2022/23 | Responsible Investment Report

2022/23 Responsible Investment Repor t Best UK Pension Fund (joint winner) – IPE Awards, December 2022

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 1 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 About the PPF: P rotecting people’s How we are funded How we invest When an employer becomes insolvent and its pension We hold £32.5 billion in our investment portfolio scheme cannot a昀昀ord to pay the pensions promised, we (31 March 2023). This amount is managed in a broadly compensate scheme members for the pensions they have 50/50 split by internal and external investment teams. lost. We raise the money we need to pay PPF bene昀椀ts and We invest across public and private markets, seeking f uture s the cost of running the PPF in four ways: to capture both capital growth and reliable income generation to meet pension commitments. See page 18 for more detail on where we are invested. Our purpose is to protect the future of millions Split of funding sources of people throughout the UK who belong to Assets from pension schemes de昀椀ned bene昀椀t (DB) pension schemes. Should 11% transferred to us The return we make an employer sponsoring one of these schemes on our investments The levy we fail, we’re ready to help. 34% charge on eligible pension schemes We do this by charging pension schemes a levy, 23% Assets recovered from insolvent investing levies and other capital sustainably, employers then paying the members of schemes we protect as required. Our work has a real impact on people’s lives. So whatever we do, we strive to do it well, with integrity and members’ futures in mind. 32% The PPF in numbers Key 昀椀gures as at 31 March 2023 Assets under Return of PPF levy PPF bene昀椀ts Actuarial 9.6 million 5,000+ 295,528 £32.5 Year PPF reserves Funding ratio management growth assets collected paid liabilities DB scheme DB pension PPF members in billion 2023 £12.1bn 156% £32.5bn 1.9% £386m £1.2bn £20.3bn members protected schemes protected payment or deferred of assets under management 2022 £11.7bn 137.9% £39bn 7.6% £476m £1.1bn £27.4bn

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 2 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 Contents 3 Message from our Chair 4 Key highlights of the year 5 Strengthening our stewardship commitment 6 Our progress at a glance 7 Our purpose and governance 18 Our investment approach and incorporating ESG 21 Our approach to engagement 36 E scalation and exercising shareholder rights 42 O ur aspirations for the coming year 43 Appendices

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 3 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 Message from our Chair At the PPF, we believe we are in a unique position to help drive change in the pensions industry. As we outlined in our sustainability strategy earlier this year, our overall ambition is to catalyse the growth of a sustainable pensions industry. As part of our established approach to responsible investment, we embed material environmental, social and corporate governance (ESG) considerations across We recognise that we can our investments. Over the last year, we continued to develop risk disclosure management in this area across have a much greater voice our portfolio and challenge our external investment in in昀氀uencing change by managers to deliver high-quality ESG reporting. Pushing ourselves further We want to contribute to the global transition to working together with Net Zero through our portfolio and engagement other large investors. We want the PPF to be known for best practice in activities. This year we created a new Climate sustainability. One of the four goals we set ourselves Watchlist to address the companies contributing to in our sustainability strategy is to demonstrate over 70 per cent of our material 昀椀nanced emissions. excellence in responsible investment. We believe We recognise that we can have a much greater that by acting as a responsible asset owner, we can voice in in昀氀uencing change by working together protect and enhance the value of our investments. with other large investors. This year we participated This year we enhanced our voting guidelines with in several industry collaborations, including Find It, additional expectations for climate strategy and Fix It, Prevent It, addressing modern slavery within management, and used our voice to deliver positive businesses and their supply chains, and Climate change by voting at 99.4 per cent of shareholder Action 100+, the largest-ever investor engagement meetings where we were eligible to vote. initiative on climate change. We will continue to do all that we do in a responsible Through continuing to work closely with our asset and transparent manner, while delivering for our managers and partners, and by sharing our learnings members and stakeholders. with the wider industry, we aim to ensure a better future for all. Oliver Morley Kate Jones Chief Executive Chair

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 4 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 Key highlights of the year Over the year, we continued to develop ESG risk disclosure management across our portfolio. We implemented our Climate Watchlist to set disclosure targets as well as prioritising voting and engagement activities, and continued to establish an internal ESG oversight framework for internally-managed credit portfolios. Putting good Accepted by the Financial Reporting Council (FRC) Managing and Continued to challenge external asset managers to deliver stewardship at the as a 2022 signatory to the UK Stewardship Code – monitoring ESG high-quality quarterly ESG reporting heart of what we do our second consecutive year as a signatory factors to safeguard our members’ Developed monthly internal ESG reporting for our short-term Created a steering group to govern and oversee our new 昀椀nancial futures Strategic Cash desk Sustainability Strategy Obtained valuable ESG and climate Provided ongoing ESG training and education to upskill our disclosures from our Private Markets Board, Executive Committee and Investment team managers participating in the eFront ESG Outreach reporting pilot 60 per cent of our own managers that were contacted in the 60% Established a working group to consider how the pilot phase reported portfolio company recommendations of the Department for Work and Pensions’ data – four times higher than the overall Departmental Review of the PPF could inform our future strategy response rate Encouraging our Created a new Climate Watchlist to focus on Using our Voted at over 4,500 (99.4 per cent) investments to the companies contributing to over 70 per cent >7 0% voice to deliver shareholder meetings where we were >4,500 of our material 昀椀nanced emissions eligible to vote2 contribute to a fairer, positive change sustainable future Engaged with 686 (196 in 2021/22) companies Enhanced our voting guidelines with additional expectations 1 on speci昀椀c issues and objectives 686 for companies’ climate strategy and management Engaged regulators on the recent Liability-Driven Investment Participated in several collective engagement initiatives, (LDI) funding crisis including the Institutional Investors Group on Climate Change’s (IIGCC) new Net Zero Engagement Initiative and Find It, Fix It, Prevent It addressing modern slavery Awards and recognition 2022/23 IPE Awards 2022 – Best UK Pension Fund Pensions for Purpose Paris Alignment CIO Industry Innovation Awards 2022 1 For our segregated equities. The signi昀椀cant year-on-year rise (joint winner) Awards 2022 Our Chief Investment O昀케cer (CIO) Barry Kenneth in company engagement is due to the increase in mandates The judges highlighted our “steady We were shortlisted for ‘Best Climate Change won the award for E昀昀orts in ESG. The awards covered by EOS, our stewardship services provider. performance, with Environmental, Social, Member Communication’ and ‘Best Climate recognise asset owners driving change and 2 For our aggregated listed equities (across both segregated and Governance (ESG) at the heart of our Change Policy Statement’. enhancing institutional fund performance. and pooled funds). investment strategy”.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 5 Pension Protection Fund Responsible Investment Report 2022/23 our Chair of the year a nce and governance to engagement Appendices commitment at gla incorporating ESG shareholder rights the coming year Strengthening our stewardship commitment Our Responsible Investment strategy puts ESG The past 18 months have been challenging for everyone in For this reason, we are supportive of innovations looking the industry, with the onset of the war in Ukraine, the LDI to streamline and standardise the asks from ESG reporting, integration at its heart, re昀氀ecting the fact that our crisis in Autumn 2022 and persistent high in昀氀ation resulting such as eFront’s ESG Outreach project. This pilot has in a cost-of-living crisis not seen in decades. Among all of already delivered actual emissions data for a number of our investments can be in昀氀uenced by environmental this, the integration of ESG and climate change remains at portfolio companies. The sooner we can use our day-to-day the core of our stewardship strategy. systems to access emissions data for our private markets and social factors. We view stewardship as one of holdings, the more con昀椀dence we can have in making The companies and external investment managers we investment decisions informed by our portfolio alignment the most powerful ways we can drive companies engage with often describe the concept of being on a positioning. We have also continued the progress on ESG journey with regards to stewardship and sustainability. integration across our internally managed portfolio, rolling to transform, generating real-world impact. This analogy is particularly pertinent when I consider the out improved ESG reporting to our short-term Strategic sentiment globally towards sustainability. Following several Cash desk, which will form the basis of further reporting years of progress, the industry is now experiencing push- improvement for other desks. back on the value of integrating ESG into the investment process from certain parties around the world. In other The development of our Climate Watchlist is a huge step words, the sustainability journey that responsible investors forward for us to focus our e昀昀orts on our most emitting The development of our such as ourselves are on, has become bumpier. investments. Having seen the progress this has made in our utilisation of external data, I am excited about what Climate Watchlist is a huge Despite the change in attitudes, we continue to recognise the could be possible in future years. step forward for us to focus value of strong stewardship and ESG integration as part of the wider investment process. The focus on understanding In December 2022, I was honoured to receive the CIO our e昀昀orts on our most long-term material risks and opportunities has continued Asset Owner Industry Innovation Award for E昀昀orts in ESG. unabated, with improved data accessibility, reporting and This award recognises asset owners driving change within emitting investments. analysis across the portfolio. their allocation approaches and enhancing institutional fund performance. I and the whole PPF investment team I’ve always 昀椀rmly believed in understanding our risks, and will continue to 昀椀nd ways to lead on stewardship best doing so using evidence-based data. This belief is shared practice across every investment we hold, both now across the investment team and has helped us to improve and in the future. our understanding of ESG data and make more informed decisions about the portfolio, especially in our unlisted Barry Kenneth investments where pre-investment due diligence is even Chief Investment O昀케cer more critical.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 6 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 progress at a glance How we advanced our plans in 2022/23 Stewardship Climate change Reporting We said we would… So we… We said we would… So we… We said we would… So we… Continue to - Participated in several industry initiatives Use the 昀椀ndings from - Created a Climate Watchlist of 87 Continue to work - Engaged our external private managers collaborate to drive involving a range of organisations that our Paris Portfolio companies that represent over with our private assets to encourage data submission to eFront, positive societal and include regulators, asset owners and Alignment Project to 70 per cent of our 昀椀nanced emissions managers on the achieving a response rate four times environmental action asset managers develop a strategy eFront ESG Outreach higher than the pilot project overall See page 30 among investment See page 34 to engage with pilot to improve ESG See page 27 market participants companies identi昀椀ed - Are establishing a targeted engagement data disclosure in - Chaired a sub-group of the Taskforce on as our highest priority action plans for each company on the unlisted markets Social Factors led by the Department for Climate Watchlist Work and Pensions engagement targets for Continue to work - Engaged extensively with managers carbon emissions See page 30 with a focus on reporting, engagement See page 35 with our managers Work with our asset - Worked on standardising emissions to improve their ESG and using their voice for positive - Participated in the FCA Vote Reporting managers, especially measurement in our Real Estate book and stewardship sustainability/ESG outcomes, resulting in 1 Group, aiming to improve the quality of in real assets, to disclosures in improvements among ‘liquid’ portfolios disclosure-linked proxy voting activities See page 19 See page 20 better understand line with our own See page 35 risks relating to - Continued to work with our Timber evolving reporting - Standardising the emissions climate change & Farmland managers to improve requirements measurement in the Real Estate Book Develop a holistic - Began embedding our sustainability data reporting and industry-led Sustainability considerations across the organisation, See page 19 Strategy as part of led by our six sustainability working groups See page 20 standardisation the PPF’s 2022–2025 See page 10 Continue to integrate - Continued to integrate Climate Value At initiatives Strategic Plan 1.5°C global warming Risk analysis, now covering 55 per cent of Engage with our - Collaborated with our external consultant - Continue our work to report on and limits across our our portfolio managers, issuers and to enhance our Real Estate portfolio’s reduce the PPF’s own operational investment, analysis Paris alignment methodology environmental impact See page 35 public policymakers and reporting - Started to take account of Scope 3 to explore ways to See page 19 See page 10 activities, including improve the level and pre-investment emissions in our portfolio - Participated in the PRI reporting project quality of ESG data to create a due diligence questionnaire due diligence See page 35 disclosure for credit (DDQ) for private debt and private markets See page 26 - Engaged Sovereign Debt managers to improve ESG reporting and practices See page 25 1 ‘Liquids’ refers to Global Credit, Public Equity, Absolute Return, Emerging Market Debt and Strategic Cash.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 7 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 purpose and governance What we stand for How our purpose and values feed Our purpose is to deliver the best 昀椀nancial results for into e昀昀ective stewardship Our approach to Responsible Investment (RI) our members. We believe this goes hand in hand with and stewardship responsible investing for two reasons: Our organisation’s values At the PPF, we lead by example and demonstrate our values Our RI Framework puts our core beliefs into practice: from the top down. We believe that establishing the right 1. 2. values, culture and accountability is key to delivering the best outcomes for our stakeholders. RI Framework Good corporate Exercising our Our ‘ICARE’ values (see overleaf) de昀椀ne how we conduct governance and ownership rights is not business across the organisation. They are integrated Strategic management of only a key part of being into every employee’s performance development review Governance & direction Risk Metrics & ESG risks is a strong a responsible owner but and annual goals, as well as at a directorate and overall accountability & policy management transparency indicator of how an also helps safeguard organisation level. organisation manages sustainable returns in risk as a whole. the long term. Priorities Taking action Following the launch of the PPF’s Sustainability Strategy, Claire Curtin, Head of ESG & Sustainability, Climate change Stewardship Reporting Our RI Framework puts these core beliefs into practice. has taken on the role of overseeing implementation of sustainability internally. This combined role facilitates Read about our responsible investment (RI) strategy and a cohesive approach to sustainability stewardship our RI Framework to learn more about our beliefs, aims and internally within the PPF and externally through Climate & sustainability Engaging with fund Internal ESG Dashboards approach to being a responsible investor. our investment strategy. It has already helped us to policies & strategies managers improve consistency in our expectations of portfolio companies and our suppliers. Engaging with Investment Committee & Climate stewardship issuers Board reporting Climate risk assessments & Voting of shares External RI reporting sustainability reporting Good corporate governance and management of ESG risks is a strong Climate Collaborative opportunities engagement & External Climate reporting indicator of how an organisation public policy manages risk as a whole.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 8 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 PURPOSE AND GOVERNANCE CONTINUED Whenever we make investment decisions and consider our investment strategy, we also apply these values. The table below shows how we translate these 昀椀ve values into performing our duty as a responsible investor. Our values Our investment approach Integrity We consider all material Doing the right thing ESG risks when we assess investment opportunities Collaboration We work collaboratively with Working as one peer organisations and partners Accountability We enact our shareholder rights Owning our and push our fund managers to actions and deliver best practice on ESG risk their management and transparency outcomes Respect We encourage our fund managers Valuing every voice and other stakeholders to deepen Diversity and Inclusion (D&I) practices Excellence We’re never complacent – Being our best we strive to grow our RI practices and set new standards

