Agenda item

To receive the report from the Head of Finance.

To present to Joint Audit and Governance Committee the Environmental, Social and Governance (ESG) investment reviews undertaken by Link Treasury Services for the councils and to seek recommendations from the committee to the Head of Finance for consideration in the preparation of the treasury management strategies for 2025/26.

RECOMMENDATION:

Joint Audit and Governance Committee is recommended to consider the Environmental, Social and Governance (ESG) investment review reports by Link Treasury Services and make recommendations to the Head of Finance for consideration in the preparation of the councils’ treasury management strategies for 2025/26.

If the committee would like to discuss matters contained in the confidential appendices, it will be necessary to gointo confidential session.

Simon Hewings, Head of Finance, introduced the report. It was agreed in February 2024 that the Section 151 Officer would conduct a review of investment options with the councils’ treasury advisors, Link Treasury Services (Link). The review made a number of recommendations for officers to consider when drafting future treasury management strategies, which were detailed in paragraph 7 of the report.

The committee were invited to consider the Environmental, Social and Governance (ESG) investment review reports by Link and make recommendations to the Head of Finance for consideration in the preparation of the councils’ treasury management strategies for 2025/2026.

Dan Willson, Link Treasury Services, was in attendance and summarised that the review found no significant concerns in terms of the investments held by the councils at the end of March.

In response to questions from members, Dan Willson indicated that he did not anticipate any significant changes to government guidance concerning ESG and local authority investment. However, he acknowledged that investment guidance may be subject to a future review, potentially leading to new opportunities for longer-term investments in infrastructure that the councils may want to consider in their future strategies. It was emphasised that any forthcoming investment opportunities must be appropriate, financially viable and align with the councils’ treasury management strategies.

Committee members discussed the recommendation for South Oxfordshire District Council to consider whether the council’s unit trust investment remained appropriate, or whether an alternative investment approach should be followed. Members were of the view that an alternative approach should be considered with regard to ESG factors, although this should be a gradual transition.

Following a question on the possibility of investing overseas, it was confirmed that funds over a certain threshold would have a sterling share class, to reduce currency risk at point of investment. Members were advised that the priority was understanding what the councils’ treasury investments were trying to achieve, including financial goals.

In response to a question regarding the hierarchy of factors for investors to consider, it was highlighted that ESG factors should be evaluated in conjunction with key priorities of security, liquidity, and yield. Given the constraints on local authorities to invest in organizations with adequate credit ratings, incorporating ESG metrics was unlikely to significantly reduce potential investment opportunities. The Head of Finance confirmed that ESG scoring could be utilised as a deciding factor in differentiating between two identical investment opportunities.

The committee were of the mind that key factors of security, yield and liquidity should be considered the main criteria for all investments. Views were expressed that the benefits of considering ESG factors may not be realised for short-term investments. The councils’ priority was to manage investments securely in order to continue to provide services to residents.

Vale of White Horse District Council RESOLVED to:

1.    To consider giving greater consideration to ESG factors in any future Money Market Fund selection process,

2.    To consider removing any counterparties that fail to meet a minimum ESG “rating” requirement, for example exclude entities rated below CIS-3 by Moody’s, i.e. those entities where ESG considerations have an impact on the current credit rating of an entity,

3.    To consider how to improve monitoring of ESG factors relating to investments.

South Oxfordshire District Council RESOLVED to:

1.    To consider giving greater consideration to ESG factors in any future Money Market Fund selection process,

2.    To consider removing any counterparties that fail to meet a minimum ESG “rating” requirement, for example exclude entities rated below CIS-3 by Moody’s, i.e. those entities where ESG considerations have an impact on the current credit rating of an entity,

3.    To consider how to improve monitoring of ESG factors relating to investments,

4.    To consider whether the council’s unit trust investment remains appropriate, or whether an alternate investment approach should be followed for all or part of the investment.