27 Pension Protection Fund Responsible Investment Report 2021/22 OUR APPROACH TO ENGAGEMENT CONTINUED We believed there was a high likelihood that this would Our policy engagement through EOS Taking action subsequently be proposed by the DWP (which did indeed SASB discussion on content governance and children’s Responding to the war in Ukraine happen in the late 2021 follow-up consultation), and disclosures – EOS met with the Sustainability Accounting Russia’s invasion of Ukraine has profoundly impacted Prioritising our priority engagement targets wanted to be proactive in understanding the impact of Standards Board (SASB) sector lead for technology and countless lives whilst increasing geopolitical instability. As part of our Paris Portfolio Alignment Project, we this on the PPF investment portfolio. We decided that an communications, where it learned about the planned We are not directly dependent upon any organisation are now identifying companies that are our highest evidence-based bottom-up approach to calculate our evolution of the organisation and the trajectory of its based in either Ukraine or Russia. We are, however, priority engagement targets in the transition to own portfolio alignment was best. However, the Net Zero standards. EOS o昀昀ered to provide input on SASB’s content monitoring the situation closely to identify any Net Zero, which will include many in the Utilities, frameworks available at that time only covered a quarter governance and future projects as they emerge, and will general risks (such as the increased threat of cyber Energy and Materials sectors. We will work with of our own asset allocation (as our signi昀椀cant allocation share the EOS digital rights principles. EOS pointed out the attacks) that arise so they can be mitigated in an our stewardship services provider EOS and external to liability hedging instruments and private markets assets gap in children’s disclosure. SASB acknowledged this gap appropriate manner. fund managers to ensure these companies are held were both considered out of scope). and believes it could be addressed in a potential future project on user safety. It shared its materials on its current Operationally, the war has not had a material e昀昀ect to clear and measurable progress, through both As we were not aware of anyone else who had undertaken content governance project, which includes a focus on the upon us. We pay compensation to members who company- and sector-level engagement. this for the other asset classes, we appointed an external metric of 昀椀nancial spend and asked for EOS’s feedback. are based in Ukraine and to other members who consultant, Ortec Finance, in early 2021 to help us achieve are based in Russia. We make payments only into Net Zero Stewardship Toolkit objective baseline assessments for each of our asset class APPCGG meeting on ESG governance – EOS participated accounts operated by organisations that have not We are also reviewing how to apply the IIGCC’s Net portfolios. This also allowed us to actively shape product in an All Party Parliamentary Corporate Governance Group been sanctioned by the UK Government. Where Zero Stewardship Toolkit, which was launched in April development for this work with one of the market-leading (APPCGG) meeting where two current and one former UK we have been paying into an account operated 2022. We are discussing the toolkit with some of our teams in climate scenario analysis. The outcome of the DWP board chairs spoke on the topic of ESG governance. The by an organisation that has been or is about to be managers to see how they intend to use it. The toolkit consultation was published in June 2022, which set out the discussion included re昀氀ections on the growing signi昀椀cance sanctioned, we communicate with the member aims to raise the bar for investor climate stewardship requirement for schemes to report on portfolio alignment of ESG topics in UK boardrooms and a debate on whether with the aim of moving the payment into an by providing a systematic framework to help ensure metrics in its amended statutory guidance. Initiating our these issues should be handled by the full board or via a account operated by an organisation that has that institutional investors such as pension funds project early back in 2021 meant that we can already separate committee. not been sanctioned. prioritise high-impact engagement and have measures demonstrate our work on our portfolio alignment. More detail in place to hold laggard companies to account. on this project is provided in our Climate Change report. Our policy engagement through IIGCC The war in Ukraine could a昀昀ect us if it a昀昀ects the As active members of the IIGCC, we often join collaborative markets in which we invest and the sponsoring Key activities in policy engagement over the year initiatives on public policy. A couple of examples include: organisations of the schemes we protect. Sanctions Considering and promoting Regulatory standards and guidance around ESG issues are imposed on Russia required further review of exposure rapidly evolving. We follow these developments closely • We supported the 2021 Global Investor Statement to to the market. Although our ongoing exposure to the well-functioning markets and look to contribute to their progress wherever possible. Governments on the Climate Crisis that was published market is less than 0.01 per cent of the total value We engage with key entities globally on public policy that ahead of COP26, and supported by 587 investors managing of our fund, there are a limited number of holdings Collaborating to promote and improve market-wide risks promotes and enables smooth market functioning. We carry $46 trillion, urging all governments to raise their climate that we have not been able to exit due to market As a responsible asset owner, we feel it is important to this engagement out directly or through other groups such ambition and implement robust policies by COP26. We conditions. For equity holdings, given the risks of understand and seek to mitigate risks that arise from as our stewardship services provider EOS, through the PRI have since signed the 2022 Global Investor Statement, breaching various sanctions, we have taken the systemic market-wide issues. Systemic issues with and IIGCC. which will be formally published later in the year. decision not to vote at shareholder meetings. This is relevance to ESG include climate change, biodiversity, ESG • We are part of a policy working group organised by the being kept under review as industry practice develops. disclosures and reporting. These risks are identi昀椀ed by our Our direct policy engagement during the year: IIGCC on the development of the UK Green Taxonomy, ESG, Legal and Risk & Compliance teams, and our Strategy • DWP consultation on Climate and investment reporting: which feeds back participants’ views and inputs to the & Policy team. They are discussed as part of our monthly setting expectations and empowering savers: Climate Green Technical Advisory Group (GTAG). The GTAG dashboard meetings with our Chief Investment O昀케cer and and investment reporting Consultation DWP (ppf.co.uk) provides independent advice to the UK Government Head of Investment Strategy. on implementing a UK Green Taxonomy. The objective • DWP consultation on consideration of social risks As mentioned, we also believe that our involvement in and opportunities by occupational pension schemes: of the taxonomy is to help tackle ‘greenwashing’, key industry initiatives and collaborations, and tracking DWP_2021_social factors_consultation_PPF_response.pdf improve understanding of environmental impact to help consultations in the market, help us to e昀昀ectively horizon • Consultation on restoring trust in audit and corporate companies and investors make informed green choices, scan to identify and consider market-wide or systemic risks governance: https://www.ppf.co.uk/sites/default/ support investment in sustainable projects, and boost relating to ESG. 昀椀les/2021-08/Restoring-trust-in-audit-and-corporate- e昀昀orts to tackle climate change. One example is our Paris Portfolio Alignment Project, governance-consultation-PPF-response.docx which we initiated as a result of our horizon scanning. In • Consultation on proposals to update asset information 2020, the DWP consulted on introducing requirements for collected from DB pension schemes: Asset Class pension funds to assess how their portfolios are aligning Consultation Draft for Sign-o昀昀 (ppf.co.uk) with the Paris Agreement. Whilst not a formal proposal • Consultation on 昀椀rst review of the Insolvency (England then, the consultation referenced ‘portfolio warming’ or the and Wales) rules 2016: call for evidence: 昀椀rst-review- implied temperature rise (ITR) of portfolios as one potential insolvency-england-wales-rules-2016-consultation-PPF- metric that could add value. response.pdf