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 9 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 PURPOSE AND GOVERNANCE CONTINUED Our governance structure and activities Strong governance, with clear oversight, responsibility and accountability, is key to delivering on our RI strategy as well as our overall long-term investment objectives. Teams at every level of our governance structure have continued to integrate ESG factors into portfolio investments. Whilst challenges lay ahead of us, particularly around data in alternative asset classes, appetite for further improvement remains high. Function Roles & responsibilities Taking action: RI activities in 2022/23 PPF Board Highest governing body with Approved new voting guidelines in Delivered ongoing training and Approved the Sustainability Strategy Established working group oversight for RI and stewardship March 2023 (see Appendix E) education to upskill our Board, covering all aspects of the PPF’s to consider how the activities (including climate-related) Executive Committee and operations and formation of recommendations of the DWP Investment team Sustainability Strategy Group could inform future strategy Investment Committee Responsible for developing and Approved the adoption Reviewed and approved Joined in-house teach-ins during Approved the restructuring of the maintaining the PPF’s RI and and implementation of our RI policies including the the year, providing insight into the investment portfolio separating fund stewardship principles and policies our Climate Watchlist stewardship policy and updated implementation of our policies requirement for current members (including climate-related ones) voting guidelines and future claims Investment team Led by the CIO, responsible for Worked with ESG & Sustainability Implemented a signi昀椀cant Provided monthly ESG updates to Portfolio managers participated ensuring adherence to the RI Team to develop monthly internal restructuring of the portfolio the Investment Committee in quarterly ESG external Framework, stewardship principles fund ESG reporting for our manager meetings and associated policies across all short-term credit & strategic asset classes whether internally or cash desk externally managed ESG & Sustainability team Part of the Investment team, helping Updated our voting guidelines Provided updates in the daily Reviewed all managers and Chaired the newly established to oversee implementation of the RI during the year, to re昀氀ect higher Investment team meetings on stewardship providers at Sustainability Strategy Group Framework, monitor investments for expectations on speci昀椀c issues ESG issues and trends throughout least annually (under the ESG team’s expanded ESG risks and opportunities, engage of importance the year remit to focus on the PPF’s own with portfolio managers, external sustainability practices) managers and our stewardship services provider Asset Managers and Follows the PPF’s RI Framework and Asset managers Service providers Stewardship Services Provider stewardship policy, undertakes ESG Good level of participation in the Improved the quality of disclosure Aligned the annual RI reporting Worked with the PPF to implement integration and issuer engagement then eFront disclosure pilot project for for our ESG quarterly reporting structure to our March 昀椀nancial our Climate Watchlist reports transparently and accordingly private assets template over the year, including year saving signi昀椀cant time on for alternative asset classes reporting our annual data

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 10 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 PURPOSE AND GOVERNANCE CONTINUED Key governance actions this year The PPF Board has ultimate oversight, with the authority to approve and amend the strategy as deemed necessary. Reviewing our principles and policies A dedicated Sustainability Strategy Group was established in Our Board has committed to the Investment Committee 2022 to drive the strategy’s development and implementation, reviewing our Statement of Investment Principles (SIP) and which is chaired by our Head of ESG & Sustainability. all responsible investment policies annually to ensure they A number of internal working groups have also been set stay relevant and ambitious. up to identify priority areas (for example, organisational emissions, climate risk management, diversity & inclusion, During the year, the Investment Committee reviewed our employee engagement & community impact, responsible SIP, our Climate Change Policy, our Stewardship Policy investment, and sustainable procurement) that are material and our Minimum Standards Policy. The committee also to the PPF’s business. These groups will ensure we embed approved our new voting guidelines. All policies are sustainability in every decision-making process. available on our website. We determined four key Sustainability Goals by integrating Launching our sustainability strategy the resources from SASB Materiality Map for Asset This year saw the publication of the PPF’s sustainability Management/Insurance, The Five Capitals framework strategy, another critical development to help ensure the for sustainability and our own ICARE Values. Each goal Fund’s longevity, enable us to lead by example and catalyse addresses speci昀椀c ESG business risks that we feel are the growth of a more sustainable pensions industry. material to our organisation. We have established internal KPIs to measure our progress against these and ensure accountability. We also considered the UN Sustainable Development Goals (SDGs) and were able to map seven SDGs under the PPF’s four key goals. Our sustainability goals Demonstrating excellence in Ensuring e昀昀ective stakeholder engagement responsible investment with integrity and respect • Looking after our assets • Community impact • Employee and stakeholder engagement Financial Capital Human & Social Capital Championing collaboration and leading Being accountable for minimising our own by example environmental impacts • Diversity & inclusion • Operations • Business ethics • Supply chain Social Capital Natural & Manufactured Capital

