Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 24 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 Engagement approach for assets How we engage with publicly-listed debt and managed externally Equity issuer engagements other securities Sector: Transport Sector: Consumer & Luxury Goods Investment Grade (IG) Credit – As noted last year, our We take a multi-pronged approach to engagement for our Asset Class: Equities Asset Class: Equities managers have made signi昀椀cant progress in engagement externally-managed assets, driven by the following factors: Issue: Worker rights in the US Issue: Marketing standards and diversity practices. We’re pleased that all of our managers in this asset class regularly report their stewardship progress to us • We allocate across many asset classes using a range of Background: One of our external asset managers Background: A company within an external manager’s and that the depth of disclosure has improved over the year. external fund managers with whom we engage directly recognises that human capital issues represent signi昀椀cant portfolio was involved in controversies around We see engagement with debt issuers as a longer-term and instruct to engage with issuers on our behalf. risk to companies’ operations. In 2022 it held a series of inappropriate marketing of its brands. focus, given their ongoing need to reissue debt, which is • Our asset allocation to Public Equities is much lower engagements with companies and signed investor letters well suited to our investment pro昀椀le. than most pension schemes, however we employ a directed at companies that lacked paid sick leave and The manager sought clear remediation as to how the passive strategy for some of this, so we engage an could bene昀椀t from providing it. company intended to improve internal controls to ensure external stewardship services provider, EOS, to carry its brands comply with expected standards. This included IG credit issuer engagements out direct, issuer-level engagement where possible, Later in the year, the manager honed in on the rail sector clear reporting on the approval process for marketing Sector: Consumer Discretionary for greater e昀케ciency. where hundreds of thousands of railway workers were campaigns and products; and clear reporting on how Asset Class: Investment Grade Credit in the midst of negotiating contract terms with the diversity of people within the approval process would Issue: Climate, deforestation and human capital • Our Equity index is a highly diversi昀椀ed, alternatively largest railway companies in the US to improve working be achieved. weighted index (comprising around 3,000 names). conditions. Those negotiations fell 昀氀at. This was relevant Action: The asset manager engaged multiple time Background: A manager spoke to a credit issuer We therefore look to leverage collaborations engaging to us as investors as the industrial unrest nearly led to to better understand the controls it has in place for entire sectors or across companies on systemic issues a nationwide strike that would have crippled the US’s during the year and has developed the request as the business practices including agricultural emissions in (for example, climate change or modern slavery). supply chain and posed a material systemic risk. issue progressed to better understand the role they were context of its Net Zero plans, deforestation, and human recruiting for (titled ‘Future Brands Safety O昀케cer’), in and labour rights. Action: Since the government-mediated deal response to the controversy. The manager has requested Engagement options for excluded sick leave, the asset manager took charge clari昀椀cation as to what this role will entail. In addition, Action: The manager met with the issuer’s Head externally-managed assets by writing a letter to the four largest railway carriers the manager has also raised concerns about the ability of Sustainability who was able to address a recent Engaging via Engaging Engaging via in the US (three of which the PPF has holdings in). of the high-pro昀椀le celebrity who chairs the company’s labour rights dispute regarding unfair payment for EOS with our collaborations The manager aggregated close to 150 investors per Sustainability Committee to have e昀昀ective oversight, seasonal foreign workers in UK farms. They explained managers & networks letter, representing around US$1 trillion in additional given her poor historical attendance. that the issuer has identi昀椀ed the source of concern assets under management, to be signatories. The letter Outcome and next steps: The company has been and is collaborating with industry associations to speci昀椀ed the importance of paid sick leave in the face investigate, and plans to construct a corrective course of post-pandemic labour dynamics as well the types of proactive in providing information to the manager and of action. On agricultural emissions, the company disclosures investors would 昀椀nd helpful, such as the types noted that executive remuneration targets will also factor said it is focusing on soy and palm oil for its Net Zero of bene昀椀ts available, employee eligibility criteria, and in the issue. However, the explanation for the root cause deforestation goal as its cocoa and beef usage is limited. others. The manager corresponded with two of the rail of the controversy – a lack of diversity in the campaign companies and has maintained an ongoing dialogue. approval process – is not considered to be su昀케cient Outcome: The manager welcomed the prompt and Issuers in justi昀椀cation. The manager will therefore continue to su昀케cient response to the labour rights controversy and Outcome and next steps: Eventually, one by one, the push for tighter internal controls that still leave brands enhancement in the issuer’s due diligence. The issuer is rail companies that the manager contacted resumed su昀케cient creative freedom. Increased disclosure on also working with other members of the Modern Slavery workforce negotiations. These led to deals being struck diversity KPIs as part of the company’s internal controls Intelligence Network and the British Retail Consortium How we engage with listed equity issuers by three out of the four railways (the three that the PPF process is being sought. Further dialogue is expected on ways to deliver systemic change to address labour Engagement with our Public Equity issuers depends on the holds), leading to thousands of railway workers obtaining and escalation will be considered if remediation rights disputes in the food and agricultural sector. mandate construction. For segregated equity portfolios, paid sick leave as a bene昀椀t. The manager intends to proves insu昀케cient. The company is also exploring issuing a sustainability- EOS engages on our behalf, and we have full access to continue engaging with the holdout railway carrier to linked bond where investor payments would be linked the EOS database and reports for monitoring the progress understand how worker conditions can be improved so to public targets, such as Scope 3 emissions, zero of these engagements, as well as the opportunity to join that future strikes and service disruptions are less likely. deforestation, food waste, or packaging. speci昀椀c meetings where possible. See page 36 for how we engage with our issuers and progress on our listed equities engagement. For pooled equity funds, the relevant external manager will We’re pleased that all of our managers in the Investment Grade engage on our behalf, so our engagement e昀昀orts focus on the manager itself. Our quarterly ESG reports from Credit asset class regularly report their stewardship progress to these managers provide detail and allow for our oversight us and that the depth of disclosure has improved over the year. of their engagements, progress and outcomes – see the following examples.