Spotlight on Social Issues Report 2024

INTRODUCTION

At Wiltshire Pension Fund (WPF) we are passionate about responsible investment. Our goal is to earn sufficient returns to pay the pensions as they fall due, and to support our employers by keeping their contribution rates as stable and affordable as possible. Responsible investment is an important tool in protecting our assets, boosting returns, and ensuring a sustainable financial future for our Fund. Responsible investment is embedded in our values and strategic goals, with the following being the most important:

LONG TERM THINKING

We always act with the long term in mind, whether we are setting our investment strategy, planning improvements, or working towards our net zero by 2050 goal

9 Safeguard the assets

10 Strong, risk-adjusted returns

11

Responsible ownership and stewardship

12 Positive impact

As part of our approach, we identify important Environmental, Social and Governance factors to focus on. These are the factors which we believe are the most financially significant, and where we most need to manage our risks and/or see a strong investment opportunity.

This report shines a spotlight on Social factors, and highlights some of the work we have done to investigate these issues within our portfolios. The Social factors we focus on (and why) are as follows:

There is a clear supply/demand imbalance of affordable homes in the UK. This presents an investment opportunity from the need to address this social issue. We currently allocate 5% of our Fund to UK affordable housing.

Promoting education will lead to a more skilled workforce and benefit the economy.This links to professional training and development, including re-skilling as a part of the transition to a low carbon economy.

Health is a wide-ranging theme encompassing worker health, consumer health and community health. The importance of good health in a productive economy is clearly linked to our investment portfolios.

Research has shown that more diverse boards lead to better financial outcomes. As well as being an important investment theme, EDI matters in terms of how we run our operations.

Adverse outcomes of artifical intelligence technologies has been identified as a top 10 risk over the next decade by the World Economic Forum. Cyber risk is also important to understand and manage

Poorly managed labour practices can introduce risks of indistrial action, human rights abuses, and reputational damage, all of which are clearly risks to our investments.

Our members care about social issues too! In a recent survey, we asked our members to tell us which responsible investment issues mattered most to them (bubbles sized by percentage of members who selected each issue as important), with the following results:

Biodiversity

Climate change

Labour practices

Social issues

Social issues are even more important to the younger demographic. In a recent survey where we focussed on the younger members of the scheme (<30 years old), we were fascinated to learn that equality, diversity and inclusion and broader social issues were considered even more important than climate change (which came in a close third)! It was this finding that inspired us to produce this Spotlight on Social report.

We hope you enjoy reading about these themes and their impact on our investment portfolios.

HIGHLIGHTS FROM THE REPORT

Our affordable housing portfolio builds communities as well as individual homes. Properties in thriving communities with local amenities, communal spaces and good transport links are in high demand.

Read more on page 6

We are promoting high-performing teams by growing our own!

Hear direct from our amazing team members on page 12!

On page 18, come with us on a visit to a local care home –and see first-hand how we can earn returns while contributing to an increase in the care provision in our own backyard!

Homes with better environmental credentials are better homes for people to live in –

Learn more about an exciting solar retrofit and how this is benefiting residents on page 8!

Review our healthcheck into the themes of worker, consumer and community health in our portfolios on page 14!

Flip to page 10 to read about how our investments in two very different educational services companies have benefited from adaptable business models!

Identifying opportunities within the health sector reveals a landscape rich with potential for investors, who are keen to support and capitalise on advancements in health and wellbeing –Examine two investments delivering healthy profits on page 16!

Equality, diversity and inclusion are not just buzzwords, they are embedded in our culture. Read about our broad approach and how this is helping to drive better outcomes, and promote inclusion in the financial industry on page 20!

The impact of artificial intelligence (AI) on investments is becoming increasingly evident.

We investigated the topic, and then used AI tools to help us write and illustrate an article on page 22!

Fashion is an industry where multiple environmental, social and governance issues are woven together. We ripped open the seams to see how our investments measure up, all on page 24!

BUILDING COMMUNITIES

HOW OUR AFFORDABLE HOUSING DEVELOPMENTS ARE TRANSFORMING NEW NEIGHBOURHOODS

ABBEY PLACE

On a bright and blustery spring morning, we crossed London and travelled to the end of the Elizabeth Line at Abbey Wood station. Just a stone’s throw from the station is Abbey Place, currently the largest standing asset in the CBRE Affordable Housing Fund, to which we have made a commitment of £40m as part of our UK impact affordable housing portfolio.

The area around Abbey Place currently feels somewhat windswept and remote, in spite of being within Zone 4. We learned that the area is currently undergoing a transformation, and Abbey Place is one of the first of many new buildings that will be instrumental in turning this neighbourhood into a new community. Significant investment and regeneration in the area is adding a huge number of additional residential properties, and being the first of these new properties as well as being conveniently located, Abbey Place is high demand.

The development is a multi-family construction, made up of two towers and a shared podium garden. One tower houses 72 flats which are being let at a discount of c.20% to market rate in the area. This ensures genuine affordability, with rents capped at 40% of the local median income. When these units were made available to the public, every single flat was let within 2 weeks, demonstrating the high level of demand. Originally, planning permission was for 90% private rented properties, but CBRE re-negotiated this to 30%, allowing for more shared ownership properties, which support people who could not otherwise afford to get on the property ladder. The second tower contains 173 shared ownership properties. Again, demand here has been impressive. At the time of writing around 135 units had already been sold with even more reserved, leaving only 20 to go.

