Stewardship policy

In setting our investment strategy, we seek to act in the best financial interests of the Fund, our members and our stakeholders, pursuing the best return that is consistent with a prudent and appropriate level of risk. We’ll consider material environmental, social and governance (ESG) issues where they are likely to affect the value of our investments, especially over the long-term. We consider this a prudent approach to investment and risk management. 

Our duty to preserve and enhance the value of our investments for our beneficiaries forms the basis of our governance structure and practices. Our Investment Committee (IC) has responsibility for developing investment principles, risk management of investments and strategic approach to investment of the Fund, including developing and overseeing our RI principles and policies. The CIO and Investment Team (which includes a team of ESG specialists) have operational accountability, ensuring adherence to the RI framework and underlying policies. 

The IC receives quarterly updates on the implementation of this Policy within our investments to support their ongoing oversight. These updates are prepared by the ESG Team, and are informed by the regular reporting received from our external agents and fund managers alongside any activities carried out internally. 

We will continuously monitor current market practice and developments around stewardship, and will review this policy at least annually and applu updates as necessary.

At an asset class and individual portfolio level, ESG risks (including climate-related risks) will be monitored internally by the ESG Team using processes, tools, data and systems to track and manage our risk exposure. ESG data is available through our portfolio management systems. The findings from our monitoring will be used to discuss risk identification and management of issues with our managers and agents. Our stewardship provider, EOS, will also monitor our segregated portfolio companies for material ESG risks and any potential breaches of international norms, to feed into their engagement universe and inform their voting recommendations. We also expect our fund managers to carry out a similar identification process for the assets they are managing on our behalf, and to regularly update us on the management of material ESG risks. 

Our monitoring will inform both reactive engagements for more serious issues and more thematic engagements around risks and/or opportunities within a certain industry or region. It will also inform who should take ownership of the engagement, depending on the portfolio or asset class and whether it is internally or externally managed.   

Our SIP (Section 6) states the Fund’s targeted strategic asset allocation. Around 50% of the Fund is managed by an in-house team of fund managers across Liability hedging strategies, hybrid assets and strategic cash. The remaining 50% is managed by external fund managers across a range of segregated accounts, pooled funds, closed-end funds, co-investments and passive instruments (i.e. Exchange Traded Funds (ETFs)). 

Historically, although the industry has mainly considered stewardship through the lens of listed equities (for which the most established methods and approaches exist), the majority of our assets aren’t invested in listed equities. Therefore, we also need to consider the best and most efficient stewardship approaches for the other asset classes that we allocate to. Stewardship practices will be determined as appropriate for the asset class and the level of control granted, for example:

• Listed equity: managers can exert influence on companies through voting and engaging with company management, although approaches will differ, depending on whether the managers follow fundamental/concentrated (high influence), quantitative/systematic (lower influence due to holding periods) or passive strategies (some influence although limited recourse); 
• Fixed income (corporate, sovereign, LDI): managers can engage with borrowers, more so around reissuance or refinancing – less influence in sovereign debt;
• Real estate: managers of assets with full control can engage with tenants and local community; 
• Private equity & Infrastructure: managers can have direct engagement with companies or issuers in primary funds, or with operating companies in infrastructure, especially if have board seats; 
• Private credit: managers can have ongoing dialogue with borrowers, but limited control over management;
• Fund of funds: engagement with underlying fund managers or General Partners.

We seek to encourage better transparency and reporting from our external fund managers and underlying portfolio companies. This should include receiving detailed fund-specific ESG reporting by our fund managers, SASB -aligned disclosure by issuers, and TCFD -aligned disclosure from all participants in the investment chain. Boards should clearly articulate in their documents how they oversee and manage all material risks to their business model, approach and strategy. We appreciate that there are less requirements from private issuers at present, but we are supportive of initiatives to improve disclosure from private companies such as the FRC’s Wates Corporate Governance Principles for Large Private Companies 2018 (established as a means for large private companies to meet new requirements around disclosure of corporate governance arrangements).

In addition to engagement at the company level, we look to engage with public, industry and regulatory bodies in the various markets in which we invest to promote better practices. We also collaborate across the financial markets value-chain, with e.g. banks, treasuries, other counterparties and policy makers on issues where engagement with the wider financial and regulatory community is appropriate. We’ll look to carry this out directly, in markets where we have a level of influence, through collaborations such as the IIGCC or PRI public policy workstreams, and through the services provided by EOS.

We’ll always seek to exercise our rights as shareholders to vote our ballots, unless it is operationally impractical or prohibitively expensive, for example due to share blocking markets or overly complex Power of Attorney requirements. EOS and, where applicable, our fund managers are instructed to execute all votes for the PPF’s directly held public securities, or explain why any votes have not been cast. 

We expect our agents to vote in an informed and non-mechanistic manner, taking all relevant and material issues into consideration, ideally following engagement that has given the company sufficient time to respond. Voting decisions should be based on the spirit of the PPF’s RI strategy and SIP, and should consider best practices set out by the PRI, ICGN and the OECD Principles of Corporate Governance.

Key to all of this is clear and detailed disclosure, without which an informed opinion of the company’s board or governance practices is challenging to obtain. Companies should use their annual reports and accounts to detail their corporate cultures and working practices in a narrative form that relates the way they manage and engage their workforce to their wider strategy and business model. More quantitative performance metrics should also be included (e.g. on diversity, pay ratios, staff training and development, employee engagement and accidents and safety metrics).

