Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 29 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 CASE STUDY Our pre-funding and Emerging Market Debt appointment process As mentioned, our stewardship expectations are Sustainability dialogue integrated into all legal contracts. See Appendix G for with sovereign issuers examples of clauses. After managers are appointed, our ODD team continue to work closely with them to ensure It has been the norm so far that dialogue with sovereign they continue to meet our requirements and identify any entities tends to only be 昀椀nancial and budget related, gaps or challenges that arise. however the landscape is slowly changing. Examples of our ODD team working with For example, one of our EMD managers has been external managers able to engage with emerging and frontier market Example 1: Ensuring operational standards issuers on a range of areas including stronger democracy and lower corruption, gender equality, The ODD team conducted an operational due diligence and 昀椀nancial inclusion (including credit 昀椀nancing assessment on a new Alternative Credit manager for women, banking for rural communities, and appointed in 2019. A number of recommendations female participation in the labour force). It has also and enhancements were suggested and subsequently discussed renewable energy implementation plans, made prior to investment. In 2022, the ODD team land ownership equality, water stress and water rights, engaged with the manager to enhance and develop and corruption within state-owned enterprises. The several areas of the business ahead of a new commitment. sovereign engagements have started with introductory In an on-site review, the ODD team identi昀椀ed several risks conversations and relationship building, but we expect in relation to the manager’s information security, a lack to see more speci昀椀c outcomes in the long term. of suitable insurance for digital risks and key person risk in a critical back-o昀케ce support function. Following our After we successfully engaged with the manager, they feedback, the manager acquired a cyber-speci昀椀c insurance started reporting to us on their engagement e昀昀orts. In policy, remediated the information security weaknesses, acknowledgement of this, we upgraded the manager’s and subsequently hired a capable individual to eliminate ESG disclosure score (see page 20) from ‘2’ to ‘3’ for the key person risk. these enhanced engagements. We are seeing improvements in engagements across Example 2: Con昀氀ict of interest identi昀椀cation the Sovereign EMD asset class and we will be reporting The ODD team refreshed its due diligence on an existing further progress in coming years. Private Equity manager as part of its ongoing manager monitoring programme. While on-site, the team identi昀椀ed that the manager was using expert networks (external topic experts) but didn’t have an appropriate policy in place to mitigate and appropriately manage any potential or After managers are appointed, perceived con昀氀icts of interest. The ODD team raised their concerns with the manager and the risk was subsequently our ODD team continue to remediated through the implementation of a suitable policy. work closely with them to ensure they continue to meet our requirements and identify any gaps or challenges that arise.