of reporting positive impact that are merely coincidental, therefore following this analysis, will continue to challenge asset managers on this investment theme to ensure that intentional, incremental positive impacts can be identified, and that managers are appropriately considering the risks and opportunities associated with this theme.
Pension Fund Investment Analyst