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 11 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 PURPOSE AND GOVERNANCE CONTINUED Setting our 2023 voting guidelines Reporting on RI and stewardship to our committees During the year under review, our Investment Committee Keeping every level of our governance structure informed of, approved the updates to our PPF voting guidelines. These and able to feed back on, our RI and stewardship activities provide clarity on our intentions for voting decisions around is essential to monitoring our progress. Robust internal core stewardship issues during the Annual General Meeting reporting ensures we remain aligned with agreed actions (AGM) season. Developed by our ESG & Sustainability team, and principles and can spot any challenges or con昀氀icts of the guidelines leverage best practice, as demonstrated by interest at an early stage. our stewardship services provider EOS and closely align Every quarter, our Investment Committee Report provides with its global voting guidelines. the committee with a review of our RI policies, processes Our key stewardship themes for 2023 are guided by our and policy review schedule. It also gives updates on own organisational priorities. They continue to focus on: stewardship, manager appointments and monitoring, management of climate-related risks, modern slavery, board as well as key quantitative metrics such as ESG scores diversity in terms of gender and ethnicity, and executive of companies and carbon intensity of our investment committee diversity. The enhancements made for the 2023 portfolios by asset class. We provide monthly updates AGM season re昀氀ect our increasing expectation of what we to our CIO and the Head of Investment Strategy on the expect from our corporate issues on these key themes. management of our climate-related and other ESG risks. The voting guidelines document can be seen in Appendix E. We also highlight portfolio-relevant information or events as they arise in our daily investment meetings. The aim of these guidelines is not to duplicate EOS’s own global voting guidelines. Rather, they provide stakeholders with a concise document outlining areas of focus that are The composition of the material to us. On matters related to good governance such as board independence, competent leadership, and PPF Board has always separation of the governance roles, we primarily look to leverage the deep expertise and recommendations of EOS. been crucial in stewarding Board ESG credentials value creation while also The composition of the PPF Board has always been managing ESG risks. crucial in stewarding value creation while also managing ESG risks. We have a Board member with particular ESG expertise, who is also a member of our Sustainability Strategy Group. The PPF Board is proactive and regularly updated by the ESG & Sustainability team on the latest developments and thinking around ESG, sustainability and climate risk management.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 12 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 PURPOSE AND GOVERNANCE CONTINUED Developing our people A Board strategy away-day included deep-dive interactive workshops covering ESG materiality assessments, Net Zero Resources and training target-setting and communicating sustainability issues to all During the year, we have focused on continual stakeholders. Upskilling of the Investment team on climate development and training across the entire PPF has continued throughout the year. The ESG & Sustainability organisation, including the Investment team on ESG team presented the results of the Paris Portfolio Alignment matters and stewardship activities. Within the ESG & Project, including baseline and subsequent progress. Sustainability team speci昀椀cally, we hired a dedicated Executive Committee and Board members were also Stewardship Manager, providing a senior person with invited to attend. specialist experience to lead our strategy and activities Performance incentivisation in this area. The Stewardship Manager works closely with the rest of the ESG & Sustainability team to ensure best We set performance incentivisation for both employees practice and that learning opportunities are leveraged. and external agents. For all our sta昀昀, performance is A Sustainability Analyst has also been appointed to measured against a balanced scorecard of objectives focus on sustainability e昀昀orts across the PPF. covering business-as-usual activities, initiatives, and behaviours, the latter of which accounts for a speci昀椀c We also continue to work with an external specialist percentage of an employee’s annual performance stewardship services provider, EOS, which has its own assessment. This includes a review of an employee’s extensive, diverse and experienced stewardship team. performance with reference to their core behaviours We regularly review EOS and our chosen external asset across our ICARE values (see page 8). We also have an managers to ensure they have the right expertise, investment directorate balanced scorecard with speci昀椀c policies, research capabilities and resources to carry RI and stewardship KPIs that the Investment team is out day-to-day ESG integration and stewardship measured on, as well as a culture assessment. activities on our behalf. See page 20 for more detail on how we assess our stewardship services provider and our asset managers within our appointment and monitoring processes. A governance aim this year was Training sessions and teach-ins for the Investment team to build internal knowledge and have been provided on an ongoing basis. Our Talent & Development department is fully supportive of our understanding at the PPF of investment sta昀昀 acquiring ESG-speci昀椀c quali昀椀cations, sustainability, and especially including the CFA Certi昀椀cate in ESG Investing and the recently-launched CFA Certi昀椀cate in Climate and Investing. climate, issues through training A governance aim this year was to build internal and education. knowledge and understanding at the PPF of sustainability, and especially climate issues through training and education. Two external speakers were invited to speak to the PPF Board about their experience and insights, followed by a panel discussion and Q&A. One speaker gave an overview from a non-昀椀nancial services perspective and the other focused on how a listed asset manager is approaching sustainability and its commitment to supporting Net Zero.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 13 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 PURPOSE AND GOVERNANCE CONTINUED Our commitment to industry-leading diversity Creating an inclusive workplace remains our utmost • We went beyond statutory requirements to report Next steps: priority so that every employee at the PPF feels valued on our disability and long-term health condition • To meet the goals set out in our Diversity and and respected: pay gap for the 昀椀rst time. As a Disability Con昀椀dent 85% Inclusion Strategy, we will strive to broaden Leader, we have seen an increase in applicants representation across the PPF through our • With a year-on-year increase of employees from an disclosing disability or a health condition during of PPF employees say that the PPF is a diverse mentoring, internal development programmes ethnic minority background from 23.7 per cent in 2021 the recruitment process. employer that supports inclusion and award-winning apprenticeship schemes. to 26.1 per cent in 2022, we have made progress towards • We prioritise understanding and openness about our target to increase ethnic minority representation • We will continue working to support change in our across the PPF to 30 per cent by December 2023. mental health issues at the PPF. In addition to mental sector through the Diversity Project, an initiative that health 昀椀rst aiders across the organisation, we equip champions a more inclusive culture in the UK savings • Our employee-led Race Action Group’s reverse our line managers with necessary skills to encourage I believe that the PPF is fully and investment industry. mentoring initiative enables employees – often senior honest dialogue with their team members through leaders – to be mentored by colleagues from an ethnic our mental health training. committed to diversity and • Our focus will remain on creating a pipeline of talents minority background to build their awareness of the from ethnic backgrounds as well as from the local challenges faced by ethnic minority employees. • In partnership with Investment20/20, we encourage inclusion, and I am con昀椀dent communities in which we operate. talented young professionals from all backgrounds to • Throughout the year, we will review our current • We o昀昀er 昀氀exible working options, including hybrid and join the investment industry. that will stay the case. 昀氀exible working hours, promote a menopause-friendly initiatives and support for mental health at the organisation and encourage male allyship. PPF. This will include assessing potential corporate mental health benchmarks and having appropriate PPF member policies and processes in place to support employees’ mental well-being. Taking action Supporting asset manager diversity As part of our Sustainability Strategy, we aim to encourage greater diversity across the pensions industry by in昀氀uencing the organisations we partner and engage with. We also note a growing focus on diversity challenges by external bodies including the FCA and the DWP. This year, for the second year running, we asked D&I related questions as part of our external asset manager operational due diligence process. We are using the responses to these questions (which are the same questions asked in our in-house manager selection and appointment process) to monitor their year-on-year progress on D&I. Now that we have two years of data, we have begun incorporating the 昀椀ndings into our asset manager assessments. We are not considering setting speci昀椀c targets for asset managers at this stage, but we recognise that there needs to be much further progression on diversity throughout the asset management industry.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 14 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 PURPOSE AND GOVERNANCE CONTINUED Reviewing our processes and DWP review of the PPF assessing their e昀昀ectiveness In December 2022, DWP published the 昀椀ndings of its A recommendation made in the review is that the PPF departmental review of the PPF. Public bodies under the should take a higher public pro昀椀le and share more Our stewardship programme is subject to internal remit of government departments are often reviewed information on its approach to investment management, and external review, and is ultimately overseen by to provide assurance, ensure good governance, particularly in relation to its industry-leading commitment our Investment Committee. Policies, approaches and challenge their continuing need and e昀케ciency. to responsible investing. We have established a working and outcomes are presented quarterly to this We’re pleased that this recent review by the DWP has group to consider how the DWP’s recommendations can committee with action points recorded. Regulatory been positive. inform future strategy. developments are monitored to ensure that emerging themes and potential regulatory expectations are You can read the full report at Departmental Review of the evaluated. Externally, we participate in the Principles Pension Protection Fund (PPF). for Responsible Investment (PRI)’s annual transparency reporting and assessment process, which provides external validation of our RI and stewardship processes. In conducting this review, I have found the PPF to be a We also confer with our peers and industry stakeholders regularly and share our practices through various well-run public body o昀昀ering high standards of service forums. This year, the Department for Work and Pensions (DWP) instructed an independent review of and value for money to those who use it and pay for it. the PPF, including its activities relating to responsible investment. Please see opposite for the outcome of It is well-managed and well-governed and is highly this review. regarded by the full range of its stakeholders. Currently, the PPF Internal Assurance team does not explicitly review the work undertaken by the ESG & My recommendations are therefore limited in number, Sustainability team. However, in relation to external manager selection, pre-investment sign-o昀昀 must be focusing on areas where there is an opportunity to provided by the ESG & Sustainability team and this is then reviewed by the Operational Due Diligence enhance rather than a need to rectify. In particular, team and the Asset & Liability Committee before there is an opportunity for the PPF to share its good any investment can be approved. The ESG & Sustainability team undertakes an annual practice in certain areas more widely and an opportunity review of EOS’s services, our principal external for the DWP and the PPF to consider whether it and its stewardship services provider. A summary of this review is then provided to the Investment Committee. expertise can be used in other ways for public bene昀椀t. A structured internal audit process in relation to stewardship was initiated in 2022, but was postponed due to the portfolio restructuring. This process will continue in 2023. Lesley Titcomb, CBE, Lead reviewer of the DWP review of the PPF This Responsible Investment Report has been approved on behalf of the Board by the Chair of the Board and signed by the CEO following review by members of the Board and Executive Committee. It is informed by ongoing reporting throughout the year to the Board, Investment Committee, Asset and Liability Committee and monthly updates to the Chief Investment O昀케cer and Head of Investment Strategy.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 15 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 PURPOSE AND GOVERNANCE CONTINUED Managing con昀氀icts of interest Our expectations are explicitly referenced within our investment management agreements and side letters Con昀氀icts of Interest policy (see Appendix D and G for example terms, including The PPF has a Con昀氀icts of Interests Policy (see Appendix C) 1.4 and 1.8.4). This includes a quarterly requirement for to identify where a con昀氀ict of interest may arise and external managers to con昀椀rm that they have adhered to how con昀氀icts should be monitored and managed. We’re our policies and expectations. committed to conducting business and our investment Con昀氀icts are also considered by our stewardship services activities in the best interests of our bene昀椀ciaries, and have provider EOS when undertaking voting and engagement comprehensive controls across the organisation to prevent on our behalf. Although we reserve the right to amend any con昀氀icts of interest from a昀昀ecting them. We place individual votes proposed by EOS – and also to review voting proposals accountability high up on our cultural agenda as one of our ahead of AGMs – we are satis昀椀ed that EOS has suitable core values. All reasonable steps must be taken to prevent expertise, policies, research and resources to carry out daily potential or actual con昀氀icts of interest, or situations that stewardship activities on our behalf. Where con昀氀icts of might be perceived as giving rise to a con昀氀ict of interest. interest arise, we adopt an arm’s length approach and aim Under the policy, our sta昀昀 are required to disclose any not to in昀氀uence or override EOS’s voting decision. interest in any company, or other entity, in which the PPF has an ownership interest. EOS also takes steps to avoid con昀氀icts of interest between us and any other clients, and between us and EOS or its Recording con昀氀icts a昀케liates, and comply with our Con昀氀icts of Interest Policy. Details of con昀氀icts and noti昀椀cations are recorded in the EOS noti昀椀es us as soon as possible of any con昀氀ict of interest, Con昀氀icts Register which is maintained by the Compliance or potential con昀氀ict of interest of which it becomes aware or & Ethics team. We also have other related policies such to which it may be subject, and the potential implications as a Code of Conduct and Conduct Rules Policy (for both for the Board. Read more about how EOS approaches employees and our suppliers), a Handling Non-Public con昀氀icts of interest here. Information Policy, and a Personal Account Dealing Policy. In practice, EOS has been highly transparent regarding Our non-executive Board members may hold other director potential con昀氀icts of interest relating to its voting positions, or have connections with external asset managers. recommendations for companies that might be an EOS We share all Board members’ outside interests on our clients (or a昀케liated to a client of EOS or Federated Hermes). website, and update any Board expenses quarterly on We did not have a situation during the year where we felt the website. a con昀氀ict of interest had a negative impact on a decision If there is a con昀氀ict of interest when making a speci昀椀c involving PPF assets. decision, we include provisions for declaring interests at Board and committee meetings. For example, we Taking action approached our internal levy teams to inform them of our participation in the PRI’s FTSE 350 modern slavery initiative in advance of engaging with companies. We did this as we The ODD team refreshed their due diligence for one were aware that some of the companies under assessment of our existing private equity managers as part of by the PRI initiative were PPF levy payers. the team’s ongoing monitoring programme. Whilst on-site, the team identi昀椀ed a potential con昀氀ict of Externally-managed assets interest in relation to the compliance activities being Regarding stewardship of assets managed externally undertaken by a member of the investment team. on our behalf, we expect our external agents to identify Weaknesses were also identi昀椀ed in the 昀椀rm’s anti- and manage any con昀氀icts of interest in accordance with money laundering/know your client programme as Principle 3 of the FRC’s UK Stewardship Code 2020, putting it did not include a risk-based, dynamic re-screening the best interests of clients and bene昀椀ciaries 昀椀rst. protocol for the investor base. Both points were fed back to the manager while on-site and subsequently Con昀氀icts of interest policies are reviewed as part remediated through the transfer of CCO duties to the of our appointment of any fund manager through CFO and the introduction of an ongoing KYC/AML our operational due diligence (ODD) assessments. screening protocol.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 16 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 PURPOSE AND GOVERNANCE CONTINUED Stakeholder engagement More broadly, we actively seek our members’ and Capturing levy payer feedback stakeholders’ views and feedback by methods including We know that schemes don’t choose to use our service, but Taking action Keeping our stakeholders updated quantitative surveys, consultations, focus groups, one-to- this reinforces our ambition to listen carefully to what levy We’re committed to regular reporting and transparency one interviews and our Member Forum. We know that our payers want, understand where we can do better, and then In January 2023, we launched our new intranet, so that our members and other stakeholders such as levy stakeholders expect us to invest responsibly and we believe take action. In addition to our annual consultation on our Connect Online, which aims to improve employee payers can be aware of our progress and activities in all we have a duty to set the highest standards of practice. levy approach, over the past three years we’ve introduced engagement further by sharing news, comment, areas, including stewardship: biannual structured forums for small and medium-sized personal stories and praise. It is proving a Taking action enterprises (SMEs), along with ongoing informal meetings, valuable way of connecting people in our hybrid • We regularly update our website with our latest voting surveys, focus groups and email newsletters to gather working model. and engagement activities and our responses to industry feedback and share information. These communication and government consultations. We met with our Member Forum, which includes channels have been very valuable. • We publish annual RI reports, and provide ESG PPF and FAS (Financial Assistance Scheme) members, and sustainability disclosure in our Annual Report in October 2022 to discuss topics including digital Taking action and Accounts. services and responsible investment. The session • We published our third dedicated Climate Change Report included updates on our approach to climate change We know that our stakeholders this year in line with Task Force on Climate-related and company engagement, and investment case In December 2022, following a six-week consultation expect us to invest responsibly Financial Disclosures (TCFD) requirements. studies to bring issues to life. Given the timing of the on levy rules, we con昀椀rmed we will decrease the meeting, the LDI crisis was also a hot topic (we covered increments between levy bands in the year 2023/24 and we believe we have a duty • Our Head of ESG & Sustainability, Stewardship Manager our response to this crisis in detail in our 2022/23 to signi昀椀cantly reduce volatility in levies. We will also and other senior members of the investment team Annual Report). Feedback from the forum was shared integrate the new asset class information collected by to set the highest standards frequently speak at industry conferences and events. with our Investment team and Leadership team. The Pensions Regulator in 2023 into the levy. These proposals were strongly supported by stakeholders of practice. during the consultation. We reduced the amount we aim to collect from £390 million in the 2022/23 levy year to £200 million Engaging our employees in the 2023/24 levy year. Employee engagement is key to the responsible By reducing the levy by almost half, almost all management of human capital, and therefore forms part schemes will pay less levy. Industry experts told of our new Sustainability Strategy. We are proud to have us our proposals are sensible and welcome at high levels of employee engagement. In our most recent a time when there are many 昀椀nancial pressures employee survey, 95 per cent of respondents agreed that on employers. the PPF makes a positive di昀昀erence to the world we live in, and 87 per cent said they feel proud to work for the PPF.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 17 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 PURPOSE AND GOVERNANCE CONTINUED Sustainability Community To support our Sustainability Goal ‘Ensuring e昀昀ective Taking action stakeholder engagement with integrity and respect’, we established a Sustainability Community networking We are currently in the process of integrating our hub on the PPF intranet in 2022. Open to all the PPF’s recently-published Sustainability Strategy into our employees, the Hub aims to inspire and educate on the senior managers’ Statements of Responsibilities. values and importance of sustainability both at the PPF An update will be provided on this process in next and within the broader community. The PPF’s employees year’s Responsible Investment Report and our are encouraged to share their ideas and suggestions to published SM&CR report. minimise their impact on the environment. Employees can post their thoughts on various signi昀椀cant days – such as World Environment Day and Earth Day – and Implementing the SM&CR regime share tips on making positive environmental change (for example, using reusable co昀昀ee cups, sharing The FCA’s Senior Managers and Certi昀椀cation Regime experience of installing solar panels or buying an (SM&CR) is the system that regulated 昀椀nancial organisations electric vehicle). use to de昀椀ne their managerial responsibilities and encourage sta昀昀 at all levels to take personal responsibility for their actions. We publish and implement our own version of the SM&CR to hold ourselves to a high standard Sustainability is about our across everything we do (as detailed on page 8, our ICARE values set the foundation for how our sta昀昀 behave and impact – on society, our adhere to the conduct rules). communities and the We 昀椀rst published our version of the SM&CR in 2019. environment. Together, we It’s since become an integral part of our organisation and how we conduct ourselves. For example, it has helped can make a real di昀昀erence to highlight exactly who and what senior managers are accountable to and for. As a result, it is easy to 昀椀nd that to people’s lives. information and work e昀昀ectively on processes across the organisation. One area covered is ESG. Our CIO has overall responsibility for ensuring the implementation of our ESG strategy (with stewardship a key priority of this) within our investments. SM&CR, and our adoption of it, has helped to clarify and enhance personal accountability and responsibility for ESG and underlined the importance of a clear and e昀昀ective governance structure for this area.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 18 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 investment approach and incorporating ESG Our investment objectives Growth portfolio – This primarily focuses on protecting our As well as investing in public market assets, we take Split of asset allocation3 claims reserves and conservatively building up additional advantage of the long-term nature of the fund by The PPF portfolio is currently managed to achieve two reserves for future claims. A secondary objective is to fund accessing illiquidity premia through private markets. 4% long-term objectives: the purchase of physical assets in the Matching portfolio. We take a considered approach when implementing 6% Equity • Grow assets at cash + 1.5 per cent annualised over the The Growth portfolio contains Listed Equity, Emerging exposures to asset classes, some of which are non- Global Credit long term. Market Debt (EMD), Investment Grade (IG) Credit, Absolute traditional, to ensure that we optimise our risk budget. 3% 5% Return, Private Equity, Real Estate, Alternative Credit, EMD • Allocate a risk budget to assets in our investment Infrastructure, and Timberland & Farmland. Geographically, nearly two-thirds of the portfolio is 37% 2% Absolute Return universe as e昀케ciently as possible, while ensuring that invested in UK assets, which is largely driven by our 6% the interest rate and in昀氀ation risks within our liabilities We will continue to use a well-managed, conservative LDI internally-managed UK LDI and Credit assets as well as 6% Cash are fully hedged through our LDI strategy. strategy to ensure that interest rate and in昀氀ation risks within our externally-managed UK Real Estate and Infrastructure Alt Credit our liabilities are fully hedged. allocations. The next largest regional allocations are to 3% 5% The Board sets a risk budget for the Investment team, North America and Europe ex-UK. 6% Private Equity which drives the process for determining our Strategic Changes to Strategic Asset Allocation (SAA) 17% Infrastructure Asset Allocation (SAA). The non-LDI (growth) part of our Our SAA asset allocation was also revised this year to Measuring our performance portfolio is a diversi昀椀ed portfolio of public and private assets re昀氀ect additional risk considerations and minimise the We measure the performance of our investment portfolio Property with allocations that are optimised against our agreed risk risk of reserves eroding over the medium term. Main SAA over 昀椀ve-year rolling periods which we consider to Farmland & Timber budget. This approach is taken to ensure that we can pay changes were: be an appropriate investment time horizon to deliver UK Credit cash昀氀ows to our members as they fall due. the cash昀氀ows required for our members. This long- • An increase in Short Dated Corporate Bonds, UK Credit, term perspective also aligns well with our stewardship Gilts Restructuring our investment approach Private Equity and Infrastructure. expectations, as we recognise that engagements with Following the publication of our funding strategy review • A decrease in Listed Equity, EMD, Absolute Return and companies and other issuers can take a number of years Split of geographical breakdown in September 2022, and the shift in market dynamics, Government Bonds. to bear fruit. we completed a detailed review of our SAA. Our new 1%1% funding framework, which went live on 1 April 2023 The ESG & Sustainability team continues to work with all Considering the needs of bene昀椀ciaries in our 4% (just after the period we are reporting on), separates the asset classes to ensure our stewardship approach is fully stewardship process and activities United Kingdom funding requirements for current members from those integrated into all portfolios. As mentioned, we have built our responsible investment of future claims. In response to this, we’ve established a and stewardship processes to safeguard sustainable returns Europe ex UK new investment framework. This splits our investment 10% 1% 2% North America How the fund is managed in the long term, in line with the long-term nature of our 1% portfolio into two in order to align with the separate funding liabilities and our investment horizon. We also consider 2 Asia Paci昀椀c requirements and deliver the required returns: We manage just over half of our assets (UK LDI hedging other stakeholders such as our levy payers when striving to strategies, hybrid assets and strategic cash) in-house generate these returns in a sustainable manner, and consult 15% Asia Emerging Matching portfolio – The objective of this portfolio is to through a team of portfolio managers. The remainder is with our levy payers on an ongoing basis regarding our 65% Middle East & Africa be a fully-funded annuity portfolio for current members. managed by external fund managers across a range of funding strategy as discussed on page 16. It can use a limited amount of leverage to manage interest vehicles, including segregated accounts, pooled funds, Latin America rate and in昀氀ation risk, but this is expected to diminish over closed-end funds, co-investments and passive instruments. Europe Emerging time. The Matching portfolio contains Government Bonds, 1 Other Derivatives, Cash and HAIL (UK Credit) assets. 1 HAIL: HAIL/Hybrid assets – Investments which possess attributes of both liability hedging and growth assets. 2 Investments that possess attributes of both liability hedging and growth assets. 3 The newly created Matching portfolio will consist of the Gilts portfolio and part of the UK Credit portfolio.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 19 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 INVESTMENT APPROACH AND INCORPORATING ESG CONTINUED Our approach to ESG integration Leading on RI standards We expect our external managers to in昀氀uence issuers, Standardising emissions reporting for Real Estate Given our size and the global reach of our assets under regardless of asset class, and update us on their actions. Embedding ESG considerations across the portfolio Last year, we started asking our external Real Estate management, we have the opportunity to encourage This includes engagement, taking part in collaborative In line with our RI strategy, detailed in our 昀椀rst RI report managers to report carbon emissions data at the fund RI improvements in our investment portfolio across the initiatives, and being transparent about voting where we and on our website, we embed material ESG considerations level. We quickly realised that each manager reports world. We see this as an area where we can in昀氀uence have ballots. We regularly carry out in-depth reviews of our right across our investments and our work with external emissions using di昀昀erent methods assumptions and help set new standards for the asset management external managers’ activities to assess how they’re engaging managers, from manager selection through to ongoing and estimations. industry, particularly in private markets with less-developed on our behalf. We particularly scrutinise their stewardship, monitoring and reporting. We also engage with underlying stewardship practices. especially in relation to our key themes such as climate issuers in our portfolios and use our voting powers to We decided this year to request that managers report change, human and labour rights, D&I board governance advocate for strong ESG practices. emissions at the asset level using metrics recommended Listed equities have the best-established stewardship and executive remuneration (see page 28). by the Partnership for Carbon Accounting Financials practices. But – as shown on page 18 – they only make up Increasing our internal access to portfolio data (PCAF), a global initiative supported by key 昀椀nancial a relatively small part of our total portfolio. In asset classes We regularly review the services of MSCI, our main ESG data institutions that aims to standardise global emissions where good stewardship isn’t fully established, we aim to provider, which is rapidly expanding its breadth and depth accounting across all asset classes. identify and encourage the most thorough and e昀케cient of analysis, especially for climate-related analysis. Much Our Real Estate managers had some di昀케culty approaches. Our regular review meetings with our asset of this expansion feeds directly into Aladdin and FactSet, providing all the asset-level information required to managers often include partnership and education around our main portfolio management systems, so we can run enable true aggregation, but over 60 per cent (by asset these approaches and emerging developments. comprehensive ESG assessments for our listed Equity and value) were able to report PCAF Quality Scores for the Credit portfolios on the 昀氀y. We have broader ESG data emissions they calculate. and scores available through our portfolio management systems for 70 per cent of the Fund’s net asset value (NAV), We are very pleased that we took this 昀椀rst step toward Our key themes accounting for almost all of our listed holdings. standardisation, which should lead to more useful and better quality analysis. We look forward to working Environment Social We have more recently acquired access to MSCI’s Implied with our Real Estate managers, communicating the • Climate change • Wider societal impacts Temperature Rise (ITR) data. This indicates whether bene昀椀ts of PCAF metrics and generating the required • Natural resource stewardship • Human capital management companies align with the global goal of keeping average information to aggregate emissions accurately across temperature rises this century to well below 2 degrees our Real Estate holdings. • Pollution, waste and circular economy • Human and labour rights Celsius (2°C) to prevent the worst e昀昀ects of global warming. Setting exclusions Taking action We insist on a high level of responsible conduct from our underlying issuers, and seek to avoid investing in issuers During the year, we implemented ESG reporting that contravene international conventions or norms for across our internal Strategic Cash assets. These controversial activities that are rati昀椀ed into UK law – for reports are used by the relevant desk manager to example, the production of speci昀椀c controversial weapons. analyse individual holdings and report the funds’ We implement this through a small exclusion list, which is position to the Investment Committee. We use MSCI applied across the Fund as far as is practically possible. data to provide an analysis of the individual holdings Engagement and voting in the fund and then overlay this with qualitative Strategy, risk and communication Governance internal analysis of outliers 昀氀agged by MSCI. A As outlined in our full Stewardship Policy, we strive summary of the monthly analysis is provided along to extend our stewardship activities across our entire • Risk management • Shareholder protection and rights with detailed data sets for the manager to evaluate. investment portfolio. We amend our approach depending • Corporate reporting • Executive remuneration The desk manager was involved in the creation of the upon the asset class or strategy, how directly we’re invested • Business purpose and strategy • Board e昀昀ectiveness report template, with training provided on the MSCI in it and the level of control we can leverage. We believe scoring methodology. in engagement as a path for veri昀椀able and tangible impact regarding material stewardship issues. We’re strong advocates for supporting companies, governments and other issuers in building and sustaining good governance and progressing their practices on environmental and social matters. In order to incentivise issuers, we are committed to transparent voting following a robust assessment and review of the practices of a company. More on our approach to voting is on page 36 onwards.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 20 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 INVESTMENT APPROACH AND INCORPORATING ESG CONTINUED Ensuring our external agents are Oversight of our external investment managers Below are the average scores within our Liquids portfolios aligned with our approach We apply robust RI requirements that all our external by each asset class: External agents (such as third-party asset managers and our managers must meet prior to investment (and on an Internal ESG & Stewardship Disclosure Score for external specialist stewardship services provider EOS) are critical to ongoing basis), to ensure we are fully aligned. We will managers of liquid assets (1 = lowest 3 = highest) helping us manage our investment portfolio e昀케ciently and not appoint or allocate more capital to managers that responsibly. We continually monitor these agents’ practices fall short of these standards. See page 21 for further Weighted Weighted in order to keep improving the quality and coverage of their detail on our manager appointment process, including average score average score stewardship activities and ensure consistency with our own our minimum requirements and case studies of how in 2022 in 2023 investment beliefs, policies and guidelines. we have engaged with managers prior to funding. Public Equity 2.6 2.2 Holistic oversight of our external agents is carried out We require disclosure of all existing and potential Absolute Return 2.1 2.2 across the Investment team, ESG & Sustainability team, managers’ policies, ESG integration and stewardship Global Credit 2.8 3.0 Operational Due Diligence (ODD) team and the Commercial processes and reporting to ensure they meet our Emerging Debt 2.2 2.7 Services team, ensuring robust analysis in the manager evolving expectations (see Appendix H). Quarterly selection process and throughout the life of our relationship stewardship reporting is required from all public markets Across asset classes, our external managers have with a manager. managers, and the quality of this reporting feeds into our accelerated their overall ESG disclosure and at least ongoing monitoring and ratings process. We also expect one manager’s score has been upgraded, with the rest Oversight of our stewardship services provider our Private Markets managers to provide this reporting, remaining stable except for Public Equity. The higher We have chosen to outsource stewardship activities for albeit less frequently. average score re昀氀ects improvements in engagement our segregated listed issuers to EOS, part of Federated e昀昀orts and climate analysis. See the case study on Hermes, to ensure that our shares are voted cost-e昀케ciently Our external managers are also reviewed by our Emerging Debt on page 25. and companies are engaged with where ESG concerns dedicated ODD team on a scheduled basis. The ESG & arise. Our 2020/21 RI Report provided more detail on Sustainability team works closely with the ODD team to The reason for Public Equity’s lower overall score is our selection process for these services. We carry out ensure that ESG considerations are fed into the review not because managers’ reporting has deteriorated but oversight of EOS’s engagement services for both our process. We screen for reputational risks associated because in some cases the manager’s reporting hasn’t segregated and direct investments. EOS also provides with personnel and request updates on their 昀椀rm’s D&I improved su昀케ciently to maintain a score of three. We voting recommendations to us for our segregated equities metrics in our annual ODD questionnaire, which is sent have engaged extensively with two managers that have in line with its published corporate governance principles. to all external managers. The ODD team also reviews been lagging – particularly in their stewardship reporting However, we are always in control of the vote and have managers’ policies in key areas such as ethics, business – and have started seeing some improvement as a result. the ability to exercise our voting rights in segregated continuity, disaster recovery and money laundering. We will consider upgrading these managers if they holdings in line with our own policy and principles. demonstrate consistent ESG performance. Internal ESG disclosure scoring model of our External managers are reviewed quarterly. We report external managers the distribution for the quarter to our Investment We also monitor our Private Market managers using the Taking action We have a thorough internal process to monitor and Committee and our Head of ESG & Sustainability raises any same scoring system, and are pleased to see that most track progress of all our external managers regarding identi昀椀ed risks. of them have started to provide information as part of ESG, with a focus on the bespoke ESG disclosure and the eFront ESG Outreach pilot project to improve ESG We monitor EOS’s activities through regular reporting they provide for funds we hold with them. The ESG & Sustainability team and the relevant internal disclosure within private asset classes (see page 21). emails and phone calls, more formal quarterly We identify laggards and leaders within each asset class, portfolio manager attend quarterly calls with external We have upgraded the score of those private market client meetings, and have fed back extensively on and we score managers by asset class accordingly from Liquids managers (the manager provides ESG reporting managers that have started to provide disclosure the usability of its client portal over the last year. one to three: in advance of the call). In the call, we engage with through eFront and we are engaging with remaining We also participate in EOS’s semi-annual client managers on their overall ESG e昀昀orts, we exchange non-respondents to provide greater transparency. advisory council meetings. • Funds that score ‘1’ do not meet our minimum views, and we raise requests with them. We have seen requirements and will not be considered for further a big evolution in ESG reporting across our Liquids Internal ESG & Stewardship Disclosure Score for external During the year we met with EOS to discuss funding if they do not show improvement. Funds managers. The 昀椀rst round of reporting we received in managers of private assets (1 = lowest 3 = highest) improvements to its controversies service. We also with this score are usually legacy holdings of funds 2021 included basic analysis of the fund’s ESG pro昀椀le Weighted Weighted agreed to adjust their annual engagement reporting in wind-down. and a few climate metrics. By the end of Q1 2023 – average score average score schedule to align with the PPF 昀椀nancial year-end. • Funds that score ‘2’ meet our minimum requirements thanks partly to engagement and the bespoke reporting Private Markets in 2022 in 2023 This means we no longer need to aggregate and are broadly satisfactory in their ESG practices templates we provided to managers – we were receiving Alternative Credit 1.6 1.9 engagement data from di昀昀erent reporting years and reporting. detailed reporting about each fund’s ESG pro昀椀le and internally, creating signi昀椀cant e昀케ciencies for outlook, stewardship and due diligence, carbon analysis Private Equity 2.3 2.5 our team. • Funds that score ‘3’ are leaders in the asset class and and climate stress testing and alignment. Infrastructure 2.5 2.5 showcase excellence. Property 2.7 2.7 Timberland and Farmland 2.6 2.6

