Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 28 Pension Protection Fund Responsible Investment Report 2022/23 our Chair of the year commitment at a glance and governance incorporating ESG to engagement shareholder rights the coming year Appendices OUR APPROACH TO ENGAGEMENT CONTINUED Partnering with our Ongoing collaboration with external managers external managers Our minimum ESG and stewardship requirements In addition to general oversight, we also look to work of external managers with asset managers on speci昀椀c issues. This could be We engage deeply with our external asset managers both • Should be an active signatory to the Principles involvement in a wider industry project, or directly in during our initial selection process and on an ongoing basis for Responsible Investment (PRI) or considering relation to an underlying asset – see case study below. to ensure they can meet our high standards on stewardship becoming a signatory. and ESG integration. Throughout our relationship with • Must provide evidence of a Responsible CASE STUDY managers, we encourage constant improvement in their Investment (RI) policy and implementation approaches to managing ESG and climate-related risks. of ESG considerations within investment Partnering with an external We also use insights from our stewardship services provider, decision-making and active ownership that EOS, in its engagement with issuers on material ESG issues covers the proposed fund or mandate; or manager on a direct to inform our conversations with managers about their own must have a commitment to implement such company engagement engagement in these areas. a policy no later than 12 months from the PPF’s initial investment. Sector: Financials Our manager selection process • Must accommodate inclusion of the PPF’s Asset class: Equities Our initial manager selection process includes an ESG standard ESG and RI clauses within the fund Issue: Climate transition and sustainable 昀椀nancing Questionnaire. This is a scored mandatory list of questions terms (or provide a marked-up version with any that prospective asset managers must answer on a pass/ minor amendments sought by the manager’s Background: Portfolio climate analysis 昀氀agged an fail basis in order to progress through the tender process. counsel) and be able to apply the PPF’s exclusion Indonesian bank for its important role in capital The ESG Questionnaire comprises several sections lists, as appropriate. 昀椀nancing in environmentally critical areas. We wanted including: Governance & Alignment; Diversity & Inclusion; more information on the bank’s climate transition RI Policy & Strategy; ESG Incorporation; Integration & • Must provide fund-speci昀椀c ESG reporting. strategy and to discuss its short- to medium-term Risk Management; Stewardship & Active Ownership; and • Must have a Diversity & Inclusion policy with goals on sustainable 昀椀nancing. Reporting. Appendix F shows a sample list of questions clear implementation within relevant internal Action: The PPF and one of its external equity within the Stewardship section of the questionnaire. See management processes. managers held a call with the bank to gain insight the box on the right for our minimum requirements of • Must complete the PPF’s ESG Questionnaire, into the company’s strategies on climate transition. managers regarding stewardship and ESG. with no signi昀椀cant risks or issues 昀氀agged by We also wanted to encourage the bank to expand the PPF ESG & Sustainability team. its sustainable 昀椀nancing policies in alignment with Indonesia’s commitment to limit global warming in accordance with the Paris Agreement. The exploratory Taking action call helped to gauge the bank’s approach to sustainable 昀椀nancing. We were pleased to hear about its process Throughout our relationship for integrating sustainability factors and certi昀椀cations with managers, we encourage In 2022, one of our external equity managers lost its into its underwriting process, its sustainable 昀椀nancing signatory status to the FRC Stewardship Code, having programmes and growth targets attached to strategies. constant improvement in their failed to meet the FRC’s disclosure requirements. We Areas of disclosure weakness were discussed and a discussed this with the manager, both to emphasise request made to submit data to the climate change approaches to managing ESG the importance we place on managers meeting the questionnaire provided by CDP, the global disclosure FRC’s standards, and to understand where the failings system provider. It was also recommended that the and climate-related risks. occurred and how the issues would be remedied. bank set emissions targets ahead of its planned 2026 The manager talked us through the feedback they schedule where possible. received and their plan to address this feedback. Outcome: The call was extremely useful for the PPF, providing access that we may have not been able to achieve alone and allowing us to gauge the bank’s appetite for dialogue on this issue. Areas for future discussion have been agreed in collaboration with the equity manager and we hope to have a follow-up meeting with the company before the end of 2023, once the CDP annual database has been updated.