36 Pension Protection Fund Responsible Investment Report 2021/22 APPENDICES CONTINUED Appendix E Key themes for 2022 Modern Slavery Diversity & inclusion Our voting guidelines 2022 With a speci昀椀c focus on material issues, we identify key ESG Modern Slavery is a topic of key focus in the UK, with the Board diversity – We believe that board members should matters that are of particular importance in a speci昀椀c AGM Modern Slavery Act 2015 being the 昀椀rst globally leading broadly re昀氀ect the diversity of society and that there is value Our voting principles season and highlight them through targeted engagement. piece of legislation passed as an Act of the Parliament of the in diversity of thought, skills and attributes. We’re guided by the best practice as demonstrated by Where we feel that companies are consistently unreceptive UK. Given the systemic nature of modern slavery and the to engagement on certain issues, we will consider employing serious risk it poses to businesses and investors, we expect We’ll consider voting against relevant directors and/or our stewardship services provider, EOS, and our voting escalation techniques such as voting to oppose relevant all UK businesses covered by the Act to meet the reporting the chair where we determine that board diversity (by principles closely align with their global voting guidelines. board members or resolutions. requirements of the Modern Slavery Act. We further expect gender, ethnicity, age, relevant skills and experience, or • No abstentions: We aim to take an active position on the members of the FTSE 350 to be leading in this area, tenure) is below minimum thresholds and we determine matters open to vote and aim to either vote in favour Climate change and to take substantial action to address the prevalence the company is making insu昀케cient progress on diversity. or against a resolution and only abstain in exceptional Climate change is a key area of focus for us, and Net Zero of slavery within their supply chains. Thresholds may be set at a market level (for example, circumstances, such as where our vote is con昀氀icted, stewardship is a fundamental part of our approach to around gender and ethnicity) or may be applied globally a resolution is to be withdrawn, or there is insu昀케cient management of climate-related risks. Read our Climate The quality of reporting delivered under Section 54 of (for example, around skills and experience). information upon which to base a decision. change policy for more details. Through our stewardship the Act can act as an important marker for how seriously senior management are taking this risk. It improves Around gender diversity more speci昀椀cally, in the UK we will • Support for management: We seek to be supportive services provider and participation in collaborative accountability and enables companies to identify the consider opposing the nomination committee chair of any of boards and to recommend votes in favour of initiatives, we expect tangible progress around Net Zero areas of their business most at risk. Companies that meet FTSE 350 company where women comprise materially less proposals unless there is a good reason not to do so and work with both our managers and companies to the reporting requirements and clearly disclose the areas than 33 per cent of the board. For companies outside the in accordance with our voting guidelines, global or encourage the transition to a low-carbon economy. of their businesses most susceptible to modern slavery FTSE 350, we will do the same where there are no female regional governance standards or otherwise to protect In order to measurably track and encourage progress on bene昀椀t from increased investor con昀椀dence. Conversely, board members. We are likely to vote against the chair of long-term shareholder interests. climate, we utilise the management quality assessment non-compliance with the Modern Slavery Act poses a the board of any FTSE 100 company that does not have at • Consistency of voting: We aspire to be consistent in of companies that are analysed by the Transition Pathway serious risk to long-term investors. least one director from an ethnic minority background and our votes and positions in regards to speci昀椀c companies Initiative (TPI). We are also informed by the Climate Action has no credible plan to rapidly achieve this. or issues across our entire portfolio. We seek to provide 100+ Net Zero Benchmark for those companies included We are a member of the PRI collaboration initiative Votes Against Slavery. The purpose of this initiative is to engage In Japan, we are likely to vote against the nomination clarity of our positions through our asset managers and in this assessment. We also will be guided in our voting by with FTSE 350 companies around their public disclosure in committee chair or board chair if less than 10 per cent designated stewardship provider, in accordance with the industry initiatives around Net Zero alignment for both compliance with the Act, by writing to the board of each of directors are female, regardless of company size. In our RI strategy and stewardship priorities. However, we asset owners and our asset managers. non-compliant company with a targeted letter explaining China, ASEAN, Brazil, India, Mexico, Russia, South Africa recognise the limitations of investing across a range of We will consider opposing the chair or responsible directors the nature of non-compliance, and the steps needed to and Taiwan, we will consider taking a similar approach if mandates, especially the challenges of implementation of companies which: achieve compliance. companies have less than 20 per cent women on the board within pooled funds at times, and we do this on a best and the company fails to demonstrate a credible plan has e昀昀ort basis. • Rank below a level 4 (i.e. 3, 2, 1 or 0) in the latest We will consider withholding our support for the approval been put in place to meet this expectation. In the largest US • Engagement: Engagement is a fundamental aspect of Management Quality assessment by the Transition of the annual report and accounts at the company’s next companies, we expect at least 30 per cent gender diversity our RI strategy, which we apply across all asset classes. Pathway Initiative (TPI) AGM, should the required changes to achieve compliance and one or more ethnically or racially diverse directors. Within our Public Equity portfolio, we have identi昀椀ed a • Have been downgraded from a level 4 to 3 by TPI over not occur. Executive committee diversity – We extend our list of high-priority companies (‘watchlist’ companies) the previous assessment cycle expectations around diversity on boards to executive we’ll endeavour to engage with prior to voting against • Have a strategy that is materially misaligned with the committees or senior management as well. a resolution, if there is a reasonable prospect that goals of the Paris Agreement. this will either generate further information to enable In the UK, this includes a policy of opposing chairs of any a better quality of voting decision or to change the We’ll also consider voting against the management of a FTSE 100 company with an all-male executive committee, approach taken by the company. We’ll also seek to company in cases when they are not disclosing adequate and we will consider a similar approach in Australia, inform such companies of any anticipated votes against climate-related information, not only to the standards of the Denmark, France, Germany, Italy, the Netherlands, Spain management, together with the reasons why, through Task Force on Climate-related Financial Disclosures (TCFD), and Sweden. We will also consider voting against the chair our designated stewardship provider. For non-watchlist but to the 昀椀rst tier of climate disclosure such as CDP. of any FTSE 100 company with materially less than 20 per companies, we’ll inform companies on a best e昀昀ort basis. Transparency is the 昀椀rst building block for any progress on cent female representation in the combined population of On matters related to good governance such as board climate and we wish to see real improvements in the level the executive committee and its direct reports. independence, competent leadership, separation of the of disclosure in the market globally. governance roles, we leverage o昀昀 the deep expertise and recommendations of our stewardship provider.