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 21 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 Engagement with issuers is a Asset class Owner of engagement Integration and stewardship approach fundamental pillar of our RI Primarily internally-managed assets strategy and the approach by Liability Driven PPF We engage with borrowers, primarily during reissuance or re昀椀nancing. We have less in昀氀uence with which we believe we can e昀昀ect Investment (LDI) sovereign debt, although we engage on market-level issues like LIBOR, RPI, and gilt issuance greatest change. We’ll always look UK Public Credit & PPF We engage with borrowers, more so around reissuance or re昀椀nancing to exhaust the engagement process Strategic Cash EOS EOS also covers these portfolios for engagement services before considering divestment UK Private Credit PPF We engage with borrowers, more so around reissuance or re昀椀nancing from a holding. External managers We engage with our external managers on their activities Primarily externally-managed assets How we engage Listed Equities EOS We re昀氀ect any concerns from our assessments in our voting and engagement approach We engage with issuers in a number of ways: directly, through our external External managers Managers can exert in昀氀uences on companies through voting and engaging with company management. agents, or through collaboration initiatives – when we consider it is in our Approaches will di昀昀er depending on whether managers follow high-in昀氀uence, systematic or active strategies bene昀椀ciaries’ long-term interests to do so. We expect boards of investee External manager monitoring. We also use intelligence from EOS’s engagements to inform our oversight companies to show responsibility, integrity, and independence. In cases of our managers’ activities where a company board deviates from principles of good practice, it should explain its reasons for so doing. Listed Credit: Corporate, External managers Managers can engage with borrowers, more so around reissuance or re昀椀nancing – less in昀氀uence with We prioritise engagement on those themes of greatest importance to us. As part sovereign, emerging sovereign debt of this, we work closely with our stewardship services provider EOS to de昀椀ne markets (EM) We monitor external managers’ own engagement practices and activities focus areas and provide feedback on them. More detail on our engagement approach was provided in our 2020/21 RI report and on our website. Absolute Return External managers Managers can engage, but with limited in昀氀uence in strategies with shorter holding periods However, there’s still a big need to boost transparency around engagement, We monitor external managers’ own engagement practices and activities especially in asset classes such as Sovereign Debt and Private Assets, both of which have great potential for positive impact. Over the past year, we’ve Real Estate External managers Managers with full control of assets can engage with tenants and local community continued to encourage improvements in these areas and supported our We monitor external managers’ own engagement practices and activities managers to engage with relevant issuers in their portfolios. Private Equity and External managers Managers can engage with companies or assets in primary funds, or with operating companies in Infrastructure EOS infrastructure, especially if they have board seats. We monitor external managers’ own engagement practices and activities We prioritise engagement on those themes EOS engages on our listed infrastructure holdings of greatest importance to us. As part of Alternative Credit External managers Managers can have ongoing dialogue with borrowers, but have limited control over management. this, we work closely with our stewardship We monitor external managers’ own engagement practices and activities services provider EOS to de昀椀ne focus areas. Secondaries/ External managers We monitor external managers’ own engagement practices and activities Fund of Funds