EOS takes a pragmatic engagement-led approach to voting our segregated equities as a way of effecting positive change at a company, to protect long-term shareholder value. EOS partners with ISS to leverage on ISS’s extensive resource with regard to voting research, recommendations and execution. However, we are always in control of the vote and have the ability to exercise voting rights in holdings in line with our own policy and principles. 

EOS uses proprietary voting guidelines, reflecting their views of best practice globally and the principles outlined in their Engagement Plan, plus regional Corporate Governance Principles tailored to 21 specific markets. EOS’s Regional Corporate Governance Principles can be found in the EOS Library. EOS also uses proxy voting guidelines for 50+ markets (reviewed annually), considering local characteristics and best practice - drawing from the abovementioned Regional Corporate Governance Principles where possible.

Whilst accepting this as the basis for the broad voting policy across our investment portfolio, the PPF will review votes proposed by EOS across key topics prior to them being cast. These key topics are aligned with the voting guidelines issued by the Pensions and Lifetime Savings

Association (PLSA)  listed below:

• Board leadership and company purpose
• Division of responsibilities (e.g. separation of chair and chief executive) 
• Composition and diversity of boards and executive committee
• Audit, risk and internal control 
• Remuneration 
• Climate change and sustainability 
• Capital structure and allocation
• Company strategy, vision and business model

Where appropriate, and where we consider the issue material but engagement has not been fruitful, we may vote against management on certain resolutions, such as reports and accounts, or election of individual board members with particular responsibility for poor environmental or social performance. We will communicate directly with companies where possible if we have voted against management and we consider the holding to be material (in terms of size in our portfolio, or as a significant shareholder). In addition, where voting forms part of an ongoing engagement with a company or group of companies for a significant issue, we will inform the company management of voting intentions ahead of the AGM.

Alongside purposeful engagement, we will vote for resolutions that reinforce our own stewardship principles, and especially those that are consistent with our Climate Change policy and the goals of the Paris Agreement. Shareholders should propose shareholder resolutions under defined circumstances and for specific issues (e.g. when management has ignored reasonable and persistent requests for change on material concerns to shareholders). In deciding our vote on shareholder resolutions, we will adopt a case-by-case approach, considering the merits of the individual proposal alongside the quality and independence of reports provided by the company and the responsiveness of company management to the dialogue.

Collective action between shareholders can be an effective way to engage with companies on certain issues, and to achieve improvements in corporate governance. We, or our agents on our behalf, will therefore act collectively with other investors as appropriate for an organisation of our size and standing, where we deem that this will improve the value of our investments in the long term. As participants in investor initiatives such as Climate Action 100+ and the Transition Pathway Initiative (TPI), we are constructive of certain shareholder resolutions that encourage appropriate improvements in company management quality and the disclosure of material climate-related financial risks, and progress in terms of carbon performance.

We will produce a separate Voting Guidelines document to be read alongside this Stewardship Policy. The voting guidelines document will be updated on a more flexible basis, to reflect any specific areas of focus in upcoming AGM seasons. 

Pooled fund voting:

While our views will generally be aligned with our fund managers’, there may be situations where we want to exercise a different approach on some topics. Where this is the case, and we are able to determine the votes for our shares in a pooled fund, we will take advantage of a split voting set-up, or “override” function. For mandates where we cannot instruct this, we will carry out an ex-post assessment of the manager’s reporting of voting activities for our portfolio across our key topics or most material issues, and will also ask in advance of contentious AGMs of their voting intention (if they are able to share it). We require regular voting report from our managers and will raise any concerns about specific aspects of the manager’s voting actions.

As per our SIP, we may participate in securities lending within limits set by the business, which is currently under review. 

We’re committed to conducting business in the best interests of the business, and have comprehensive controls across the organisation to prevent conflicts of interest from impacting our beneficiaries. All reasonable steps must be taken to prevent potential or actual conflicts of interest, or situations that might be perceived as giving rise to a conflict of interest. We have our own Conflicts of Interest policy, the purpose of which is to identify where a conflict of interest may arise and how any such conflict should be monitored and managed. Under the policy, our staff are required to disclose any interest in any company, or other entity, in which the PPF has an ownership interest.

Where there is potential for any conflicts of interest, we expect our external agents to identify and manage any conflicts in accordance with Principle 3 of the FRC’s UK Stewardship Code 2020, putting the best interests of clients and beneficiaries first. Conflicts of interest policies will also be reviewed as part of our appointment of any fund manager through Operational Due Diligence assessments, and explicitly referenced within our investment management agreements and side letters. 

Conflicts are also considered by EOS when undertaking voting and engagement on our behalf. Read more about how EOS approach conflicts of interest. While we reserve the right to amend any votes proposed by our agent, and to this end review voting proposals ahead of AGMs, we are satisfied that our voting and engagement agent has suitable expertise, policies, research and resources to carry out stewardship activities on a day to day basis on our behalf. Therefore, where conflicts of interest arise, we’ll adopt an arm’s length approach and not influence or override the voting decision of our agent.

In line with our commitment to transparency – one of our key pillars in our RI framework – we’ll report to our stakeholders on our RI activities and progress. Reports, disclosures and policies – including our voting statistics and engagement reports – are available on our dedicated RI section of the website. 

As a PRI signatory, we disclose in detail our policies, processes and our implementation of the Principles on an annual basis through the PRI’s reporting framework. Much of the detail is made public as part of our Transparency Report.