We visited one of the still-vacant shared ownership homes to take a look. The property was full of natural light, with spectacular floor-to-ceiling windows providing views of the surrounding area. The environmental credentials were of a high standard (and are the same in the discounted rental properties) with an EPC rating of B and a centralised heating system. We also learned that solar panels on the roof help power the lifts and communal areas in the building, which reduces the service charge for residents.

After a quick trip across the shared communal space on the podium level, we ascended the rental unit tower to the roof terrace to admire the views across to Canary Wharf, and then hopped back onto the Elizabeth Line to visit our next destination.

72 DISCOUNTED RENT HOMES

173 SHARED OWNERSHIP HOMES

RIGHT NEXT TO ABBEY WOOD STATION

6% RETURN OVER 7–10 YEARS

The two towers of the Abbey Place development

Centralised heating and solar panels on the communal roof terrace

WOOD WHARF

After travelling 4 stops back towards Canary Wharf, we took a short walk to Wood Wharf. This is also a neighbourhood in development, the entirety of which is in the process of being built from the ground up. Our investment is in two towers which will jointly contain 294 regulated rent homes. Currently these are just beginning construction, with the intention to deliver the finished properties in 2026.

This investment presents a compelling case for strong returns alongside positive social impact. Wood Wharf is situated in the shadow of prosperous Canary Wharf, but is actually part of the London Borough of Tower Hamlets, one of the most deprived areas in London. We learned that within Tower Hamlets, an incredible 17% of households are on a housing waiting list, and the two towers being built will be populated entirely with people from this list, delivering against a clear local social need

Unsurprisingly, rents are very high in the affluent Canary Wharf area, but within these towers, planning has mandated a rental cap to ensure affordability. CBRE have also assessed this against local median incomes to confirm rents are genuinely affordable. There are several local amenities right next to the towers, including a park, doctors’ surgery, vet clinic, school, leisure centre and supermarket, making this is a highly practical place to live.

From a sustainability perspective, the properties will be EPC B rated, and although planning was agreed in 2013, they will be constructed to a higher standard in line with the 2020 building regulations.

CONCLUSION

Our journey through Abbey Place and Wood Wharf offers a vivid snapshot of how strategic investments in affordable housing can significantly impact and transform neighbourhoods. Abbey Place exemplifies the pressing need for affordable housing solutions within reach of central London. Wood Wharf, poised to bring regulated rent homes to one of London's most deprived areas, represents a forward-looking approach to urban development, balancing economic viability with social responsibility. As we continue to expand our affordable housing portfolio, our focus remains on ensuring that sustainable returns for WPF are coupled with the benefits of growth and regeneration being accessible to all.

294 REGULATED RENT HOMES NEW COMMUNITY AREA

6% RETURN OVER 7–10 YEARS

Site for one of the towers

Model of the entire Wood Wharf development

Numerous local amenities

HOME SWEET (ECO-FRIENDLY) HOME

INVESTING IN AFFORDABLE HOUSING’S ENERGY REVOLUTION

INTRODUCTION

At WPF, we are proud of our affordable housing portfolio’s social and environmental credentials. In our latest Impact Report, we shared the statistic that 83% of the homes in our portfolio have an EPC rating of B or above Energy Performance Certificates (EPCs) tell you how energy efficient a building is and give it a rating from A (very efficient) to G (inefficient). They provide an indication of how much it is likely to cost to heat and light, and what its carbon dioxide emissions are likely to be.

As a Fund, we have set a target of net zero by 2050 for all our investment portfolios, but why does this matter for affordable housing? Simply put, the world is changing, and our investments need to be ready to keep up, or we will lose out financially

Modern methods of construction are more efficient, as well as being environmentally beneficial. And developments which are sensitive to the climate are also more desirable for residents – for example an energy efficient home is less costly to run, and homes which have access to amenities such as EV charging are likely to be more attractive, a fact which in turn boosts the returns we earn as investors.

In other words, homes with better environmental credentials are better homes for people to live in, delivering a positive social impact.

CASE STUDY: AN AMBITIOUS RETROFIT PROJECT AT MILDENHALL

One of our affordable housing managers, CBRE (WPF commitment of £40m), have been working with housing manager Waypoint on a retrofit programme at their development in Mildenhall. The retrofit programme aims to bring all 100 homes from an EPC D to a B, with works including the conversion of oil boilers to air source heat pumps and the installation of solar PV panels.

This work is necessary – with a current EPC rating of D, these homes were set to fail against upcoming regulatory requirements, which state that all new tenancies need to have an EPC rating of at least C by 2025 (and all existing tenancies by 2028). The existing heating system in these properties was close to the end of its economic life, and therefore replacing with like-for-like was not a practical solution.

This work began by piloting the programme in four homes, costing £30,000 per home. With utility savings of c.20% and a carbon saving of c.72%, CBRE’s ESG team has estimated that the works conducted have the potential to save residents 36% on their heating bills.This represents a significant saving at a time when there are significant cost pressures on residents, particularly regarding energy bills.

Following the success of the pilot, CBRE will now be rolling out the programme to the remaining 96 units in the development, at a total cost of £3.3m. Due to carrying out the work in bulk, CBRE estimate that the installation time can be reduced from one week to two days, meaning residents can remain in their homes during the works, thereby minimising disruption. At the time of writing, 80 homes have now been successfully retrofitted!

We were keen to understand more about the impact on the residents, and were pleased to learn that the consensus on the site is that the air source heat pumps are proving effective, and since CBRE have started helping the tenants review and, in most cases, change their utility suppliers, they are expecting to see some significant savings on their energy bills.