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 22 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 CASE STUDY we manage internally Sharing best practice on leveraged LDI As explained earlier, we manage approximately half of our assets by value internally, all of which are in various Most pension schemes use a leveraged LDI strategy This outcome is a validation of our decision to manage types of 昀椀xed income. Industry-wide, engagement with that allows them to o昀昀set the interest-rate exposure of our LDI strategy in-house, which meant we had a real- 昀椀xed-income issuers is at an early stage of development, their liabilities while still being able to invest in return- time view of our position and were able to react very partly due to investors’ limited in昀氀uence in many areas. generating growth assets. The downside of using a quickly as conditions changed. We also have an excellent However, engagement is developing and its importance leveraged strategy is when yields rise, pension schemes in-house investment operations team, who oversaw the is becoming increasingly appreciated. We take a variety have to 昀椀nd additional assets to post as margin. timely transfer of the extra security we had to pledge, of approaches to engagement in this area, largely and made sure that the information we had about our depending on the size of our investment, maturity of the In the summer/autumn of 2022, yields rose rapidly and portfolio was up to date at all times. 昀椀xed-income asset and whether the issuer is corporate some pension schemes found they were running short or sovereign/quasi-sovereign. of assets that they could post as margin, and were faced As a result of our handling of the market crisis and with a choice of being forced sellers of other assets to deep understanding of the market, the PPF LDI team Engagement options for raise cash or lose their leveraged LDI exposure. This made itself available to regulators and other bodies to internally-managed assets episode highlighted the importance of having a level of educate and inform trustees about what we consider leverage, overall investment strategy/asset allocation, and best-practice governance, and how decisions around Engaging via Engaging Engaging via governance process that are mutually supportive – and investment strategy/use of leverage/governance need EOS directly collaborations a process that allows decisions to be made in a timely to be interlinked. & networks manner with clarity around responsibilities. The interaction our LDI team had with the market on The direct impact of the situation on the PPF was limited. the LDI crisis included: We were never in any danger of being forced to sell any of • engagement with the Bank of England and The our assets and could have weathered further substantial Pensions Regulator to provide market intelligence to rises in interest rates, and our reserves remained steady. help them be better informed in their responses, and to o昀昀er quick feedback on their interventions; Issuers • engagement with the UK DMO to assist in understanding the impact of the changing market environment on how it can fund the government’s Engagement in our UK LDI assets annual borrowing requirement; One of our aims is to improve the e昀케ciency and • gave evidence to the UK Parliament Work & Pensions functioning of markets through collaboration with Select Committee, providing details of how the PPF stakeholders and policymakers on important issues. As a manages leverage in our LDI strategy and what we major participant in the UK Government Gilt market within consider best practice; our LDI assets, we regularly engage with the UK Debt • spoke at a virtual industry event (Pension Playpen Management O昀케ce (DMO) and HM Treasury on a range webcast) while the market turmoil was still playing out of issues. This involves taking part in annual consultations, to help inform trustees as to what we think best practice forums and investor roundtables. For example, during in governance of leveraged strategies looks like; the LDI crisis in autumn 2022, we engaged closely with • spoke on a panel at the Pensions and Lifetime Savings government, regulators and other bodies to share our Association (PLSA) conference, again on the theme perspective on managing leveraged LDI e昀昀ectively – of the interrelatedness of leverage management, see opposite. investment strategy and governance; and • engaged with 昀椀nancial and pensions media to ensure broader public understanding of the dynamics of LDI mandates and their impact on the Gilts market. Outcome: The PPF welcomed the opportunity to share our perspectives and practices on managing an LDI portfolio e昀昀ectively. Earlier this year the Bank of England published a paper outlining minimum levels of resilience expected of LDI funds.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 23 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 in our UK Credit and Strategic Cash assets We take a nuanced approach to engagement within our Taking action Internal credit issuer engagements UK Credit assets, given that part of the book is invested in Sector: Automotives Sector: Financial Services public credit and part in private credit. These are generally The topic of quality a昀昀ordable housing in the UK Asset Class: Strategic Cash (short-term debt) Asset Class: UK Credit (HAIL assets) longer duration assets, so di昀昀er from our Strategic Cash came to the fore this year with concerns around Issue: Electric vehicles strategy and public Issue: Climate transition planning book which is much shorter in duration. mould, health and safety, and poor general policy advocacy maintenance of accommodation all receiving Background: A large US bank has faced numerous As largely listed instruments, our Public UK Credit and signi昀椀cant media coverage. Background: Engagement by EOS took place with challenges in recent years in relation to its conduct and Strategic Cash books have reasonable ESG and carbon data a large German automotives company regarding its culture. In addition to engaging on these, EOS has also coverage within our portfolio management systems. We can We have engaged with our external Real Estate level of ambition and lack of intermediate targets for engaged on the bank’s commitment to climate action, use these systems to monitor the portfolios regularly, along managers to understand whether action plans are in the company’s electric vehicle strategy. Its support for given its weak position in comparison to its US peers, with assessments from open-source initiatives. For example, place to address these issues and the extent to which certain industry bodies whose lobbying activities are calling on the company to produce a credible transition being an investor member of Climate Action 100+ has they have been incorporated into business. We have at odds with the goals of the Paris Agreement was also plan across its 昀椀nancing activities. helped us understand and engage with European energy also engaged with the UK Regulator of Social Housing highlighted as an area of concern. corporates on their transition plans when reviewing their to understand its e昀昀orts in enforcing accommodation Action: During meetings, concerns have been raised debt instruments for inclusion in our portfolio. standards, mindful of its other mandate to ensure Action: This has been a multi-year engagement, in relation to the quality of disclosure provided around 昀椀nancial viability. This matter will require ongoing involving site visits, investor-day participation and emissions 昀椀nancing activities across the bank. Although Our UK Credit and Cash assets are also under the remit engagement. We will continue to report on progress multiple in-person and virtual meetings with company the company has been open to engagement, progress on of our external stewardship services provider EOS, who as more information becomes available. representative, including the supervisory board chair disclosure has not met expectations and the perception engage with debt issuers on our behalf. The EOS platform and the head of external a昀昀airs and sustainability that the organisation is following its peers, rather than allows us to monitor the progress of all engagements executives. In addition, questions were submitted to taking a lead has not diminished. with an issuer (regardless of where we hold it in the the Board at Annual General Meetings in 2020, 2021 capital structure). and 2022. The company was urged to engage with a Outcome and next steps: As a result of this weak group of investors proposing a shareholder resolution perception of intent in relation to managing 昀椀nanced Our private credit assets are typically held for the long requesting increased disclosure on the company’s direct emissions, a vote was made in favour of a shareholder term and often have very little secondary market liquidity. and indirect lobbying. Examples of industry best practice proposal requesting a policy consistent with the This makes ESG due diligence assessments, issuer and guidance reports were also shared. International Energy Agency’s Net Zero Emission by 2050 engagement, and getting the right covenants in place scenario. Engagement with the company is ongoing. pre-investment absolutely critical. Outcome and next steps: The company has signi昀椀cantly Rising interest rates and the higher cost of borrowing have increased its ambition regarding electric vehicles. This reduced issuance of new credit. Overall, this has resulted in includes publishing ambitious EV sales targets, and higher quality issuances coming to the private market, with setting emissions reductions targets that take account The company was urged entities that operate in regulated sectors faring best. Where of the supply chain and end-of-use phase. necessary, over the last year, we have continued to decline In April 2022, the company announced: “To ensure that to engage with a group deals in private credit where there are governance concerns our government a昀昀airs activities and our engagement of investors proposing around an issuer. through the company’s memberships are consistent with the long-term goals of the Paris Climate Agreement, we a shareholder resolution are constantly reviewing these engagements” and that “we will provide more information on the company’s requesting increased Our private credit assets are individual government a昀昀airs activities so that our disclosure on the company’s typically held for the long stakeholders can better understand our e昀昀orts to achieve carbon neutrality”. In May 2022, its 昀椀rst Group Climate direct and indirect lobbying. term and often have very little Engagement Report was published, despite falling short of expectations. secondary market liquidity. Next steps will include providing feedback on the inaugural report and future emissions strategy. Encouraging stronger disclosure on the company’s transition strategy in relation to stakeholders and mitigation plans also feature in our Climate engagement roadmap.

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.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 25 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 Sovereign Debt – Debt issued by governments is a Absolute Return – For our Absolute Return mandates, fundamental asset class for many asset owners as we have so far predominantly monitored our physical well as being a pillar of a well-functioning economy. investments (leaving derivatives or synthetic instruments In emerging market debt (EMD), successful engagement aside for now). The two areas of most relevance are with governments often requires a concerted e昀昀ort over positions in long/short equity or credit and event-driven a long period of time. However, debt investors are vital strategies, where our managers have engaged directly for pressing governments on a range of topics, including with corporate issuers. transitioning to clean energy and stopping deforestation. We welcome the evolution of tools and data sets that Absolute Return engagements deepen the ability of investors to measure climate- Asset Class: Credit related and other ESG risks presented by sovereign bonds. Sector: Health Care Providers We strongly encourage our managers to contribute Issue: Allegations of residents’ mistreatment knowledge and resources to drive this progress further. Background: The Health Care Provider’s bonds and Sovereign issuer engagements stocks sold o昀昀 following the release of a book detailing the treatment of residents. Asset class: Sovereign Debt Action: Such price dislocation raised our external Issue: African frontier market manager’s interest and they investigated the Background: An African frontier market saw a situation. After analysis, the view was that the steep increase in Sovereign Debt levels under its company’s bonds were well collateralised but that previous administration, pushing public and external the equity holders were likely to be wiped out in a debt ratios to 120 per cent of GDP and resulting in a necessary restructuring. As a result, the manager still unresolved debt default. Constitutional provisions looked into building a long bond, short equity were in place to subject any new borrowing to position. However, it was noted that investing parliamentary approval but were not honoured by in such a troubled company could not be made the authorities due to the lack of a supportive legal without addressing the treatment of residents framework. The country also scores weakly on and the company’s governance concerns. Once a corruption and this has worsened in recent years. management change was implemented, our manager Action: One of our external managers wanted met with the CEO and CFO to understand their plans for addressing the historical poor treatment of to emphasise to the country’s authorities the residents and to stress that this was the cornerstone importance of public oversight on borrowing and to a successful turnaround. The company’s new urged a revamp of legislation in this area in order management was very receptive. Our manager was to make the country a more attractive long-term also comforted by the fact that a state-owned bank proposition to investors. The manager held meetings was involved, meaning that the restructuring would with the country’s 昀椀nance ministry and central bank receive both additional political commitment and authorities in 2020 and 2022. The 昀椀rst meeting was heightened scrutiny. used to urge action on the debt situation, including an improved legal framework. Although little progress Outcome: Since the scandal, the 昀椀nancial restructuring was initially made, a new administration took o昀케ce has been agreed and new procedures have been put in 2021, and introduced various reforms and agreed in place to improve the quality and oversight of the a loan programme with the IMF. Meeting the Ministry company’s services. of Finance in 2022 enabled additional discussion and assurances on a bill for loan approval governance. Outcome: Following the discussion in 2022 and the proposed legislative changes, the manager was comfortable introducing exposure to the country’s Sovereign Debt to the portfolio. The manager continues to monitor the parliamentary bill’s progress.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 26 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 How we engage with private markets and unlisted assets Private Equity – Private Equity managers have a central Looking ahead, the manager believes the greatest Given the diverse nature of private markets, we take a role to play in the energy transition, given their ability to opportunity to reduce methane emissions (and improve Taking action nuanced approach to engagement within these asset classes. invest in and support businesses across the energy value emissions measurement) involves cutting-edge measuring We have continued to work with our managers in this space chain. For example, this year one of our managers identi昀椀ed and monitoring technologies. The manager and its portfolio During the year, Sanjay Mistry, Head of Alternative to increase their stewardship and engagement processes. methane emissions regulation as a key risk to its natural companies continue to evaluate monitoring solutions as Credit at the PPF, joined the UN-supported Principles resources portfolio companies – particularly given the new the technology advances and the economics of adopting for Responsible Investment (PRI) project, in Although progress is not always positive, we have been In昀氀ation Reduction Act (IRA), which stipulates that methane it improve. conjunction with the Alternative Credit Council, able to identify the leaders and laggards within our portfolio, emissions reported in 2024 by the US oil and gas industry to design a ESG Due Diligence Questionnaire (DDQ) which helps us assess future investment opportunities more will be subject to tax. Private Debt – Our Private Debt managers are less likely to e昀昀ectively. We look to our appointed managers to drive have signi昀椀cant control or leverage with underlying issuers. for private credit investments. This DDQ aims to help improvement in the companies and managers in which The manager proactively engaged portfolio companies However, we still expect them to engage where they do investors better understand and evaluate private debt they invest. We encourage managers to provide us with on ways to reduce the 昀椀nancial risk associated with have access to management. managers’ approaches to responsible investment. information on progress and demonstrate to companies these emissions. In 2022, many of its portfolio companies The document was published in July 2023 and Sanjay the value of more stringent sustainability practices. undertook an analysis to quantify the 昀椀nancial impact of the participated in the presentation of the document at IRA tax had it already been in place. Thanks to a concerted Private market engagements the launch event. Our interactions with general partners (GPs) and expectations e昀昀ort, the majority of companies had already achieved Asset class: Private credit of how they engage with portfolio companies will di昀昀er from signi昀椀cant reductions in methane emissions through Issue: Reaching sustainability and inclusion targets our expectations of our secondary managers, and how they measures such as replacing pneumatic devices, improving engage with underlying GPs. In terms of control, we have vapour recovery or deploying advanced emissions Background: One manager is demonstrating ESG Real estate – One of our property managers is responsible greater expectations around stewardship where GPs hold monitoring. As a result, upstream methane intensity has excellence and is exercising its power as a credit for the day-to-day management of a European (inc. UK) board seats or controlling stakes in companies. decreased 67 per cent since 2020, including a 46 per cent investor by introducing ratchets on credit margins property portfolio. As part of this role, they oversee the decrease over the past year, reducing the potential impact to some portfolio companies. These have included properties’ sustainability pro昀椀le. In 2021, the manager of the new tax. a 昀椀ntech platform that provides retail wealth launched a pilot with Smartvatten, a provider of remote management platforms to major 昀椀nancial institutions. water-monitoring devices. The pilot covered the Action: In this example, the manager was able to implementation of water-monitoring devices in 10 assets introduce ESG-linked margin ratchets that were across various locations and sectors over a 12-month symmetrical (upward and downward) to ensure the period. The devices have provided the fund with real-time company continued its progress on more inclusive insight into water usage at the properties and have helped sustainability and maintained ambitious targets. with detecting water leaks. Following the success of the The manager has put two ESG KPIs in place: pilot, the manager has instructed Smartvatten to roll out the device across the whole property portfolio. Some of the • Percentage of female professionals: To reach manager’s other European funds and clients are considering 47 per cent by year-end 2022 and 50 per cent using the same system. by year-end 2023. Infrastructure – We are invested in an Infrastructure fund • Sustainability indicators: Group carbon emissions that has three core investments all focused within Europe. to be reduced by c.10 per cent per year over It is engaging with all of its portfolio companies (including the next three years; percentage of assets under the ones that we hold with them), asking them to: devise administration focused on ESG strategies to reach a roadmap for aligning with Net Zero; complete a detailed 32 per cent by year-end 2022 and 56 per cent climate change impact assessment; and put in place key by year-end 2023. measures to achieve strong governance of climate-related These KPIs will reduce margins by 5bps if both KPIs risks and opportunities. Only one remaining company in are met, thereby reducing the company’s cost of the fund is still to set targets. Eighty-four per cent of energy borrowing or raise margins by 5bps if neither KPI generated in the fund is from renewable sources. Apart from is met, thereby increasing the cost of borrowing. climate change, the manager is also engaging all holdings on health and safety, diversity, governance, and employee engagement. We receive detailed reporting on progress in all these areas.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 27 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 Forestry – Forestry is one of the few viable nature-based investment solutions in the journey towards a Net Zero Taking action carbon world. Well-managed forests can also increase biodiversity and are more resilient to climate change. Leveraging existing positions and manager relationships We are pleased to see that almost all our assets continue to optimise future investment exposure is a key part to be certi昀椀ed to the highest international standards (FSC of our portfolio management process. This year, we and/or PEFC). The small percentage that is not certi昀椀ed ensured that a restructuring of one of our existing is allocated to new planting sites – and the manager hardwood forestry assets met with our investment is expecting the area to be certi昀椀ed when planting is and ESG requirements. completed – or where ownership restrictions prevent such certi昀椀cation. As well as certi昀椀cation statistics, we The Tasmanian Forestry Trust is a mature ask our managers to report carbon sequestration data 170,000-hectare hardwood plantation in Australia. (all have reported to us). Since there is no standardised We were able to secure long-term direct exposure methodology on this yet, we are still unable to fully to this important asset by forming and leading a aggregate the data. However, we have been working consortium of three pension funds to enable a buy- with an external consultant to establish an assessment out. In this way we were able to meet the liquidity methodology for this asset class. requirements of existing investors. eFront ESG Outreach pilot project Asset Class: Private Assets We anticipate this initiative will go a long way Issue: Improve ESG reporting in private markets to improving the process for private market data Background: We have been closely involved in a collection, especially among smaller managers that haven’t yet built out their own reporting functionality. pilot project led by one of our data solution providers The ultimate aim is to open the product up to over eFront (part of BlackRock) to address the lack of ESG 2,500 private market managers, reaching over 70,000 and climate-related data and reporting from private private companies. companies. We joined the pilot as a limited partner (LP) in late-2021, working with a selection of private equity Next steps: The 2023 update has been signi昀椀cantly and credit general partners (GPs) managing funds with expanded across the eFront platform and increased vintage years from 2015 to collect relevant ESG and eightfold for the PPF’s GPs. This project has been a climate metrics on underlying portfolio companies. useful learning process for our internal investment Action: We have played an active role in the eFront ESG teams. Being able to discuss what is important to other LPs will help guide our development in private market LP working group to guide the project. Initial outreach investing. One realisation is that GPs – the professionals to private equity and credit GPs was made by the eFront who run a private markets fund day-to-day – need coordinators. We then wrote to our selected private to increase their understanding of the importance markets GPs directly and asked our internal heads of each of timely ESG data. Currently the signi昀椀cant lag in desk to discuss the project during their review meetings data distribution is at odds with Sustainable Finance with the GPs and encourage participation. Disclosure Regulation (SFDR) disclosure requirements Outcome: With our encouragement, 60 per cent of our for managers. This in an area that the LP working selected GPs that were contacted in the pilot reported group and eFront intend to focus on this year. portfolio company data – four times higher than the overall response rate. eFront was also able to o昀昀er LPs the option to 昀椀ll some data gaps with sector estimates. As a result, emissions data (whether actual or estimated) was available for just over 90 per cent of our portfolio companies in those funds that responded to the pilot.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 28 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 Partnering with our Ongoing collaboration with external managers external managers Our minimum ESG and stewardship requirements In addition to general oversight, we also look to work of external managers with asset managers on speci昀椀c issues. This could be We engage deeply with our external asset managers both • Should be an active signatory to the Principles involvement in a wider industry project, or directly in during our initial selection process and on an ongoing basis for Responsible Investment (PRI) or considering relation to an underlying asset – see case study below. to ensure they can meet our high standards on stewardship becoming a signatory. and ESG integration. Throughout our relationship with • Must provide evidence of a Responsible CASE STUDY managers, we encourage constant improvement in their Investment (RI) policy and implementation approaches to managing ESG and climate-related risks. of ESG considerations within investment Partnering with an external We also use insights from our stewardship services provider, decision-making and active ownership that EOS, in its engagement with issuers on material ESG issues covers the proposed fund or mandate; or manager on a direct to inform our conversations with managers about their own must have a commitment to implement such company engagement engagement in these areas. a policy no later than 12 months from the PPF’s initial investment. Sector: Financials Our manager selection process • Must accommodate inclusion of the PPF’s Asset class: Equities Our initial manager selection process includes an ESG standard ESG and RI clauses within the fund Issue: Climate transition and sustainable 昀椀nancing Questionnaire. This is a scored mandatory list of questions terms (or provide a marked-up version with any that prospective asset managers must answer on a pass/ minor amendments sought by the manager’s Background: Portfolio climate analysis 昀氀agged an fail basis in order to progress through the tender process. counsel) and be able to apply the PPF’s exclusion Indonesian bank for its important role in capital The ESG Questionnaire comprises several sections lists, as appropriate. 昀椀nancing in environmentally critical areas. We wanted including: Governance & Alignment; Diversity & Inclusion; more information on the bank’s climate transition RI Policy & Strategy; ESG Incorporation; Integration & • Must provide fund-speci昀椀c ESG reporting. strategy and to discuss its short- to medium-term Risk Management; Stewardship & Active Ownership; and • Must have a Diversity & Inclusion policy with goals on sustainable 昀椀nancing. Reporting. Appendix F shows a sample list of questions clear implementation within relevant internal Action: The PPF and one of its external equity within the Stewardship section of the questionnaire. See management processes. managers held a call with the bank to gain insight the box on the right for our minimum requirements of • Must complete the PPF’s ESG Questionnaire, into the company’s strategies on climate transition. managers regarding stewardship and ESG. with no signi昀椀cant risks or issues 昀氀agged by We also wanted to encourage the bank to expand the PPF ESG & Sustainability team. its sustainable 昀椀nancing policies in alignment with Indonesia’s commitment to limit global warming in accordance with the Paris Agreement. The exploratory Taking action call helped to gauge the bank’s approach to sustainable 昀椀nancing. We were pleased to hear about its process Throughout our relationship for integrating sustainability factors and certi昀椀cations with managers, we encourage In 2022, one of our external equity managers lost its into its underwriting process, its sustainable 昀椀nancing signatory status to the FRC Stewardship Code, having programmes and growth targets attached to strategies. constant improvement in their failed to meet the FRC’s disclosure requirements. We Areas of disclosure weakness were discussed and a discussed this with the manager, both to emphasise request made to submit data to the climate change approaches to managing ESG the importance we place on managers meeting the questionnaire provided by CDP, the global disclosure FRC’s standards, and to understand where the failings system provider. It was also recommended that the and climate-related risks. occurred and how the issues would be remedied. bank set emissions targets ahead of its planned 2026 The manager talked us through the feedback they schedule where possible. received and their plan to address this feedback. Outcome: The call was extremely useful for the PPF, providing access that we may have not been able to achieve alone and allowing us to gauge the bank’s appetite for dialogue on this issue. Areas for future discussion have been agreed in collaboration with the equity manager and we hope to have a follow-up meeting with the company before the end of 2023, once the CDP annual database has been updated.

