Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 41 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 ESCALATION AND EXERCISING SHAREHOLDER RIGHTS CONTINUED Exercising our rights in other assets CASE STUDY Our rights as a provider of 昀椀xed income debt to a company di昀昀er markedly from those as an equity shareholder. We Russian investment exposure 昀椀nd that achieving large-scale change among 昀椀xed income issuers can often be more e昀昀ectively managed through Sector: Personal Goods industry-led initiatives rather than as a single investor. Asset Class: Private Equity Issue: Russian investment exposure The majority of investments for private equity, debt and infrastructure are made through Limited Partnership Background: As part of the LPAC, we were presented arrangements. These do not provide voting right in the with a potential investment involving a company that same way that public assets do. Where appropriate, we received a minority of revenue from sales in Russia. seek to have representation on a Limited Partnership Although it was fully compliant with US/EU regulations, Advisory Committees (LPAC), giving us approval rights a meeting was held to discuss LPAC views and share on speci昀椀c issues such as amending contractual terms potential concerns and sensitivities. and approving the appointment of other committee Action: Our LPAC member discussed the issue members. In private market closed-ended funds managed internally and as a result the conclusion was reached externally, we have found that it is almost impossible that the investment opportunity should not be to change retrospectively any contracts or side letter pursued. At the LPAC meeting our view was shared. terms that were signed historically. Therefore, we look to obtain su昀케cient recourse in our side letters, so that if Outcome: The ultimate conclusion of the LPAC overall we determine that we no longer wish to remain invested was that it was uncomfortable with the potential in a portfolio company due to an unmitigable risk, we reputational risks associated with this business with have the option to transfer out of the fund. Russia and the potential resulting reporting and anti- We have developed a fully integrated approach to the money laundering/know-your-client requirements. assessment and oversight of our potential and ongoing Further negotiations are ongoing to carve out this 昀椀xed income investments. For example, in UK private revenue stream from the potential purchase. credit, where data can be less readily available, we rely heavily on our internal due diligence process. This involves signi昀椀cant engagement with management of private companies. ESG considerations, in addition to commercial and risk-related analysis, are evaluated and concerns are addressed within the process. Ultimately, if we are not comfortable with the terms of a deal, we will not participate. However, we will often seek to propose amendments to the terms of the agreement to ensure that any requests we have are incorporated into the deal and – where appropriate – the future structure of the company. As part of the ongoing management of 昀椀xed income assets, we will often continue to seek positive change after entering into an agreement. When investing in liquid alternatives through external investment vehicles, no voting rights are attached to the underlying assets. However, we can vote on issues relating to the fund itself. In these circumstances we will vote directly with input from the portfolio manager and ESG & Sustainability team.