In addition to the positive impacts for the residents, there are economic benefits for us as investors from this retrofit project as well. The £30k investment in each house helps preserve value and ensures the investment meets future regulations and as such continues to be income generating into the future.

CONCLUSION

Homes with better environmental credentials are better homes for people to live in

The journey toward energy-efficient, affordable housing is not just an investment in bricks and mortar; it's an investment in a sustainable future. The Mildenhall retrofit project exemplifies how combining environmental stewardship with economic foresight can create living spaces that are not only more cost-effective and desirable for residents but also more profitable and resilient for investors

HOMES IMPROVEMENTS FROM EPC D TO B £3.3M PROJECT 36% SAVINGS ON ENERGY BILLS

A home in the Mildenhall development, fitted with solar panels

A LESSON IN PROFITS

WHEN EDUCATION MEETS MARKET ADAPTATION

INTRODUCTION

Education is one of our stewardship priorities, and is an area where our Committee believe there is a strong investment case, as education contributes towards a more skilled workforce and better economic outcomes. Education as a theme applies to all companies, in the form of training and development, as well as investments directly in companies that provide education services. In this case study we have investigated two holdings in the education services sector, both of which are held within our emerging markets multi-asset portfolio, managed by Ninety One.

CASE STUDY: NEW ORIENTAL EDUCATION (WPF HOLDING C.£1.3M)

New Oriental Education is a provider of private educational services in China. The company has undergone some major transformations over the last few years, as a result of needing to adapt to the changing regulatory environment in the sector. The company’s core business model has historically been heavily focussed on after-school tutoring, however in 2021 regulatory changes introduced huge challenges to this business model.

From September 2021, the Chinese authorities banned for-profit tutoring, which lead to widespread job losses within the private education sector. For New Oriental, this led to 60,000 staff members being let go, and a decrease of 80% in operating revenue. The company responded by diversifying into e-commerce, which provides more resilient revenue streams, as well as changing their approach to education provision. The company embraced government policy promoting extracurricular activities, and launched nonacademic courses offering non-core subjects like art, music, and sports, alongside online learning for wider reach and flexibility. Additionally, adult education programs in vocational training and professional development were introduced

We were keen to understand more about how New Oriental is positioned going forward. Ninety One have said that they believe the company is well-positioned to deliver strong growth from its newer businesses such as its live streaming e-commerce platform and vocational training programs, its ability to navigate through a tough policy environment, and international expansion.

The impact of these challenging times can be seen in New Oriental’s share price over the last 5 years. WPF became investors in March 2023, when the company moved into a recovery phase, and over that period we have experienced a doubling in the share price, showing that by investing in an adaptable company, we are able to earn both strong returns and continue to support the delivery of educational services

CASE STUDY: YDUQS (WPF HOLDING C.£75K)

Ninety One have recently added a small investment in another educational services company to our portfolio, YDUQS. Although only a small holding, due to our interest in this sector we were keen to understand more about the market so we reached out to Ninety One for more information. YDUQS is a leading company in private higher education in Brazil, with a focus on distance learning. YDUQS operates through three main divisions: on-campus learning, digital learning (distance learning centres in partnership with local players), and premium operations (including medical schools and business schools).

Brazil faces a significant skills gap. Whilst ~32m people have a high school education, only about 8m have higher education. Higher education has proven worthwhile as on average someone with higher education can double their salary. Campus education is expensive, consuming almost half of the average person’s monthly salary – but distance learning is a far more affordable alternative and is growing in popularity in Brazil. The Brazilian government has historically sought out ways to close the skills gap through scholarships and funding programmes.

YDUQS has adapted, and now serves more self-funded students, as well as offering more highermargin degrees, which have made the course mix more resilient . The company has also invested significantly in digital transformation and technologies. Brazil is currently experiencing cuts in interest rates, and this is benefitting YDUQS, making its own balance sheet debt more affordable, as well as improving affordability for the students who make up its customer base.

CONCLUSION

Investing in education offers a compelling investment case, underscored by our exploration of two distinct entities within the education services sector. In looking at New Oriental and YDUQS, we have observed the resilience and adaptability of companies in facing regulatory changes and economic challenges. New Oriental's strategic pivot towards e-commerce and diverse educational offerings demonstrates the potential for innovation and growth in response to adversity. Similarly, YDUQS's focus on distance learning and digital transformation highlights the opportunities within the education sector to meet evolving market demands and bridge the skills gap. These investments align with our stewardship priority of investing in education, which is foundational for building a skilled workforce and fostering better economic outcomes globally

HOW WE'RE GROWING OUR OWN

CULTIVATING EXPERTISE THROUGH EDUCATION

INTRODUCTION

When looking at our investments, we are keen to learn more about any investments directly in the education sector, but we are also very interested in how companies are dealing with education of their own employees, i.e. training and development. This is a valuable tool to upskill staff and encourage progression and retention, so is something we expect that successful businesses will be managing well. In this article, we want to share a bit more about what we are doing at home, to demonstrate that we are following the same standards we set for others.

WHY DOES THIS MATTER TO WPF?

Resourcing is something that has been widely acknowledged to be a challenge in the world of the LGPS. In our latest Business Plan, “Our pathway to success”, we have set out a resourcing plan, which sets a goal of a resilient, skilled and motivated workforce. One of our resourcing core principles to deliver this goal is “Grow Your Own”, which promotes career development and training.