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.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 30 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 Working with our investments to deliver climate goals Creating our Climate Watchlist This year, in line with the IIGCC’s Net Zero Stewardship Our Net Zero engagement process Toolkit’s guidelines, we identi昀椀ed our Climate Watchlist: 87 companies in material sectors that collectively are Undertake portfolio Achieve asset responsible for over 70 per cent of the 昀椀nanced Scope alignment analysis, set Set Net Zero alignment Develop an owner and Establish a baseline 1 and 2 emissions associated with our public markets alignment goals and criteria, alignment engagement manager alignment, engagement and investments. Signi昀椀cant work has been done to ensure levels and time bound strategy for priority voting policy, and the use case for the Climate Watchlist is robust and will develop a stewardship engagement objectives companies engagement and escalation approach enable us to make better decisions as to where to focus prioritisation framework transparency our engagement activities. Of these 87 companies – which are predominantly based in the US and Asia Paci昀椀c – there are already established Breakdown of Climate Watchlist engagement engagement strategies for 45 companies through the Climate Action 100+ (CA100+) investor initiative. A further 22 are targeted for engagement by EOS, our stewardship 70%+ 昀椀nanced services provider. We are now identifying the best options emissions* – for engaging with the remainder, whether directly or 87 companies through collaborations – for example, via our external asset managers. EOS engagement universe – 22 companies CA100+ list: 45 companies * Using Scope 1+2 emissions. In addition to engagement, we have recently developed an escalation strategy for the Climate Watchlist that can be deployed when engagements are either failing or The creation of our Climate Watchlist is a signi昀椀cant progressing too slowly. Financed emissions analysis of the PPF portfolio will be undertaken at least annually achievement, enabling us to hone in on the companies that to ensure our Climate Watchlist always holds the most will have a real impact on emissions reductions of the portfolio. relevant names. Page 38 provides more detail on the voting activities and progress related to climate issues. Daniel Jarman Stewardship Manager

