Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 35 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 Considering and promoting Our direct policy engagement during the year: well-functioning markets FCA Vote Reporting Working Group – This comprises a range of market participants with knowledge and interest in Collaborating to promote and improve market-wide risks developing a more comprehensive and standardised vote As a responsible asset owner, we feel it is important to disclosure regime. Industry-wide engagement has taken understand and seek to mitigate risks that arise from place over the year. We are a member of one of three working systemic market-wide issues. Systemic issues relevant to groups focused on quality of vote rationales. The group’s ESG include climate change, biodiversity, disclosure and 昀椀ndings and recommendations are being consulted on and reporting. These risks are identi昀椀ed by our ESG, Legal a paper will be published in due course. and Risk & Compliance teams, and our Strategy & Policy DWP Taskforce on Social Factors – Following the DWP’s team. They are also discussed as part of our monthly ‘ESG 2021 consultation on consideration of social risks and dashboard’ meetings with our Chief Investment O昀케cer and opportunities by occupational pension schemes (to which Head of Investment Strategy. we responded), a taskforce of asset owners and industry As mentioned in the previous section, we believe our participants was established to develop a guidance document involvement in key industry initiatives and collaborations, for trustees to consider social factors within their investment and tracking market consultations help us to identify and portfolios. We are one of three sub-group chairs leading the consider market-wide or systemic risks relating to ESG. initiative. It is expected that the taskforce’s 昀椀ndings will be published at the end of 2023/early 2024. Last year we reported on our innovative project to assess Our policy engagement through EOS the implied temperature rise (ITR) of our portfolio relative to the goals of the 2015 Paris Agreement. Subsequent Europe – EOS, our stewardship services provider, submitted analysis has helped us become better informed about our a response to a consultation by the European Financial position and how di昀昀erent parts of our portfolio might be Reporting Advisory Group on the EU Sustainability contributing to climate change. This project has progressed Reporting Standards. The response focused on the need during the year, allowing us now to track how our portfolio for the standards to include transparency on the lobbying alignment has progressed across a number of time periods, activities of companies, particularly indirect lobbying and we have already seen good progress. For example, we conducted by industry associations. have seen the percentage of the Fund categorised as ‘Not Asia – As a member of the Asian Corporate Governance Aligned’ to the Paris Agreement decline by 11 per cent while Association, EOS attended a virtual delegation meeting the percentage classi昀椀ed as ‘Aligned’ increased by 7 per cent in Japan with Japan’s Financial Services Agency, the between December 2020 and 2022. More detail on this Japan Exchange Group, the Ministry of Economy, Trade project is provided in our 2022/23 Climate Change report. and Industry and the Japanese Institute of Certi昀椀ed Key activities in policy engagement Public Accountants. EOS outlined policy expectations for shareholder rights and corporate governance best practice. over the year United States – In the US, EOS submitted a letter to the Regulatory standards and guidance around ESG issues are Securities and Exchange Commission (SEC) in response rapidly evolving. We follow these developments closely to its proposed climate disclosure rules announced in and look to contribute to their progress wherever possible. March 2022. EOS welcomed the SEC’s e昀昀orts to require We engage with key policymakers and regulators globally company reporting to include material ESG factors and on public policy that promotes and enables smooth market consider disclosure rules on climate change, including functioning. We carry out this engagement directly, through the requirement to disclose Scope 1 and 2 emissions, and our stewardship services provider EOS, or through bodies material upstream and downstream Scope 3 emissions. such as the PRI and IIGCC. Our policy engagement through IIGCC Please see our LDI crisis case study on our engagement This year, we also reviewed and supported the IIGCC’s with policymakers and regulators on page 22. response to the FCA’s consultation on sustainability disclosure requirements and investment labels. The consultation set out a package of recommended measures to build con昀椀dence and to help consumers navigate the sustainable investment products market and make better informed decisions about them.