Annual Engagement Policy Implementation Statement


This statement sets out how, and the extent to which, the Engagement Policy in the Statement of Investment Principles (‘SIP’) produced by the Trustees has been followed during the year to 31 December 2021. This Statement has been produced in accordance with The Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2019 (as amended) and the guidance published by the Pensions Regulator.

Investment Objectives of the Scheme

The Trustees believe it is important to consider the policies in place in the context of the investment objectives they have set. The primary objective for the Scheme is to achieve an overall rate of return that is sufficient to ensure that assets are available to meet all liabilities as and when they fall due. In doing so, the Trustees also aim to maximise the returns at an acceptable level of risk taking into consideration the circumstances of the Scheme.

Investment Strategy

During the course of the year, the Trustees did not make any changes to the Scheme’s investment strategy.

Review of the SIP

The Scheme’s SIP was last updated in September 2020 to reflect new requirements under The Occupational Pension Scheme (Investment and Disclosure) (Amendment) Regulations 2019.

Scheme’s Investment Structure

Over the course of the year, the Scheme’s assets were invested directly into pooled funds, which are managed by a third party investment manager.

As such, the Trustees have no direct relationship with the underlying companies that ultimately received the invested capital.

Policy on ESG, Stewardship and Climate Change

The Trustees understand that they must consider all factors that have the potential to impact the financial performance of the Scheme’s investments over the appropriate time horizon. This includes, but is not limited to, environmental, social and governance (ESG) factors.

The Scheme’s SIP includes the Trustees‘ policy on ESG factors, Stewardship and Climate Change. The policies were last reviewed in September 2020. The Trustees keep their policies under regular review with the SIP subject to review at least triennially.

Voting and Engagement

In the relevant year, the Trustees have not engaged with the underlying pooled fund manager on matters pertaining to ESG, stewardship or climate change. However, the Scheme’s investment consultant, on behalf of the Trustees, reviews the stewardship and ESG policies of the fund manager periodically and reports on this to the Trustees.

Voting Activity

The Trustees have delegated their voting rights to Legal & General Investment Manager (“LGIM”) as sole investment manager for the Scheme’s assets. As a result, the Trustees do not use the direct services of a proxy voter, although the investment manager may employ the services of proxy voters in exercising their voting rights on behalf of the Trustees.

As per point 4.4 of the SIP, The Trustees believe that environmental, social and corporate governance (“ESG”) factors have a financially material impact on investment risk and return outcomes, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustees also recognise that long-term sustainability issues, including climate change, present risks and opportunities that increasingly require explicit consideration.

The investment manager is expected to evaluate a number of factors, including climate change considerations, and exercise voting rights and stewardship obligations attached to the investments in line with its own corporate governance policies and current best practice.

The investment manager is also expected to provide voting summary reporting on a regular basis (at least annually), and this statement sets out a summary of the key voting activity of the pooled funds for which voting is possible (i.e., all funds which include equity holdings) in which the Scheme’s assets are ultimately invested.

Given the nature of the underlying assets, the voting activity was only undertaken for the following funds during the year:

  •  LGIM – Global Equity (70:30) Index Fund;
  • LGIM – Diversified Fund.

Legal & General Investment Management (‘LGIM’) voting policies

Proxy Voting

LGIM’s Investment Stewardship team uses Institutional Shareholder Services’ (‘ISS’) ‘ProxyExchange’ electronic voting platform to electronically vote clients’ shares. All voting decisions are made by LGIM and they do not outsource any part of the strategic decisions. To ensure their proxy provider votes in accordance with their position on ESG, LGIM have put in place a custom voting policy with specific voting instructions.

Significant Vote (description)

In determining significant votes, LGIM’s Investment Stewardship team takes into account the criteria provided by the Pensions & Lifetime Savings Association consultation. This includes, but is not limited to:

  • High profile vote which has such a degree of controversy that there is high client and/ or public scrutiny;
  • Significant client interest for a vote: directly communicated by clients to the Investment Stewardship team at LGIM’s annual Stakeholder roundtable event, or where LGIM notes a significant increase in requests from clients on a particular vote;
  • Sanction vote as a result of a direct or collaborative engagement;
  • Vote linked to an LGIM engagement campaign, in line with LGIM Investment Stewardship’s 5-year ESG priority engagement themes

For the 12 months to 31 December 2021, the key voting activity on behalf of the Trustees was as follows:

Global Equity (70:30) Index Fund

Key votes undertaken over the period are summarised below:

  • There have been 6,269 votable meetings over the year. In these meetings, there were a total of 64,914 votable proposals;
  • LGIM has participated in the vote for 99.86% of the 64,914 votable proposals. In around 82.30% of these votes for proposals, LGIM has indicated their support to the companies’ management, while voting against around 16.72% of the proposals.

Significant Vote Example

Company: Imperial Brands plc.

Summary: A vote “AGAINST” two resolutions in which the company asked the shareholders to approve Remuneration Report and Remuneration Policy.

Rationale: The company appointed a new CEO during 2020, who was granted a significantly higher base salary than his predecessor. A higher base salary has a consequential ripple effect on short-term and long-term incentives, as well as pension contributions. Further, the company did not apply best practice in relation to post-exit shareholding guidelines as outlined by both LGIM and the Investment Association. An incoming CEO with no previous experience in the specific sector, or CEO experience at a FTSE100 company, should have to prove her or himself beforehand to be set a base salary at the level, or higher, of an outgoing CEO with multiple years of such experience. Further, LGIM would expect companies to adopt general best practice standards. Prior to the AGM, LGIM engaged with the company outlining what their concerns over the remuneration structure were. LGIM also indicated that they publish specific remuneration guidelines for UK listed companies and keep remuneration consultants up to date with their thinking.

Outcome: Resolution 2 (Approve Remuneration Report) received 40.26% votes against, and 59.73% votes of support. Resolution 3 (Approve Remuneration Policy) received 4.71% of votes against, and 95.28% support.

Implications: LGIM continues to engage with companies on remuneration both directly and via IVIS, the corporate governance research arm of The Investment Association. LGIM annually publishes remuneration guidelines for UK listed companies.

Significance: LGIM are concerned over the ratcheting up of executive pay; and they believe executive directors must take a long-term view of the company in their decision-making process, hence the request for executives’ post-exit shareholding guidelines to be set.

Diversified Fund

Key votes undertaken over the period are summarised below:

  • There have been 7,721 votable meetings over the year. In these meetings, there were a total of 78,917 votable proposals;
  • LGIM has participated in the vote for 98.60% of the 78,917 votable proposals. In around 79.05% of these votes for proposals, LGIM has indicated their support to the companies’ management, while voting against around 20.26% of the proposals.

Significant Vote Example

Company: Mitsubishi UFJ Financial Group, Inc.

Summary: A vote “FOR” resolution 3: Amend articles to disclose the plan outlining company’s business strategy to align investments with goals of Paris Agreement.

Rationale: A vote in favour of this shareholder proposal is warranted as LGIM expects companies to be taking sufficient action on the key issue of climate change. While LGIM positively notes the company’s recent announcements around net-zero targets and exclusion policies, they think that these commitments could be further strengthened and believe the shareholder proposal provides a good directional push.

Outcome: Resolution 3 – supported by 22.7% of shareholders.

Implications: LGIM will continue to engage on this important ESG issue. Significance: LGIM views climate change as a financially material issue for their clients, with implications for the assets they manage on their behalf. This was also a high profile proposal in Japan, where climate-related shareholder proposals are still rare.