SO WHAT HAVE WE DONE?

• We have created career-graded roles, which allow members of the team to build their technical knowledge and skills and progress in their careers.

• All staff have tailored training plans, to support them in achieving their goals.

• The entire team have attended training on “creating an inclusive workplace”, to support our culture and service to our members.

• Several members of the team have been supported in achieving professional qualifications

• We have celebrated several promotions within our team, ranging from people climbing up the career grades to promotions to manager level.

HIGH PERFORMING TEAMS

We aspire to be role models and leaders, through our commitment to develop knowledge and training

CREATION OF CAREER-GRADED ROLES

TRAINING PLANS FOR ALL STAFF

INCLUSIVITY TRAINING

PROFESSIONAL QUALIFICATIONS

CELEBRATING SEVERAL INTERNAL PROMOTIONS

CONCLUSION

We are so proud of the achievements of our amazing team members, and the benefits of a supportive culture with a strong focus on training, development and empowerment are evident, leading to a more motivated and resilient workforce

DON’T JUST TAKE OUR WORD FOR IT! HEAR THE GOOD NEWS FROM OUR AMAZING TEAM MEMBERS…

Wiltshire Pension Fund is a fantastic place to work. As a woman and former foreign national I have always felt I was supported and have always been encouraged by my managers to be the best I can and add to my skills throughout my time here. Equality, Diversity and Inclusion are not just words. Here in WPF actions speak louder than words! Sky is the limit if you try harder!

Having arrived in the UK in 2005, my first priority was to set about learning the language and gaining my UK citizenship. Previously having a successful career in finance in Ukraine, I studied the AAT qualification gaining full AAT membership, which made my degree in accounting UK compliant.

I started as a Pension Assistant in the Member Services team and was promoted within one year to a Data Officer role in the Employer Services team. During this time, I had the opportunity to complete my Certificate in Pension Administration. With extensive internal and external training opportunities, self-discipline and my personal aspirations, as soon as the Fund's career grading was introduced, I was promoted to a Principal Officer role in January 2023.

From March 2023 I was offered to act up as the Employer Services Work Management Officer covering maternity leave. I don't know what my next move is going to be, but I am absolutely certain that I will stay with pensions.

NAT HARRISON, EMPLOYER SERVICES WORK MANAGEMENT OFFICER

Since joining Wiltshire Pension Fund in 2021 as an Accounting and Investments Officer I have been incredibly well supported to develop my skills and knowledge through regular internal and external training, enabling me to achieve the CFA UK IMC qualification.

Professional development is actively encouraged, and opportunities are always available for me to develop my skills and knowledge. Working at the fund provides opportunities to further my career, I have recently been promoted to the role of Investment and Accounting Team Lead, I am being supported in this step up through an internal leadership course, which has provided me access to specialist training and a mentor.

Within the team I lead I have established pathways for career development and training which in line with the Funds values. The flexible working policies are great, allowing me to balance a young family with work and home life. I split my time between working from home and using the high-quality office space to meet colleagues in person.

CHRIS MOORE, INVESTMENT AND ACCOUNTING TEAM LEAD

Joining Wiltshire Pension Fund in 2013 as an admin assistant, I have regularly received internal and external training to help me develop. More recently, I have completed the Foundations degree in Pensions administration and management.

The Managers here have always supported me and helped to guide my personal skills to help me progress. I am keen to continue this supportive culture as a result of my recent management promotion.

Having been given the opportunity to further my education and skills by my employer has been fundamental to my journey and success here. Being offered several internal promotions, I am excited about how far my development will go, mostly thanks to the support of the managerial team at Wiltshire Pension Fund.

MATTHEW THORPE, MEMBER SERVICES MANAGER

HEALTHY PROFITS

PART 1 – A CHECK-UP INTO OUR EXPOSURE TO THE THEME OF HEALTH

INTRODUCTION

Poor health represents a financial risk to investors, and is a broad topic area, extending from the risk of changing regulations (e.g. sugar tax) and the potential impact on an unprepared company, to reductions in productivity caused by poor workplace health. We wanted to examine this theme to identify ways in which our investments are delivering strong returns while supporting improvements to health – i.e. healthy profits!

Shareaction have established Long-term Investors in People’s Health (LIPH), an initiative that supports investors to consider the theme of health within their portfolios. This sets out three areas for investors to consider: worker health, consumer health, and community health. We have looked at each of these three areas, to explore some examples of why these areas may present a financial risk and what is being done to protect our investments.

WORKER HEALTH

According to Shareaction, “the quality of work, working conditions and benefits provided by employers are a key determinant of health. Important factors include paying a Living Wage, offering secure contracts, provision of adequate and equitable parental leave, offering sick pay packages that support people to recover and stay well, and in some countries, health insurance. Well-designed jobs that give workers control and autonomy are also important for health.”

CASE STUDY: VOTING AT CVS (WPF HOLDING APPROX. £0.75M)

Hermes EOS carry out voting and engagement for our portfolios at the Brunel pool, where our holding in CVS (A US pharmacy retailer) sits. EOS recommended support for a shareholder proposal seeking a third-party assessment of CVS’s adherence, above and beyond legal compliance, to its stated commitment to workers’ freedom of association and collective bargaining rights. EOS also supported a shareholder proposal calling for paid sick leave benefits for all employees, for a second consecutive proxy season. It is good business practice to offer paid sick leave to all employees, and this would be in line with the company’s purpose, “to help people on their path to better health”.

