Chichester District Council
Agenda item

Agenda item

Draft Treasury Management, Investment and Capital Strategies 2020-21

 

1.1.       That the Committee considers the Treasury Management Policy Statement, the Treasury Management Strategy Statement, the Investment Strategy and relevant Indicators for 2020-21.

1.2.       That the Committee considers the Council’s Capital Strategy for 2020-21 -2024-25.

1.3.       That the documents in 2.1 and 2.2 are recommended to Cabinet and Council for approval

 

Minutes:

The CGAC received and considered the agenda report and its five appendices.

 

This item was presented by Mr M Catlow (Group Accountant).

 

Mrs H Belenger (Divisional Manager Financial Services) and Mr J Ward (Director of Corporate Services) were also in attendance.

 

Mr Catlow explained that each year the draft Treasury Management and Investment Strategy for 2020-2021 and the Capital Strategy 2020-2021 to 2024-2025 were first considered by the CGAC prior to the Cabinet and then approval by the Council in readiness for the new financial year.

 

In summarising the report and its appendices Mr Catlow covered the following matters:

 

·         The summary of key changes between 2019-2020 and 2020-2021 in appendix 1.

 

·         The risk appetite statement in the draft Treasury Management and Investment Strategy 2020-2021 in appendix 2. Risk management was the starting point for and the driver of the Treasury Management Strategy (TMS). Chichester District Council (CDC) was debt-free and security of investments was the highest priority. Although CDC was fundamentally risk averse, a modest degree of risk was acceptable.

 

·         The management of investments within the stated risk parameters set out in the approved investment counterparties table 4 on page 15 in appendix 2.

 

·         The option of and approach to borrowing to finance new capital expenditure over the medium term if deemed prudent and also for short-term day to day cash flow management (pages 21 to 22 in appendix 2).

 

·         The Capital Strategy 2020-2021 to 2024-2025 in appendix 3, which was regularly monitored for affordability and could be resourced without the need for external finance and borrowing (table 2 on page 39).

 

Members’ questions and comments on points of detail were answered by Mr Catlow, Mrs Belenger and Mr Ward.

 

The range of matters covered included the following:

 

The Assessment of, Approach to and Adoption of Ethical, Social and Governance (ESG) Factors and Principles when Making Investment Decisions

 

(a)  References were made to ESG in sections 5.2 and 9 of the report. There was a consensus in favour of incorporating into the TMS in future as a standard paragraph a short statement about ESG. This is set out below.

 

(b)  Some members argued for more to be done to pursue ethical etc factors in making investment decisions eg taking account of pressing environmental issues.

 

(c)  Notwithstanding the increasing emphasis given to ESG considerations, local authorities faced constraints in making investments decisions which those in the private sector did not and there was a clear obligation to prioritise security. Having said that, security and ethical, environmental considerations ought not to be viewed as being in fundamental conflict with one another or as mutually exclusive criteria.      

 

During the discussion of this item Mr Catlow circulated to members a sheet of paper with a draft ESG statement which officers proposed should be routinely included in all future versions of the TMS. Members considered it. The statement (which was used by other councils) was as follows:

 

‘Ethical Investments

 

Statutory guidance issued by CIPFA and MHCLG makes it clear that all treasury investments must adopt security, liquidity and yield (SLY) principles; ethical issues then play a subordinate role to those priorities.  Nevertheless, there are a growing number of financial institutions and fund managers promoting Environmental, Social and Governance (ESG) products. The Director of Corporate Services will consider such investments when deemed appropriate within the Council’s overall treasury management policies, objectives and the risk management framework set out in this document.’

 

Members unanimously agreed that this would be a valuable addition to the TMS and the relevant TMS documents. It would be an improvement in emphasis to the tenor and content of sections 5.2 and 9 of the report, where ESG was listed as an alternative or an implication. It was an issue of growing significance and should be accorded greater prominence. The second sentence in the statement reflected that increasingly ESG products were being promoted and CDC would give due consideration to their merits when making investment decisions, taking into account legal and financial specialist advice. The statement would help to promote informed debate about what type of investments should be made. 

 

The CGAC’s resolution and its recommendation to the Cabinet and thereafter to the Council would be amended accordingly (as set out at the end of this minute para).

 

In reply to a question about examples of councils making ethical investments within a treasury management framework, Mr Catlow cited Torfaen County Borough Council (solar farm) and Warrington Borough Council (active ESG strategy). He opined that those authorities would probably have sought and secured a favourable legal opinion in support of making ESG decisions consistent with the three criteria of credit rating, return rate and liquidity.

 

The Percentage of and Benefit of being Debt-free Local Authorities    

 

A firm figure could not be given to the meeting now but it was probably in the region of 20%. This was then checked online by officers during the meeting and was advised to be 17%.

 

ACTION POINT The actual percentage would be confirmed in writing to members.

 

Typically debt-free councils were those which had transferred their housing stock to housing associations, as CDC had done almost 20 years ago.

 

The advantages of being debt-free and whether a council could earn more from its investments than it would cost to borrow were briefly discussed.

 

The Amount of Chichester District Council’s Reserves

 

Clarification was sought and supplied on the details of CDC’s reserves position.

 

Approved Investment Counterparties: Pooled Funds

 

It was noted with approval that the non-Local Authority Property Fund had an increased limit of £5m to £30m which would provide additional headroom for potential medium-term investments.