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 31 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 Engaging through our stewardship services provider As explained earlier in this report, we use an external stewardship services provider, EOS, to engage and vote Engagement themes: Our stewardship process to achieve long-term sustainable returns on investment across our segregated Equity mandates and also engage with Public UK Credit and Cash assets. Our Stewardship Policy Governance foundation Management pillars Environmental outcomes details how we work with EOS, its four-step engagement milestone process to drive change at companies (see right), Business purpose, Climate change action and the full list of themes considered. strategy and polices Latest activity and themes Natural resource stewardship EOS focuses its stewardship activities on the issues that it believes have the greatest potential to deliver long-term Risk sustainable wealth creation for investors and positive eness management Circular economy and zero pollution environmental and societal outcomes. Currently it is focused v on six outcomes: environmentally, these are Climate Change ection and rights ecti Action, Natural Resource Stewardship, and Circular Economy & ot Zero Pollution. Societally, its focus is on Wider Societal Impacts, d e昀昀 Executive Wider societal impacts Sustainable Human Capital, and Human & Labour Rights – see right. or pr ar remuneration wealth creation Bo These six outcomes will be priorities for EOS. However, it also est v Human capital continues to maintain a comprehensive engagement plan In covering a broad range of other themes that generally lead Corporate to wider positive societal outcomes. These include: seeking reporting to avoid the emergence of ‘superbugs’ through anti-microbial Human and labour rights resistance; increasing resource e昀케ciency through the circular economy; and reducing all forms of harmful pollution. Social outcomes Summary of the EOS engagement milestone process EOS focuses its stewardship 4. activities on the issues that it believes have greatest potential 3. The company implements a strategy to deliver long-term sustainable The company develops or measures to address wealth creation for investors and 2. a credible strategy to the concern The company achieve the objective, positive environmental and 1. acknowledges the or stretching targets societal outcomes. Our concern is raised issue as a serious are set to address with the company at investor concern, the concern the appropriate level worthy of a response Progress Engagement with investee companies happens in stages, following speci昀椀c milestones. Engagement can often take place over a multi-year period, so milestones track progress that are related to objectives set at the beginning of our interactions, which can vary depending on the types of issues raised.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 32 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 Our issuer engagement progress Engagement progress and outcomes We made solid progress in delivering objectives across regions and themes. At least one milestone was moved forwards for about 53% of our objectives during the year. The following chart describes how much progress has been made in Progress and outcomes from EOS-overseen assets achieving the milestones set for each engagement. In 2022/23, EOS engaged with 686 companies that we invest in (196 in 2021/22) on 1,098 objectives and 2,928 Environmental 188 284 broader ESG strategy, risk and communication issues and objectives. Its holistic approach to engagement means that it typically engages with companies on more than one topic Social and Ethical 129 150 simultaneously. The signi昀椀cant rise in companies is due to the increase in our mandates covered by EOS, since the end Governance 136 85 of the 2021/22 昀椀nancial year. Strategy, Risk and 68 58 Engagement by theme Communication A summary of the issues and objectives on which EOS No change Positive progress (engagement moved forward at least one milestone during the year to date) engaged with companies in 2022/23 is shown below. Engagement progress in 2022/23 EOS engaged with 686 companies on ESG objectives As shown on the previous page, EOS carries out our behalf in the following regions by theme engagement through a four-step ‘milestone’ process. This begins by raising a concern that EOS follows up diligently until it achieves a measurable outcome. The process can span quarters or even years. Developed Asia 82 EOS had another strong year of delivering engagement Australia and 26 Environmental 472 objectives. During the year, progress on 577 of the New Zealand Social and Ethical 279 outstanding objectives moved forward at least one EM & 78 milestone in the EOS process. The chart on the top right 686 Frontier Markets 1,098 Governance 221 describes how much progress has been made in achieving Europe 153 Strategy, Risk and 126 the milestones set for each engagement theme. Communication North America 281 During the year, 159 objectives were marked as complete United Kingdom 66 and 36 objectives had progress during the year but have since been discontinued. 294 were new objectives established during the year. Of the 521 objectives without progress during the year, 88 were discontinued and 11 were deemed to have completed the objective. The remaining During the year, 159 objectives were marked as complete 422 objectives stayed at the same milestone stage. Engagement in UK Public Credit and Strategic Cash and 577 objectives progressed to the next milestone or Of the 686 companies engaged by EOS during the year, above. 294 were new objectives established during the year. 67 companies were held in our in-house UK Credit and Strategic Cash portfolios and over 80 per cent of these were acted upon speci昀椀cally during this time period.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 33 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 Examples of EOS corporate engagement on our behalf during the year CASE STUDY CASE STUDY US food processing/commodities US chemicals company trading company Asset class: Equities Asset class: Equities Issue: Board diversity Objective: Challenge deforestation targets Action: In 2020, EOS raised the issue of board gender Action: During Earth Week 2022, an American diversity with a major chemical company. The company multinational food processing and commodities indicated that it was seeking to refresh the board over trading corporation published a commitment to time, with diversity being one of several criteria. In 2021, achieving 100 per cent deforestation-free global board diversity continued to fall short of expectations. supply chains by 2025 – 昀椀ve years earlier than its Through engagement with the company, EOS learned previous 2030 target. it was not in a period of active board refreshment, but In an August 2022 engagement with the chief was being purposeful about adding female directors sustainability o昀케cer and investor relations to the board, which was welcomed. In Q1 2022, EOS representative, the company again reiterated wrote to the company providing its US corporate its accelerated no-deforestation goal. This has governance principles and conveying our expectations been supported by advancements in technology, with respect to board diversity. combining satellite technology with farmer updates. Outcome: In the company’s 2022 proxy, EOS was Given that industry targets for zero deforestation were pleased to read about the nomination of a female missed in 2020 (although the company itself did not director to the board, bringing gender diversity to have a 2020 goal), EOS asked the company in Q1 2023 above 30 per cent. The company also provided how con昀椀dent it was that it could meet its new 2025 information on its enterprise-wide focus on diversity, target. The company said it was con昀椀dent that the equity & inclusion (DEI) and publication of gender, current timeline was possible due to developments race and ethnicity data on a dedicated DEI webpage. in satellite imagery that can now show forest clearing in real time. EOS encouraged the company to remain focused on traceability and supply-chain due diligence. It was also noted that the current targets for sustainable agriculture were not su昀케ciently ambitious, as they focus on a small proportion of wheat production in the US. The company was encouraged to scale up its targets and its approach to include other regions and commodities. EOS also asked for more clarity on how the company encourages farmers to transition to regenerative agriculture, and how it tracks the outcomes on carbon, water, biodiversity and other indicators. Outcome: In March 2023, the company con昀椀rmed that it had engaged 1.2 million acres of farming land in regenerative agriculture practices and announced a seven-year agreement with PepsiCo to engage a further 2 million acres, among other partnerships.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 34 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 Engaging with issuers through The PPF is a member of the following initiatives PRI Votes on Slavery – We were a continuing member of Science-Based Targets (SBT) Campaign – The CDP investor collaboration • We’ve been a signatory to the Principles for Responsible the Votes on Slavery initiative for its 2022 campaign, run SBT Campaign was launched in October 2022, attracting Investment (PRI) since 2007; our Head of Alternative by the PRI. This initiative focused on FTSE 350 companies support from 318 昀椀nancial institutions and multinational Acting collaboratively with other investors to address that lacked disclosure compliant with UK modern slavery 昀椀rms, including the PPF, representing $37 trillion in assets industry, regulatory or company-speci昀椀c issues has become Credit sits on the PRI’s Private Credit Committee (our legislation. Of the 44 companies highlighted, 41 became and spending. a core pillar of our stewardship approach, given the scale, Head of ESG & Sustainability concluded a four-year term compliant during the course of 2022, with the remaining in昀氀uence and e昀케ciency it can deliver. As part of our e昀昀orts on the Infrastructure Advisory Committee in January three due to disclose after the year-end. The campaign called on over 1,060 of the world’s highest- to maximise the collective voice of the investment industry, 2023) and we’re members of its Collaboration platform. impact businesses to set emissions goals in line with the we are members of initiatives and engagements around a • The Occupational Pensions Stewardship Council We monitored progress through the 2023 voting season Paris Agreement. The 2022–23 campaign resulted in 77 1 number of themes that are important to us. (OPSC) was created by the DWP to promote and and were prepared to use our votes to signal concern on targeted companies , joining the ranks of 5,100+ companies facilitate high standards of stewardship of pensions non-compliance where necessary. We will continue to committed to using SBTs to align their business with the support this campaign as modern slavery is a key theme Paris Agreement. They represent 0.2 gigatonnes in CO e Given there are so many industry initiatives to address assets. The council provides UK pension schemes 2 environmental and social challenges, we prioritise support with a forum for sharing experience, best practice and in our 2023 voting guidelines. emissions and $2.9 billion in market capitalisation, which for projects in markets where we’re already active or where research, and providing practical support. It also enables Climate Action 100+ – The PPF is a signatory to Climate is respectively 3 per cent and 12 per cent of the 2022 CDP we can see rules are being developed to improve a market’s opportunities for schemes to collaborate on stewardship corporate database. functionality and reduce systemic risks. We discuss this activities such as shareholder resolutions, climate Action 100+, the largest-ever investor engagement initiative more on page 35. change and corporate governance. on climate change. Involving around 700 investors in IIGCC’s Net Zero Engagement initiative (NZEI) – 33 markets, who collectively hold half of the world’s We joined the IIGCC’s Net Zero Engagement initiative (NZEI) • As an investor member of the IIGCC, we’ve been an assets under management, it aims to put pressure on the launched in spring 2023. This collaborative programme active member of its Net Zero Stewardship Toolkit, world’s largest greenhouse gas emitters, responsible for aims to scale up and accelerate climate-related corporate Acting collaboratively with the Asset Owner Working Group and Proxy Advisory approximately 80 per cent of global industrial emissions. engagement, supporting investors to align more of their Working Group. We also participate in its collective Largely as a result of Climate Action 100+, 75 per cent (52 investment portfolio with the goals of the Paris Agreement. other investors to address responses to consultations. per cent in 2021) of targeted companies have made Net • We encourage greater disclosure of environmental Zero commitments and 91 per cent (72 per cent in 2021) industry, regulatory or impact by companies, governments and other now report in line with TCFD recommendations. The company-speci昀椀c issues has institutions by supporting organisations such as majority of these companies feature in our passive portfolio. the global disclosure systems provider CDP. Engagement through Climate Action 100+ has informed become a core pillar of our analysis of company progress when voting at AGMs. stewardship approach. Key industry collaborations during It also contributes to our own Climate Watchlist of the year high-emitting companies. Find it, Fix it, Prevent it – This group focuses on modern CCLA Mental Health project – This project analysed and slavery within businesses and their supply chains. ranked corporate disclosure on mental health policies and For example, on climate change, we actively participate in Developed by CCLA, a leading manager of charitable practices. During the year under review, the project focused the programmes run by the Institutional Investors Group on assets, and supported by a coalition of investor bodies, on a list of global companies that scored poorly in its index. Climate Change (IIGCC) – see right – and have contributed academics and non-governmental organisations (NGOs), We led engagement on 昀椀ve of these companies, which are to key projects during the year under review. We also work the initiative is designed to harness the power of the based in the US, Europe and Asia. We achieved dialogue closely with UK policymakers and market stakeholders, such investment community on a key issue. For the year under with two of the companies contacted. As a relatively new as the Pensions and Lifetime Savings Association (PLSA), review, the initiative’s focus industry was the construction engagement initiative, we are monitoring company progress the UK Debt Management O昀케ce and the Department for sector. Investor members collaboratively engaged with in this area. Work and Pensions. We are involved with a range of investor UK-listed construction companies on modern slavery risks, organisations to help drive industrial and legislative change including the PPF which is the lead investor for a FTSE 100 Collaborations for the coming year to encourage higher levels of stewardship and greater construction company. We expect the majority of the campaigns above to continue disclosure of ESG risks across the investment industry or over the next year. In addition, the PPF joined the following within speci昀椀c sectors. The aim of the project is to highlight issues to the sector in collaborations in 2023: question, better understand the challenges modern slavery poses to the industry, share best practice and explore potential remedies. 1 As of end of May 2023.

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.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 36 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 Company engagement is our principal tool for fostering greater social or environmental responsibility among the companies and other assets in which we invest. We primarily look to engage companies in a constructive, con昀椀dential manner. If this does not achieve the hoped-for outcome, we turn to escalation, including voting. How we approach escalation We commit to voting every share we hold, except when We are able to amend voting instructions directly on the and voting its cost is prohibitive or it is not possible to do so due to relevant manager/EOS voting platform. Where we disagree Taking action operational reasons (for example, due to share-blocking with a manager’s intended voting instructions, resulting in When we escalate issues markets or overly complex power of attorney requirements). the re-vote of our ballots, we will discuss the meeting with We look to be guided by best practice so our voting Generally, we aim to align with the voting policy of our the manager or engagement provider as appropriate. principles closely align with our stewardship services Escalation is an essential tool in the stewardship toolkit. appointed stewardship services provider EOS, but we still provider EOS’s global voting guidelines. For example Where private engagement with a company is not review voting recommendations for signi昀椀cant votes or Recognising the importance of voting our entire shareholding progressing at a su昀케cient pace, there are a range of high-pro昀椀le ballots. at certain contentious shareholder meetings, we are able to in 2023, for climate-related voting guidelines we potential escalation strategies that we, or our external recall lent stock when considered appropriate. This ensures increased the thresholds for the following measures: agents, can employ. These include: EOS, which acts as our voting overlay provider for the full weight of our holding is re昀氀ected at the meeting. Transition Pathway Initiative Management Quality segregated mandates, provides daily updates relating to During the year under review, no shares were recalled for score: All European and Australian companies in • collaborating with other investors or campaign groups; forthcoming shareholder meetings at which we are entitled the purpose of voting, although it was considered. all sectors scoring below Level 4; all coal, oil, gas, • issuing a public statement and/or publicly pre-declaring to vote. Starting last year, we now have direct oversight of utilities and automotive companies below Level vote intentions; and the voting execution across all our listed equity mandates. How we voted over the year 4 (vs. Level 3 for autos 2022); below Level 3 for all • 昀椀ling a shareholder resolution. These are assessed alongside our Climate Watchlist of The following tables and charts in this section detail our remaining sectors/companies in US and Asia and companies to determine which shareholder meetings voting activity for the period 1 April 2022 to 31 March 2023. Emerging Markets. Voting against board recommendations is an important and resolutions need to be reviewed by us internally. Our tool we can use when necessary as part of a thoughtful segregated mandates are instructed through the EOS voting Voting statistics April 2022 – March 2023 Climate Action 100+ Benchmark: Companies that escalation. However, we or our manager would try to service, and our pooled funds have been set up to enable have no medium-term targets in place as identi昀椀ed engage with the company at board or management level split voting for our allocation of shares. Together, this allows How many meetings did we vote at? 4,664 by indicator 3 of the Climate Action 100+ Benchmark. to discuss the issue in advance. us to exercise our voting power and ensure much greater How many resolutions did we vote on? 53,791 consistency in our strategy, especially for particularly If a company falls below the set criteria noted above, Where we feel engagement has not been fruitful over a important companies and issues. What % of resolutions did we vote on for which 99.4% we can review the shareholder meeting and determine reasonable period of time, we may vote against management we were eligible? how to vote on a case-by-case basis. on one or more resolutions, such as reports and accounts To ensure we participate in important shareholder meetings, or the election of individual board members responsible for we manage a watchlist of companies. This includes Of the resolutions on which we voted, what % 82.4% Our full voting guidelines can be found in Appendix E. poor governance, environmental or social performance. companies that are: on our Climate Watchlist; 昀氀agged on did we vote with management? our United Nations Global Compact controversies watchlist; Ultimately, selective divestment may be the outcome are being engaged by the PPF as part of either a collective Of the resolutions on which we voted, what % 17.6% of a failed engagement if the severity of the issue is or individual engagement; or represent a signi昀椀cant holding did we vote against management? su昀케ciently material. as a percentage of our portfolio. Of the resolutions on which we voted, what % 0.9% This watchlist is loaded onto EOS’s voting platform (or our did we abstain from voting? Our voting approach for listed equities Of the meetings at which we voted, what % did 68.0% The PPF sees voting as an essential tool from a stewardship external managers’ for pooled split-votes), which allows perspective in supporting engagement and enforcing regular automated reports to be produced for each voting we vote at least once against management? shareholder rights. environment. This process aims to give us su昀케cient time to review the shareholder documentation and ensure our voting intentions are implemented.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 37 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 Voting activity 2022/23 Shareholder resolutions Meeting with at least one Vote against Regional breakdown Votes on shareholder vote against management How we voted 2022/23 management by issue of votes resolutions per region Europe 9% United Kingdom 1% 4,664 53,791 9,463 4,664 1,858 Developed Asia 8% 1,858 North America 34% EM and Frontier Markets 48% Australia & New Zealand 2% Report Against With Grand Meetings with at least one 68% Against management 16% Audit + Accounts 498 Europe 13% Category ISS Category Abstain Management Management Total vote against management Meetings with management 32% With management 82% Amend Articles 807 United Kingdom 7% Governance Corporate 1 85 15 101 Abstain 1% Capital Structure + Dividends 763 Developed Asia 18% Governance Withhold 1% Board Structure 4,335 North America 21% Other Miscellaneous 0 19 174 193 Remuneration 2,173 EM and Frontier Markets 39% Environmental E&S Blended 0 10 30 40 and Social Other 158 Australia & New Zealand 2% Climate & Environmental 0 85 69 154 Shareholder Resolution 454 Environment Governance Shareholder Resolution 131 Compensation Compensation 0 35 35 70 Social & Ethical Social Social 3 163 47 213 Shareholder Resolution 79 Proposal Environment Investment/M&A 58 Routine Audit Related 4 0 197 201 Poison Pill/Anti-Takeover Device 7 Business Directors' Director 3 59 69 131 Related Related Economic Non-Routine 0 11 11 22 Issues Business Directors' Director 15 176 472 663 Related Election Routine Company 0 8 22 30 Business Articles Routine Routine 0 6 34 40 Business Business Grand Total 26 657 1,175 1,858