CONSUMER HEALTH

There is increasing regulation for more healthy products, as well as consumer demand. Companies who are not proactively making positive changes to the health credentials of their products risk being left behind, posing a financial risk to investors.

CASE STUDY: NESTLÉ (WPF HOLDING APPROX. £10M)

Nestlé is a Swiss multinational food and drink company, which owns a large number of household name brands, and at the time of writing is the largest food and drink company in our portfolio. We were keen to understand how much Nestlé are doing to future-proof their business model and ensure optimal health of their products, so we contacted our managers to find out more.

We were interested to learn that Nestlé have been rebalancing their product portfolio towards more healthy products. This is done in two main ways – firstly through acquisition and divestment of various brands in favour of a healthier overall product mix, and also through setting health-related targets and making changes to existing products.

Since 2015 Nestle have reduced the sugar content in their confectionery by 10% and have taken 700 tonnes of sugar and 2.5 billion calories out of their beverages in their UK and Ireland. They have used 516 million fewer teaspoons/2,052 fewer tonnes of sugar in their cereals between 2010 and 2020.

We will be interested to see how our managers continue to engage with Nestlé to ensure that the company is appropriately prepared for changing regulations, and what developments are on the menu going forward.

COMMUNITY HEALTH

According to Shareaction, “companies can influence the health of wider communities through polluting effects, or through their supply chains. The global cost of health damage because of poor air quality is estimated to equate to 6.1 per cent of global GDP.” Clearly, companies can have wide-reaching effects and the negative implications of this can be detrimental to the economy.

CASE STUDY: FAIRR RESTAURANT ANTIBIOTICS ENGAGEMENT (WPF HOLDING APPROX. £0.7M)

WPF are members of FAIRR, a collaborative investor network that raises awareness of the risks and opportunities in the global food sector. FAIRR are currently carrying out a new engagement with an objective of better disclosure around how companies are mitigating antimicrobial resistance risk in their animal protein supply chains, something which impacts public health and is a clear financial risk. This engagement is targeting 12 North American companies, all of which operate internationally. At the time of writing, WPF had exposure to four of these companies (Domino’s Pizza, McDonalds, Starbucks, and Yum! Brands, at a total value of £0.7m). We look forward to seeing how this engagement progresses.

CONCLUSION

The initiatives and case studies highlighted above underscore the relationship between corporate practices and the broader societal well-being. By focusing on the health of workers, consumers, and communities, companies not only mitigate financial risks but also contribute to a healthier society, which in turn, supports sustainable economic growth. This alignment of financial success with the promotion of health is a testament to the fact that healthy profits do not have to come at the expense of well-being. Instead, they can be a powerful mechanism for achieving a more prosperous and healthier future for all.

HEALTHY PROFITS

PART 2 – IDENTIFYING OPPORTUNITIES

INTRODUCTION

In Healthy Profits Part 1, we introduced the theme of health in our investments, and explored how this can be a significant financial factor for investors. We looked at risks in Part 1, and in Part 2 we turn our attention to the opportunities.

Opportunities can be found in both specific companies which are capitalising on emerging health themes to generate returns for investors, as well as companies which are more broadly contributing to better health for all, which in turn benefits the global economy. As a large, diversified investor, we benefit from macroeconomic trends as well as from the specific companies in which we invest

INVESTING DIRECTLY IN HEALTHCARE

As at 31 Dec 2023, WPF held shares in 135 different healthcare companies, at a total value of £150m! You can learn more about which companies these are via our transparency tool. The largest such holdings at this time were Novo Nordisk (approx. £14m) and UnitedHealth Group (approx. £14m).

CASE STUDY: NOVO NORDISK (WPF HOLDING APPROX. £14M)

Novo Nordisk is a Danish pharmaceutical company, with a focus on diabetes care medications and devices. Novo Nordisk is the manufacturer of Ozempic and Wegovy, traditionally intended as diabetes medications, demand for these drugs has skyrocketed perhaps in part due to celebrities and influencers using them for weight loss. This has been significant for Novo Nordisk – recent financial information showed these two drugs as having grown to be over half of the company’s revenue, and strong stock performance off the back of this trend has led to the share price increasing by 70% over the last year!

However, this has lead to shortages of Ozempic which are predicted to persist well into 2024. This concerned us, as although we are impressed at the financial performance, is this detracting from delivering positive health outcomes for diabetes sufferers, and could that imply that these returns are not sustainable? We asked our managers for more information.

We were reassured to learn that the although the current shortages are impacting diabetes patients, this is seen as a short-term issue, with the company taking steps to address this with increased production facilities. We also learned that in spite of the noise in the press, the vast majority of patients for both Ozempic and Wegovy are not from high socio-economic groups, and that the average BMI of patients taking these drugs is considered “obese”, therefore the drug is almost entirely being used to deliver better health outcomes and not just aesthetic purposes.

We also enquired about the sustainability of Novo Nordisk’s expansion, and whether there was a threat from new entrants to the market. Our managers felt that although competitors will develop similar products, this is still several years away, and that as Novo Nordisk is only currently treating a small percentage of the potential pool of patients and has also demonstrated an ability to switch capacity between different business areas, this risk is well managed.