 

The Pursuit of Real Estate Investment Trusts (REIT)    

 

The merits of investing in this form of property fund, which might be viewed as an example of ethical investment, had to be balanced against the fact that CDC had already invested some £25m in property and some felt that this should not be extended. It was suggested that perhaps the maximum investment limit for REIT should be reduced to £1m. Alternatively it was argued that the £2m limit should be retained but members should be consulted when making a potential investment decision. Officers said that they would always seek expert advice and consult members as part of an established protocol. The question was whether a committee of members or one or two selected senior and representative members should be consulted. In that respect it should be borne in mind that sometimes investment decisions might have to be made promptly in order not to lose an opportunity. After a debate the prevailing consensus was that the £2m should be retained in conjunction with officers having obtained the relevant professional advice and then consulting the Cabinet Member for Finance, Corporate Services and Revenues and Benefits and the CGAC chairman; the latter would be able to represent the CGAC members.

 

The resolution by the CGAC and its recommendation to the Cabinet and thereafter to the Council would be amended accordingly (as set out at the end of this minute para).        

 

Miscellaneous Matters

 

·         The reason for no entry in 2023 for the Community Infrastructure Levy (CIL) in the resource projection to 31 March 2014 table (page 12)

 

Officers would need to make enquiries and revert to members.

 

ACTION POINT The CIL 2024 nil entry to be advised in writing to members.

 

·         The definition of what constituted a counterparty, for example which banks in the approved investment counterparties table (page 15).

 

·         The frequency for issuing pooled funds reports. It was felt that in view of the considerable market fluctuations regular update reports were desirable ie quarterly to coincide with CGAC meetings. Officers said that this was, however, covered in the half-yearly treasury management report.

 

·         The principal sources of the capital receipts figure of £7.9m in the resources available to fund CDC’s capital programme table (page 39).

 

Officers would confirm whether these were as queried The Grange Leisure Centre Midhurst and the Portfield disposal site at Church Road Chichester.    

 

ACTION POINT The capital receipts sources to be advised in writing to members.

 

·         The amount of New Homes Bonus (NHB) in the resources available to fund CDC’s capital programme table (page 39). The stated sum of £2.2m was queried as seeming to be too low. Officers said that the table recorded sums actually banked. The NHB scheme was due to end in 2023-2024.

 

·         The use of New Homes Bonus (NHB) funding as recorded in the approved capital programme and major schemes 2019-2020 to 2024-2025 table on page 38. The initial officer reply that this related to the St James Industrial Estate was queried in view of the separate entry for St James at the start of the same table.

 

Officers would make enquiries and revert to members.     

 

ACTION POINT The use of NHB allocations would be advised in writing to members.

 

·         The reason for updating in the summary of changes table in appendix 1 the word ‘BREXIT’ to ‘UK exit from the European Union’.

 

·         The listed schemes in CDC’s strategic aims and objectives section of the draft Capital Strategy 20210-2021 to 2024-2025 report (page 38) reflected CDC’s current Corporate Plan priorities but there was no mention of investing significant money to mitigate/prevent the effects of climate change. It should be noted however that during the next few months CDC members would have the opportunity explore such options as part of the review of CDC’s corporate priorities/plan objectives. Moreover the Capital Strategy was reviewed annually.

 

·         The governance criteria used with regard to service investments (page 25 in the Capital Strategy) and how those investments related to treasury management as a whole.    

 

Dr O’Kelly concluded the debate by summarising the salient points discussed and the two amendments to the CGAC’s resolutions and its recommendations to be made to the Cabinet and thereafter to the Council, namely the inclusion of a specific ESG statement and the governance approach to potential REIT investments.

 

Decision

 

The CGAC voted unanimously to make the resolutions and recommendations (as amended in the case of (1)) set out below.

 

RESOLVED

 

(1)  That the Treasury Management Policy Statement, the Treasury Management Strategy Statement, the Investment Strategy and relevant Indicators for 2020-2021 be noted subject to the following two amendments:

 

(a) with immediate effect the Draft Treasury Management, Investment report and the associated relevant treasury management documents should contain henceforth the following statement about ethical, social and governance factors when making investment decisions:

 

‘Ethical Investments

 

Statutory guidance issued by CIPFA and MHCLG makes it clear that all treasury investments must adopt security, liquidity and yield (SLY) principles; ethical issues then play a subordinate role to those priorities.  Nevertheless, there are a growing number of financial institutions and fund managers promoting Environmental, Social and Governance (ESG) products. The Director of Corporate Services will consider such investments when deemed appropriate within the Council’s overall treasury management policies, objectives and the risk management framework set out in this document.’

 

(b) before making a potential investment decision with respect to Real Estate Investment Trusts (REIT) officers will, after obtaining the appropriate professional advice, consult the Cabinet Member for Finance, Corporate Services and Revenues and Benefits and the Chairman of the Corporate Governance and Audit Committee.        

 

(2)  That the Capital Strategy for 2020-2021 to 2023-2024 be noted.

 

RECOMMENDATION TO THE CABINET AND THE COUNCIL

 

That the documents in the foregoing resolutions (1) and (2) be recommended by the Cabinet for approval by the Council. 

Supporting documents:

 

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