Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 45 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 APPENDICES CONTINUED Appendix E Key themes for 2023 Climate-related Shareholder Proposals: For Europe, Modern Slavery Our voting guidelines 2023 With a speci昀椀c focus on material issues, we identify key ESG we will be reviewing any shareholder proposals related Modern slavery continues to be a key focus in the UK. matters that are of particular importance in a speci昀椀c AGM to climate change internally. Given the systemic nature of modern slavery and the Our voting principles season and highlight them through targeted engagement. Companies on the PPF’s Climate Watchlist: Shareholder serious risk it poses to businesses and investors, we expect We are guided by the best practice as demonstrated by our Where we feel that companies are consistently unreceptive meetings at companies on our Climate Watchlist will also all UK businesses covered by the Modern Slavery Act to stewardship provider, EOS, and our voting principles closely to engagement on certain issues, we will consider employing be reviewed internally by the ESG team. This process meet its reporting requirements. We also expect members align with their global voting guidelines. escalation techniques such as voting to oppose relevant will allow additional analysis around the progress being of the FTSE 350 to lead in this area, and to take substantial board members or resolutions. made against our internally-set targets. A vote against action to address the prevalence of slavery within their • No abstentions: We aim to take an active position on management may be necessary if we consider there has supply chains. matters open to vote and aim to either vote in favour Climate change been inadequate progress. or against a resolution and only abstain in exceptional Climate change is a key area of focus for us, and Net Zero The quality of reporting delivered under Section 54 of the circumstances – for example, where our vote is stewardship is a fundamental part of our approach to Assessing human rights laggards Modern Slavery Act can be an important indicator as to con昀氀icted, a resolution is to be withdrawn, or there is management of climate-related risks. Read our Climate how seriously senior management are taking this risk. It Change Policy for more details. Through our stewardship For 2023, the guidelines have been re昀椀ned to target improves accountability and enables companies to identify insu昀케cient information upon which to base a decision. laggards across several focus areas. We may recommend the areas of their business most at risk. Companies that • Support for management: We seek to be supportive services provider and participation in collaborative a vote against responsible directors if: meet the reporting requirements and clearly disclose the of boards and to recommend votes in favour of initiatives, we expect tangible progress around Net Zero areas of their businesses most susceptible to modern proposals unless there is a good reason not to do and work with both our managers and companies to General failings: A company is in clear breach of its slavery bene昀椀t from increased investor con昀椀dence. so in accordance with our voting guidelines, global encourage the transition to a low carbon economy. applicable regulatory responsibilities (for example, the Conversely, non-compliance with the Modern Slavery or regional governance standards or otherwise to In order to measurably track and encourage progress on UK’s Modern Slavery Act), or has caused or contributed to Act poses as a serious risk to long-term investors. protect long-term shareholder interests. climate, we utilise the management quality assessment egregious, adverse human rights impacts or controversies, of companies that are analysed by the Transition Pathway without providing appropriate remedy. See more on In 2023, we will continue as members of the PRI • Consistency of voting: We aspire to be consistent in Modern Slavery below. collaboration initiative Votes against Slavery. The purpose our votes and positions in regards to speci昀椀c companies Initiative (TPI). We are also informed by the Climate Action of this initiative is to engage with FTSE 350 companies or issues across our entire portfolio. We seek to provide 100+ Net Zero Benchmark for those companies included Benchmark laggards: A company scores signi昀椀cantly lower around their public disclosure in compliance with the clarity on our positions through our asset managers and in this assessment. We also will be guided in our voting by than industry peers (bottom 15–20 per cent) within credible Modern Slavery Act, by writing to the board of each designated stewardship services provider, in accordance the industry initiatives around Net Zero alignment for both external benchmarks of companies on human rights, non-compliant FTSE 350 company with a targeted with our RI Strategy and stewardship priorities. However, asset owners and our asset managers. without providing a su昀케cient explanation or a commitment letter explaining the nature of non-compliance, and we recognise the limitations of investing across a range For 2023, we have increased the thresholds for climate- to improve: the steps needed to achieve compliance. of mandates, especially the challenges of implementation related voting guidelines. In cases where a company fails • Corporate Human Rights Benchmark 2022 – within pooled funds at times, and we do this on a best to meet these expectations, a vote against management Ranks some of the world’s largest companies on the We will again consider withholding our support for e昀昀orts basis. will be considered. Thresholds are noted below: policies, processes, and practices they have in place to the approval of the Annual Report and Accounts at any • Engagement: Engagement is a fundamental aspect of systemise their human rights approach and respond to non-compliant company’s next AGM, should the required our RI strategy, which we apply across all asset classes. Transition Pathway Initiative: Management Quality score: serious allegation. changes to achieve compliance not happen prior to the Within our Public Equity portfolio, we have identi昀椀ed a All European and Australian companies in all sectors below AGM. All non-compliant companies have been contacted list of high-priority companies (‘watchlist’ companies) Level 4 (new); all coal, oil, gas, utilities and automotive • Ranking Digital Rights Index 2022 – Ranks some and details of perceived non-compliance communicated. we’ll endeavour to engage with prior to voting against companies below Level 4 (vs. Level 3 for autos 2022); below of the world’s largest technology companies on their a resolution, if there is a reasonable prospect that Level 3 for all remaining sectors/companies in US and Asia commitments and policies a昀昀ecting users’ freedom Diversity & Inclusion this will either generate further information to enable and Emerging Markets; of expression and privacy rights. Board diversity – We believe that board members should a better quality of voting decision or to change the Climate Action 100+ Benchmark: Companies that have no • BankTrack Human Rights Benchmark 2022 – Ranks broadly re昀氀ect the diversity of society and that there is value approach taken by the company. We’ll also seek to some of the world’s largest banks on their progress in diversity of thought, skills and attributes. We will consider inform such companies of any anticipated votes against medium-term targets in place as identi昀椀ed by indicator 3 of towards fully implementing the UN Guiding Principles. voting against relevant directors and/or the chair where we management, together with the reasons why, through the Climate Action 100+ Benchmark (new); determine that board diversity (by gender, ethnicity, age, our designated stewardship provider. For non-watchlist • Know the Chain Index 2020/2021 – Ranks some of relevant skills and experience, or tenure) is below minimum Coal: Companies identi昀椀ed as expanding coal-昀椀red the world’s largest companies on their current corporate thresholds and we determine the company is making companies, we will inform companies on a best infrastructure by the Global Coal Exit List or companies that practices to identify and eradicate forced labour risks in e昀昀orts basis. have signi昀椀cant dependence on coal without a su昀케ciently their supply chain. insu昀케cient progress on diversity. Thresholds may be set at ambitious timeline and strategy for coal phaseout; a market level (for example, around gender and ethnicity) On matters related to good governance such as board or may be applied globally (for example, around skills independence, competent leadership, separation of the Deforestation: Companies that score below 10 on the and experience). roles of the governance roles, we leverage o昀昀 the deep Forest 500 ranking (assesses companies’ disclosure and expertise and recommendations of our stewardship management of deforestation risks); Financial institutions services provider EOS. that score 0 on the Forest 500 ranking.