We were also interested to learn about an initiative championed by the company: Preventing childhood overweight and obesity (novonordisk.com)

CASE STUDY: UNITEDHEALTH GROUP (WPF HOLDING APPROX. £14M)

UnitedHealth is a US health insurance company. The company’s mission is “to help people live healthier lives and help make the health system work better for everyone”. Their sustainability report discusses their goals to improve health equity, but we wanted to understand how meaningful this can be within the environment in which they are operating, i.e. one with no national health service and significant wealth inequality (the US has the highest income inequality in the developed world).

We asked our managers for their insights and were pleased to learn that UnitedHealth’s customer base includes large national US employers and state programmes which target those without private insurance. They also have a division that provides insurance to customers aged 65+, a demographic which finds it hard to access affordable insurance. This demonstrates that the company is making a positive contribution to society.

In addition, we learned that UnitedHealth's Optum division is using AI and vast amounts of healthcare data, including information from patients, professionals, and pharmaceuticals, to enhance healthcare quality and efficiency. With a size five times larger than any competitor in healthcare technology coupled with significant market share in healthcare insurance, this places UnitedHealth in a unique position to potentially drive substantial improvements in the US healthcare sector as a whole.

CONCLUSION

Identifying opportunities within the health sector reveals a landscape rich with potential for investors who are keen to support and capitalise on advancements in healthcare and well-being. The examples of Novo Nordisk and UnitedHealth Group illustrate the diverse avenues through which investments can contribute to public health outcomes while also earning returns. The challenges and sustainability considerations highlighted above underscore the importance of a balanced approach, ensuring that financial gains can come from the delivery of equitable health access and outcomes.

Identifying opportunities within the health sector reveals a landscape rich with potential for investors who are keen to support and capitalise on advancements in healthcare and well-being

COMMUNITY CONNECTIONS

CHIPPENHAM CARE HOME VISIT

On a drizzly October morning, we popped out of the office and headed over to Chippenham to visit a local care home property, one of around 85 care homes in the Octopus Healthcare Fund (OHF), to which we have a £10.6m commitment through our Brunel property portfolio.

The Flowers Manor care home is a 66-person occupancy home, providing residential care with a floor dedicated to offering support to individuals with dementia. It is a relatively new facility, having opened in September 2021 and swiftly reaching close to full occupancy. The home is a premium facility, with lovely grounds, thoughtfully designed common areas, and comfortable ensuite rooms. We were privileged to receive a tour of Flowers from Esther, the general manager. Esther is an inspiring individual, who spoke passionately about the care provision and her team of staff. This is not a sector that commands high wages, but Esther had staff morale high on her agenda, and it was clear that a steady supply of sausage rolls was key to maintaining morale at an elevated level! During our tour we could see that the comfort and wellbeing of the residents is top priority Esther led us through the dining room, outdoor space, garden room, cinema, library, and the second-floor “sky bar” – a cozy room with a bar looking out over Chippenham, and apparently very popular with the residents!

Chris and Jenny from WPF outside the Flowers Care Home

We reconvened in the garden room for a cup of tea, and a chance to ask questions of the Head of Care Homes at Octopus, Michael Toft. We learned that OHF has a three-part assessment of potential investments, covering clinical, ESG (environmental, social and governance), and financial criteria. A clinical team visit every site in the portfolio once a year to ensure that high standards are being maintained.

Michael explained that Flowers had been let to the operator on a 35-year lease, and the rental income from the operator was generating us a return of >7%. Rental increases are capped across the portfolio at 4-5%, which has helped to soften the impact of the cost-of-living crisis. OHF had forward funded the construction of Flowers, investing at a point when planning was already granted, and the contract agreed with the developer. This model, in place across most of OHF’s investments, means that Octopus have more influence over the quality of construction, without taking on development risk

This led nicely into our next question, around the sustainability of the development. Flowers is undeniably efficient, with under-floor heating powered by ground-source heat pumps. Currently it is only feasible to make care homes operationally net zero through offsetting, which is being explored, but this needs to meet high standards of sustainability and transparency to be a viable option. Octopus are aware that more needs to be done in this area, and we were reassured that it was on their agenda.

Our educational visit to Flowers served as a poignant reminder of the significance of these spaces in people's lives, and we are pleased that through our diversified property portfolio we are able to earn financial returns for our beneficiaries, whilst contributing to an increase in the care provision in the local area

66 PERSON OCCUPANCY

PREMIUM FACILITIES

35 YEAR LEASE

>7% RETURN LOCAL INVESTMENT

A DEEP DIVE INTO EQUALITY, DIVERSITY AND INCLUSION (EDI)

EDI IN OUR RESPONSIBLE INVESTMENT POLICY

The Fund regards EDI as an important ESG factor, a stewardship priority, and an area where investment managers should focus their voting and engagement efforts, as several pieces of research have shown that diverse boards lead to better financial outcomes (for example, this publication by the FRC).

Consideration of EDI is embedded at an operational level, and has been highlighted as an important area in the running of pension funds by the Pensions Regulator. Training will be provided to the full Pension Fund team as well as the Committee and Local Pension Board, in order to improve the way we are run as a fund, and to deliver better outcomes for our employers and members

WHAT DO OUR MEMBERS THINK?

We carried out a survey of our membership in January 2024, about responsible investment. One of the questions we asked was for members to select which ESG issues were most important to them (they could select as many as they liked). This was to help inform our engagements and communications. EDI was a top three issue, with 52% of respondents selecting this as an important issue to them

TRAINING AND DEVELOPMENT

During the year, both the Local Pension Board and Committee attended a dedicated training day on EDI through a pensions lens. Feedback on the training was that this was a really positive and informative session and gave them plenty to consider.

