In setting the Scheme’s investment strategy, the Trustees' primary concern is to act in the best financial interests of the Scheme and its beneficiaries, seeking the best return that is consistent with a prudent and appropriate level of risk. These include the risk that environmental, social and governance factors including climate change negatively impact the value of investments held if not understood and evaluated properly. The Trustees consider this risk by taking advice from their investment adviser when setting the Scheme’s asset allocation, when selecting managers and when monitoring their performance.
The Trustees will be undertaking a formal review of the Scheme's investment strategy in Q4 2020, and it is envisaged that this document, and the Trustees' approach to Responsible Investment as it pertains to the investment decisions made in relation to the Scheme, will be reviewed following the conclusions and implementation of any relevant changes to the Scheme's strategy.
The Trustees recognise that the sponsoring employer has made a number of commitments regarding sustainability, carbon reduction and environmental impact, and that this is an area of importance to both the sponsoring employer and the Trustees.
Arrangements with asset managers
The Trustees regularly monitor the Scheme’s investments to consider the extent to which the investment strategy and decisions of the asset managers are aligned with the Trustees’ policies. This includes monitoring the extent to which asset managers:
- make decisions based on assessments about medium- to long-term financial performance of an issuer of debt or equity; and
- engage with issuers of debt or equity in order to improve their performance in the medium- to long-term.
The Trustees are supported in this monitoring activity by their investment adviser.
The Trustees receive at least quarterly reports and verbal updates from the investment adviser on various items including the investment strategy, performance, and longer-term positioning of the portfolio. The Trustees focus on longer-term performance when considering the ongoing suitability of the investment strategy in relation to the Scheme objectives, and assess the asset managers over 3-year periods.
The Trustees also receive annual stewardship reports on the monitoring and engagement activities carried out by their asset managers, which supports the Trustees in determining the extent to which the Scheme's engagement policy has been followed throughout the year.
Before appointment of a new asset manager, the Trustees review the governing documentation associated with the investment and will consider the extent to which it aligns with the Trustees’ policies.
The Trustees believe that having appropriate governing documentation, setting clear expectations to the asset managers by other means (where necessary), and regular monitoring of asset managers’ performance and investment strategy, is in most cases sufficient to incentivise the asset managers to make decisions that align with the Trustees’ policies and are based on assessments of medium- and long-term financial and non-financial performance.
Where asset managers are considered to make decisions that are not in line with the Trustees’ policies, expectations, or the other considerations set out above, the Trustees will typically first engage with the manager but could ultimately replace the asset manager where this is deemed necessary.
There is typically no set duration for arrangements with asset managers, although the continued appointment all for asset managers will be reviewed periodically, and at least every three years when a strategy review is carried out. For certain closed ended vehicles, the duration may be defined by the nature of the underlying investments.
The Trustees do not regularly monitor asset managers against non-financial criteria of the investments made on their behalf.
Stewardship – Voting and Engagement
The Trustees recognise the importance of their role as a steward of capital and the need to ensure the highest standards of governance and promotion of corporate responsibility in the underlying companies and assets in which the scheme invests, as this ultimately this creates long-term financial value for the scheme and its beneficiaries.
As part of their delegated responsibilities, the Trustees expect the Scheme’s investment managers to:
- Where appropriate, engage with investee companies with the aim to protect and enhance the value of assets; and
- exercise the voting rights in relation to the Scheme’s
The Trustees regularly review the continuing suitability of the appointed managers and takes advice from the investment adviser with regard to any changes. This advice includes consideration of broader stewardship matters and the exercise of voting rights by the appointed managers. If an incumbent manager is found to be falling short of the standards the Trustees have set out in their policy, the Trustees undertake to engage with the manager and seek a more sustainable position but may look to replace the manager.
The Trustees review the stewardship activities of their fund managers on an annual basis, covering both engagement and voting actions. The Trustees will review the alignment of the Trustees’ policies to those of the Scheme’s fund managers and ensure their managers, or other third parties, use their influence as major institutional investors to carry out the Trustees’ rights and duties as a responsible shareholder and asset owner. This will include voting, along with – where relevant and appropriate – engaging with underlying investee companies and assets to promote good corporate governance, accountability, and positive change.
The Trustees will engage with their investment managers as necessary for more information, to ensure that robust active ownership behaviours, reflective of their active ownership policies, are being actioned.
From time to time, the Trustees will consider the methods by which, and the circumstances under which, they would monitor and engage with an issuer of debt or equity, an asset manager or another holder of debt or equity, and other stakeholders. The Trustees may engage on matters concerning an issuer of debt or equity, including their performance,strategy, risks, social and environmental impact and corporate governance, the capital structure, and management of actual or potential conflicts of interest.
Members' Views and Non-Financial Factors
In setting and implementing the Scheme’s investment strategy the Trustees do not explicitly take into account the views of Scheme members and beneficiaries in relation to ethical considerations, social and environmental impact, or present and future quality of life matters (defined as "non-financial factors*").
*The Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018.
The Trustees are aware of the importance of monitoring their fund managers' total costs and the impact these costs can have on the overall value of the Scheme's assets. The Trustees recognise that in addition to annual management charges, there are a number of other costs incurred by their fund managers that can increase the overall cost incurred by their investments.
The Trustees collect annual cost transparency reports covering all of their investments and ask that the fund managers provide this data in line with the appropriate Cost Transparency Initiative (“CTI”) template for each asset class. This allows the Trustees to understand exactly what they are paying their investment managers. The Trustees work with their investment adviser and fund managers to understand these costs in more detail where required.
The Trustees are aware of the portfolio turnover costs (portfolio turnover costs are defined as the costs incurred as a result of the buying, selling, lending or borrowing of investments) associated to their underlying investments through the information provided by their fund managers. The monitoring of the target portfolio turnover and turnover range is monitored annually with the assistance of the Scheme’s investment adviser.
The Trustees accept that transaction costs will be incurred to facilitate investment returns and that the level of these costs varies across asset classes and by manager investment style within an asset class. In both cases, a high level of transaction costs is acceptable as long as it is consistent with the asset class characteristics and manager’s style and historic trends. Where the Trustees’ monitoring identifies a lack of consistency the mandate will be reviewed. The Trustees are supported in their cost transparency monitoring activity by their investment adviser.
Evaluation of Performance and Remuneration
The Trustees assess the performance of their fund managers on a quarterly basis and the remuneration of their fund managers on an annual basis via collecting cost data in line with industry standard templates.