The WPF team have also all attended training on “Creating an Inclusive Workplace”. This is important not just for the team to be as inclusive as possible, but also in dealing with members. One outcome of this training was that at a recent team building day, the team set themselves a goal to promote inclusivity in the workplace, as they believed that this was an action that would help lead the Fund to achieve our vision

COMMUNICATIONS

To celebrate International Women’s Day in March 2024, we published some interesting membership stats and information about the gender pensions gap, and also featured profiles and achievements from some of the female members of our team, with a goal to use the powerful tool of representation to encourage women to enter the financial profession. A wonderful outcome from this piece of work was that it promoted a feeling of appreciation and togetherness among participants.

As a result of a collaborative team exercise, another outcome was that the team designed and adopted new customer service pillars. This included a pillar about treating customers fairly and equally. This has now been included in the latest revision of our customer service policy.

ENGAGING WITH OUR YOUNGER MEMBERS

During the year, we launched a survey to engage more with our younger members, with an aim to create a more inclusive, responsive, and future-oriented pension fund that aligns with the values and priorities of our members. As expected, the response rate was fairly low, but the act of carrying out the survey was a good piece of engagement in itself, by helping to increase the awareness of younger members regarding pensions. The outcome of the survey is that we will be carrying out several follow-on actions to help connect our younger members with their financial future, including hosting a one-off focus group for younger members in 2024.

The findings of the survey are reported on our website: Engaging with our younger members - Wiltshire Pension Fund

VOTING FOR BETTER EDI

EDI AS AN ENGAGEMENT THEME

During the year, we published a news story on the work we have been doing on EDI (Embracing Equality, Diversity and Inclusion (EDI) – Wiltshire Pension Fund). As part of this work, we looked outwards to our investment managers, to gain an understanding of how they are embedding consideration of EDI in their investment approach, with a particular focus on the challenges in emerging markets.

A positive outcome here was that we were able to gain a clear understanding of how the manager was incorporating the 'S' (social) aspect of ESG criteria.This helped us to ensure genuine inclusivity and a strong commitment to diversity and equality, both in the workplace and in their investment decision-making processes

Our Q3 2023 voting summary included voting highlights with a focus on EDI. One example was for Nike, an American athletic footwear and apparel corporation in which we have almost £6m invested through our Brunel portfolio. We are pleased that EOS (who carry out the voting) were able to use the vote to support the introduction of reports on the median gender and racial pay gap, and report on effectiveness of supply chain management on equity. Voting in favour of these reports is thought to promote better management of opportunities and risks. The outcome was that both these shareholder proposals gained significant (although not majority) backing, and although not successful, this did prompt further explanations and a statement from the board.

CONCLUSION

EDI is thoroughly embedded in our operations and investment approach, and by focussing on this area we are able to help drive better outcomes and promote inclusion in the financial industry.

AI’S IMPACT ON INVESTMENT

INSIGHTS FROM WILTSHIRE PENSION FUND

As stewards of the Wiltshire Pension Fund, we constantly explore investment opportunities that align with our financial objectives and our commitment responsible investment opportunities. Recently, we engaged in a conversation with one of our investment managers to delve into the significance of AI as an investment theme. In this discussion, we aimed to understand how AI investments relate to our sustainable goals while acknowledging our capital exposure to Nvidia, a prominent player in the AI and semiconductor industry.

AI, or artificial intelligence, is experiencing a surge in prominence across various industries, and its impact on investments is becoming increasingly evident. One of the key takeaways from our discussion is the transformative potential of AI within investment portfolios but also in other domains.

AI, or artificial intelligence, is experiencing a surge in prominence across various industries, and its impact on investments is becoming increasingly evident.

Image of the WPF team generated by Open AI DALL-E3

AI AS A PARADIGM SHIFT

The concept of AI was likened to a paradigm shift, akin to pivotal moments in computing history such as the advent of personal computers, the internet, mobile technology, and cloud computing. However, AI represents a distinct evolution in the digitisation journey, as it eliminates the need for human intervention. This shift has significant implications for investment strategies.

AI'S INFLUENCE ON INVESTMENT PORTFOLIOS

Our conversation highlighted that AI is not just another technological advancement; it is a game-changer. AI has the potential to disrupt industries and reshape investment landscapes. In fact, our investment portfolio already has capital exposure of £13m to Nvidia, a leading company in AI and semiconductors, in our Global High Alpha portfolio with Brunel. In quarter 2 of 2023, the performance of the top seven names; Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla and Meta accounted for 85% of the total gains made by world equities. And from October 2022 to October 2023, Nvidia’s stock performance is up by almost 300%. This exposure signifies our long-term investment horizon and our role in investing in tech, AI and other growth sectors.

AI AND NVIDIA: A SIGNIFICANT CONNECTION

Nvidia's dominance in AI training chips is notable. It plays a critical role in AI technology and research. However, it's worth noting that the regulatory landscape can impact the AI industry. For example, regulatory restrictions have affected Nvidia's ability to sell certain products to China, highlighting the importance of navigating regulatory challenges in the AI space.

AI ADOPTION AND COMPETITIVE ADVANTAGE

In our conversation, we also delved into the ways various sectors are adopting AI and the competitive advantages it can offer which include creating innovative models, fine-tuning existing ones, and engineering novel solutions. This dynamic environment demands rapid adaptation to remain competitive.

We also discussed how AI investments are not solely reliant on data but require lateral thinking and system rearchitecting. Innovators who can envision new approaches to existing systems are likely to succeed. In this context, it's important to identify companies well-positioned to pivot and adapt to the AI-driven future

THE BROADER SOCIETAL IMPACT OF AI

Beyond investments, our discussion also touched upon the broader societal impact of AI. AI's pace of development raises questions about its potential to create or solve problems in society. While AI can enhance productivity and customer service, it can also introduce challenges such as adaptive malware and disinformation

Additionally, AI may not necessarily destroy jobs but could disrupt job functions. We considered how AI's role in various industries could transform job functions, much like automation did in the past. Some job roles may evolve, while others could become obsolete as AI capabilities improve.

In conclusion, our conversation with the investment manager shed light on the transformative potential of AI in investment portfolios. We remain committed to exploring investment themes that align with our sustainable goals, with AI representing a significant avenue for positive change.

Article written by ChatGPT (heavily edited by Wiltshire Pension Fund!), and illustrated by DALL-E 3

INVESTING IN FASHION

HOW DO OUR INVESTMENTS MEASURE UP?

WHY DOES FASHION MATTER TO WPF?

Assessing the credentials of a fashion company is challenging, as multiple different ESG issues need to be woven together. Examples of issues to consider are as follows:

Carbon emissions, pollution, water usage, sustainable materials

Labour practices, human rights, equality, diversity and inclusion

Transparency, ethical business practices, product lifecycle management

One of our investment beliefs is that we wish to invest in a way that minimises negative impacts on society and the environment, and where possible, makes a positive contribution

Did you know that fashion accounts for 10% of the World’s carbon emissions from human activity ? It is also a heavily polluting industry, which is one of the main drivers of biodiversity loss. As a fund with a net zero by 2050 target, we need to understand how our investments in fashion companies are managing these issues.

From a recent review of our holdings, we hold shares in 16 different fashion companies, at a value of £20m. 90% of this exposure is made up of 5 companies, representing several underlying brands, which is where we focussed our efforts for this report.

SUSTAINABILITY

Finding a sustainable way forward for the fashion industry will be an important part of the planet’s journey to net zero, alongside behavioural changes such as excess consumption. To assess how our largest companies are doing, we turned to some valuable industry tools*.

Within our sustainable equities portfolio, managed by Brunel, we hold shares in Kering (£4m). What makes this company more sustainable than its peers? Let’s see how the top 5 fashion companies in our portfolio measure up:

*Footnote – as part of this case study, we used several industry tools and resources:

• For ESG transparency, we used the data provided by Fashion Revolution’s Fashion Transparency Index 2023, which takes a deep dive into 250 of the World’s largest fashion brands according to their ESG disclosure transparency.

• For human rights/gender performance, we looked at the 2023 Corporate Human Rights Benchmark, and the 2023 Gender Benchmark, which assess companies globally on their human rights and gender equality and women’s empowerment performance respectively.

• For climate progress, we looked to see which companies are signatories of the United Nations Climate Change Fashion Industry Charter Progress Report 2023, and the scores awarded to companies by CDP, a non-for-profit charity that runs the global disclosure system for companies to manage their environmental impacts.

• Finally, we used Forest IQ, which provides datasets on how companies are exposed to and addressing their links to deforestation.

Company Relevant brands

LVMH Celine

Dior

Fendi

Louis Vuitton

Marc Jacobs

TJX TJ Maxx No data

Kering Balenciaga

Bottega Venetta

Gucci

Saint Laurent

Hermes Hermes No data

Richemont Chloe Not Assessed No data

*Industry tools were used to obtain all scores and information – please see the footnote to this article for more information. Colour coding indicates how companies compare to peers, with dark green being more sustainable through to dark orange being less sustainable.

Based on this information alone, we can see that Kering stacks up well as a company that is setting targets, making progress, and being transparent with stakeholders, and clearly standing head and shoulders above peers, therefore earning its place in our sustainable equities portfolio. All the companies have progress to make, but some more than others in this area. The information above will provide us with an improved knowledge of the risks for each company, and we will be discussing these findings with our managers.

LAPFF (Local Authority Pension Funds Forum, of which WPF is a member) have begun a programme to engage with luxury goods retailers, specifically on their practices around human rights risk management in their supply chains, with an aim of encouraging better due diligence and disclosure.

CONCLUSION

By analysing the environmental and social governance (ESG) performance of key brands within our portfolio, we're advancing toward our net zero by 2050 goal and managing social risks. Notably, Kering emerges as a leader in sustainability efforts, reflecting our investment strategy's alignment with our environmental and social objectives. This evaluation reinforces the importance of ongoing engagement and investment scrutiny to promote a more sustainable and responsible fashion industry, guiding our future actions towards positive change.

WHERE TO FIND OUT MORE!

We hope you have enjoyed our report into social issues across our portfolios and have learned about the ways that we are managing risks and taking advantages of opportunities.

MEET OUR TEAM!

The investments team is small but they deliver a significant impact with their work, and have won multiple awards and industry recognition for their approach to responsible investment!

If you would like to learn more, and keep up-to-date, we regularly publish case studies about our investments on our News Pages

Our team

THANKS!

To learn more about how we invest, why not visit our investment webpages , and watch our short film about our approach We loved visiting some of our investments during the making of the film, and taking the time to not just tell but actively show our members what our approach to investing looks like.

We would like to thank our investment managers for supporting our enquiries in writing this report, the many initiatives of which we are members for their valuable data and information, and our members for engaging with us and telling us what matters to you.