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 38 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 The pie charts present our global approach to voting throughout the year under review. Every year shareholders, including activists, propose resolutions at company annual meetings. Resolutions span a broad range of issues, from climate change to human rights to data privacy. The 2022 voting season was an active one with the majority of shareholder meetings taking place from March through to May each year. There was no doubt that 2022 was busier due to the high volume of ESG shareholder resolutions requiring a vote decision. Against the backdrop of the COVID-19 pandemic, the 2022 voting season witnessed an increased focus on shareholder rights. Virtual-only shareholder meetings and a push for robust minority shareholder rights came into focus. Proposals to adopt ‘one share, one vote’ share class principles were prevalent along with proposals to allow proxy access. Changes of this nature show the developed understanding of investors in leveraging their rights as shareholders. During the season we noted the numerous post-pandemic Say-On-Pay proposals and corporate governance agenda items covering board elections that required consideration. Additionally, the signi昀椀cant increase in Say-On-Climate resolutions required a case-by-case analysis of the speci昀椀cs surrounding the company. The 2022 proxy season also saw an increase in anti-ESG proposals by shareholders. A notable example was the ‘civil rights and non-discrimination’ proposal, which was proposed at several US companies to conduct civil rights audits. Whilst these proposals seem to promote diversity and equal opportunity, closer consideration showed that the proposals argued that ‘anti-racist’ programmes are discriminatory against employees deemed non-diverse. These proposals actually aimed to frustrate companies’ e昀昀orts to promote civil rights and social justice.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 39 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 Voting on climate issues Glencore – Vote Against ‘Say on Climate’ Proposal Dollar Tree – Vote for shareholder proposal on emissions The company has recently committed to: As noted above, 2022 saw the start of ‘anti-ESG’ sentiment Glencore plc is a Swiss multinational commodity trading reduction targets making its way into shareholder meetings. Despite this, our and mining company. Although the company has made Dollar Tree Inc. is an American multi-price-point chain approach to voting on climate issues was maintained. positive moves in terms of tightening medium-term of discount stores. For its June 2022 AGM, a shareholder 2022 was the second year we saw ‘Say on Climate’(SoC) greenhouse gas emissions targets and reducing Scope 1, proposal was made requiring the company to set reduction Set our ambition to achieve resolutions proposed by management on the agenda. 2 and 3 emissions targets, we continue to be concerned targets for greenhouse gas emissions aligned with the Paris Net Zero Scope 1, 2 and 3 Across primary 昀椀nancial markets in Europe, the number of by the high level of emissions from coal production. Agreement. The company’s current strategy, targets and proposals increased by more than 50 per cent compared to These would need to reduce around 70 per cent by 2030 disclosure fall short of alignment with the Paris goals. As we emissions by 2050 and to 2021. The highest number of SoC proposals came from UK to be aligned with the Paris Agreement to keep global expect companies to be strategically aligned to the Paris companies, principally insurers and 昀椀nancials, utilities and warming to 1.5°C above pre-industrial levels. Given this Agreement, we voted for the proposal. announce 1.5 degree-aligned mining companies. short timespan, the company’s continued investment in coal production is also a major concern. In line with near-term Scope 1, 2 and 3 Given the emergence of SoC resolutions in 2021, we our voting policy that companies should be strategically emissions reduction targets expected companies to have reviewed and taken on board aligned to the Paris Agreement, we voted against 55% investor expectations in terms of climate reporting and Glencore’s SoC proposal. on or before 30 June 2024. strategy, leading to a raising of the bar in 2022. This did of shareholders supported the shareholder proposal. not happen, in our opinion, resulting in the PPF voting against over half of SoC management resolutions in 2022 – a reversal of the 78 per cent level of support in 2021. We 2 4% voted against management where we felt that there was inadequate disclosure, poor management of climate-related of shareholders that voted did not support the risks or insu昀케ciently ambitious targets. company’s SoC proposal. SoC votes in 2021 were mostly proposed by companies Engagement is ongoing through EOS to work with emissions reduction targets trajectories aligned with with the company to reduce emissions. the Paris Agreement, whereas 2022 saw companies with less-aligned pathways seeking approval. For example, Australian energy company Woodside Petroleum received a 49 per cent vote against its SoC resolution, with the PPF Say on Climate: Shareholder resolutions on climate: Votes on shareholder resolutions amongst shareholders who voted against it. See also the How we voted in 2022 Votes against management by rationale by climate theme case study on Glencore (right). From a shareholder proposal perspective, 2022 saw the highest number of shareholder resolutions proposed on company agendas globally across a range of issues (not just climate-related). Our most common reasons for supporting climate proposals were insu昀케cient targets or action on climate change from the company. As expected, US companies received the majority of proposals, with a 41 72 108 notable year-on-year increase in the number of proposals. This is primarily due to the SEC’s new approach to ‘economic relevance’ and ‘ordinary business exceptions’ that could be used by companies to omit proposals from the ballot. However, the increase in volume did not lead to an increase in support, most likely due to lower quality proposals making it onto the agenda. In Europe, ESG-related shareholder proposals that gained Against management 54% Lack of Disclosure/Reporting Analysis 11% Climate Action Plan 6% traction were generally limited to those proposed by With management 46% Insu昀케cient action on climate change 29% Climate Change Action 7% key activist groups such as Follow This and ShareAction. Lack of strategy/policies/plan aligned 15% Report on Climate Change 46% Follow This targeted ‘big oil’ companies aiming to get them with current commitments to adopt Paris-aligned emissions strategies. ShareAction Insu昀케cient targets and/or climate GHG Emissions 32% proposed social-related resolutions at Sainsbury’s and plan/strategy/policies 42% Renewable Energy 5% Unilever in addition to a resolution at Credit Suisse related Misalignment with current ambitions 3% Restriction of Fossil Fuel Financing 4% to the 昀椀nancing of fossil fuel assets.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 40 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 Our criteria for signi昀椀cant votes Summary of some of our signi昀椀cant vote outcomes Along with guidance from the PLSA around signi昀椀cant Company name For/Against votes, we also use our own criteria to 昀氀ag material votes Date of vote and signi昀椀cance Resolution management Reasoning for voting decision Vote outcome Outcome and next steps that we need to scrutinise carefully. We have created a voting watchlist of companies for which we get particular coverage from EOS (see below). We also have an agreed 7 July 22 J Sainsbury – Sector Proposal on Living Against (supported Although the practices of 17% of investors Engagement with the timeline for action to execute votes proactively for signi昀椀cant vote Wage accreditation shareholder the company exceed many voted for the company, through EOS, signi昀椀cant and material positions in our portfolio. After proposal) competitors, support for shareholder proposal is ongoing on the issue of deciding our voting intentions, we access the voting the resolution will have a Living Wage accreditation platforms of our asset managers for any pooled mandates signalling e昀昀ect across the and ensuring standards of and submit vote instructions. sector to raise standard of pay. pay and human rights in the supply chain. Our voting watchlist includes: 29 April 22 Credit Suisse – High Director discharge Against Given the controversies 60% voted against The company has been • Companies where we own over 1 per cent of equity. pro昀椀le holding – 2.1 faced by the company and heavily engaged by EOS at • Companies that we hold directly (which we escalate the evidence of insu昀케cient board level. The company has to our CIO for a voting decision). governance and risk controls, now been acquired by UBS. discharging the directors • Companies with speci昀椀c issues of concern via this resolution was not (for example, practices that are non-compliant considered appropriate for with the UN Global Compact). the year in question. • Votes related to a speci昀椀c initiative in which we’re involved (for example, companies on the Climate 11 May 22 Phillips 66 – High 5 and 6 Against (supported A vote supporting the 49.85% of investors At the 2023 AGM, climate Action 100+ list). emitter shareholder shareholder proposal voted for the concerns were escalated by proposals) was warranted given the shareholder proposal voting against the board chair. Each quarter, our segregated voting and engagement company’s slow progress on emissions reduction There is an ongoing reports are uploaded to our website. We currently do not strategy and disclosure. engagement programme publish resolution-speci昀椀c vote reporting. However, we will through EOS with board level respond directly to individual requests from members and dialogue being achieved. other stakeholders if a request for this information is made following a vote. 16 June 22 Informa plc – market 14 – Approve Against Adjustments to performance 71% voted against Engagement was via our laggard in terms of remuneration report targets resulted in an increased asset manager. Pension Taking action best practice incentive award payout contributions are to be for directors. Also pension reduced for 2023 onwards. contributions far exceed We noted last year that we had started to review the those for other employees. best way of disclosing individual company votes on our website. This process, despite taking longer than expected, has moved forward signi昀椀cantly and we hope to have a solution in place before the end of the current 昀椀nancial year.

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.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 42 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 aspirations for the coming year We will continue to engage with our external asset managers, issuers and other stakeholders to keep advancing standards so that we can all fully understand and manage the risks we face. We will continue to develop our internal stewardship oversight and reporting capabilities, to maximise the resilience of our portfolio to material ESG and climate-related risks. Continue to work with our managers to improve Leverage our Undertake detailed analysis Ensure at least 80 per cent of our Climate their ESG and stewardship disclosures in line sustainability strategy’s of our bank counterparty Watchlist companies are making disclosures with our own evolving reporting requirements key goals to ensure sustainability pro昀椀les. on emissions, with a view to standardising and industry-led standardisation initiatives. we are fostering a how this is reported. more sustainable and inclusive pensions industry in all our activities. Continue to work with our Alternatives managers and on Increase the PPF’s the eFront Outreach involvement in project to improve collective engagement ESG data disclosure initiatives across private in unlisted markets. and public markets. Enhance Investment Committee reporting that utilises bottom-up manager and asset ESG reporting. Provide greater Extend our portfolio ESG reporting to cover Undertake an ESG service provider review to transparency on our all public credit portfolios. ensure our providers remain 昀椀t for purpose. website of our proxy voting behaviour.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 43 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 Appendix A Appendix B Our ESG & Sustainability team Meeting the FRC’s • Claire Curtin, Head of ESG and Sustainability. Stewardship Code • Daniel Jarman, Stewardship Manager. As a signatory to the Financial Reporting Council (FRC)’s • Amina Mimi, Sustainability Analyst. UK Stewardship Code, our report is seeking to meet the • Anna Paschaloglou, ESG Data Analyst. reporting expectations set out by the Code’s 12 principles. The table on the right aims to provide a guide on our compliance with the Code and where each principle is discussed within this report. Stewardship code principle Page reference 1 Signatories’ purpose, investment beliefs, strategy and culture enable Pages 7 to 17 stewardship that creates long-term value for clients and bene昀椀ciaries leading to sustainable bene昀椀ts for the economy, the environment and society 2 Signatories’ governance, resources and incentives support stewardship Pages 7 to 17 and 43 3 Signatories manage con昀氀icts of interest to put the best interests of Page 15, clients and bene昀椀ciaries 昀椀rst Appendices C and D 4 Signatories identify and respond to market-wide and systemic risks to Page 22 and 35 promote a well-functioning 昀椀nancial system 5 Signatories review their policies, assure their processes and assess the Pages 14 and 48 e昀昀ectiveness of their activities 6 Signatories take account of client and bene昀椀ciary needs, and Page 16 communicate the activities and outcomes of their stewardship and investment to them 7 Signatories systematically integrate stewardship and investment, Pages 18, 19 including material environmental, social and governance issues, and 20 and climate change to ful昀椀l their responsibilities 8 Signatories monitor and hold to account managers and/or Pages 20, 21, service providers 24 and 28 9 Signatories engage with issuers to maintain or enhance the value Pages 21 to 33 of assets 10 Signatories, where necessary, participate in collaborative engagement Pages 34 and 35 to in昀氀uence issuers 11 Signatories, where necessary, escalate stewardship activities to Pages 36 to 41 in昀氀uence issuers 12 Signatories actively exercise their rights and responsibilities Pages 36 to 41

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 44 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 C Personal accounts Appendix D • subject to the Aggregation of Deals Clause, the Manager Our Con昀氀icts of Interest policies Our Personal Account Dealing policy requires all Our IMA and side letter terms and its Associates are authorised in any one transaction, transactions to be approved by line managers and the or series of transactions, where it is in the best 昀椀nancial Our formal Con昀氀icts of Interest and Code of Conduct C&E team. If there’s a con昀氀ict between the employee, relating to con昀氀icts interests of the Board, to act for more than one portfolio policies set out principles and procedures for identifying, member or the PPF’s interests, we may create a list of or client collectively (including the Portfolio) without the assessing and managing con昀氀icts. These policies are restricted investments that our employees can’t invest in. IMA – Con昀氀icts of interest written consent of the Board. reviewed at least annually by the Compliance & Ethics The Manager and its Associates may, subject to the Side letter – Con昀氀icts of interest team and approved by the Executive Committee. Senior manager 昀椀tness and propriety checks principle of Best Execution and without prior reference to We have implemented a version of the FCA’s Senior the Board, e昀昀ect transactions in which the Manager has, If the General Partner determines that a transaction with Register of con昀氀icts and outside business interests Managers Regime. As part of this regime, the C&E team directly or indirectly, a material interest or relationship of or by the Fund presents an actual or potential con昀氀ict of The Compliance and Ethics (C&E) team maintains a register meets annually with senior managers to discuss their roles any discretion with another party which may involve a interest, the General Partner shall: of employees’ con昀氀icts and outside business interests, and responsibilities. This includes assessing any potential potential con昀氀ict of interest with the Manager’s duty to the (a) disclose such con昀氀ict of interest to the Advisory Board which they review at least once a year. We also share con昀氀icts and forms part of the annual assessment of their Board. Without prejudice to the generality of the above: and seek approval thereof prior to engaging in such members’ outside interests on our website. 昀椀tness and propriety to carry on their role. transaction; and • in order to mitigate the risk of such con昀氀icts of interest Ongoing training Other checks, as part of this 昀椀tness and propriety from constituting or giving rise to a material risk of (b) ensure that any such transaction is on an arm’s-length All employees receive training on Con昀氀icts of Interest when assessment, include performance review (PDP) along damage to the interests of the Board, the Manager basis on terms substantially similar to those which would they start and as part of ongoing development. They also with credit and background checks on a rolling three-year has implemented a con昀氀icts of interest policy (‘the otherwise be negotiated with an una昀케liated third party sign to say they’ve read, understood and followed these basis with self-assessments carried out every year. Con昀氀icts Policy’) which identi昀椀es the circumstances and the terms thereof are disclosed to the Advisory Board. policies every year. which give rise to con昀氀icts of interest and documents Procurement processes the procedures to be followed in order to manage Gifts and Hospitality policy When procuring new suppliers, we are subject to the Public such con昀氀icts. Further information is available on Contracts Regulations 2015. Our Commercial Services team the Manager’s Con昀氀icts Policy on request; the Board Our Gifts and Hospitality (G&H) policy requires all makes sure new contracts follow the correct procurement acknowledges that it has access to a copy of the employees to request sign-o昀昀 from their line manager process and are awarded fairly, based on objective criteria. Manager’s Con昀氀icts of Interest Statement within the and the C&E team before accepting gifts or hospitality Corporate Governance section of the Manager’s website; over the value of £25. The Commercial Services team also maintains an ongoing • where a con昀氀ict of interest is found to exist, any The C&E team maintains a register of all gifts and hospitality assurance programme for all our suppliers. transaction e昀昀ected by the Manager on behalf of the that have been accepted and declined, with regular reviews The PPF operates a compliance programme that addresses Board will be in the Board’s best interest and on terms to make sure these are within acceptable levels. regulatory compliance for a number of topics with which no less favourable to the Board than those which would we have either chosen to comply or are required to comply have applied had there been no con昀氀ict; We also publish board member expenses quarterly on with. The compliance programme monitors and regularly • the Manager and its Associates shall make investment our website. reviews these areas to make sure we have up-to-date decisions having regard to the Portfolio’s interest and policies and statements in place, and that we are meeting shall have regard to their interests and the interests of the standards expected of us. their clients only in so far as is necessary to comply with the requirements of any 昀椀nancial regulatory authority; • the Manager and its Associates may act as agent or principal in any transaction on behalf of the Board for the account of the Portfolio without prior reference to the Board provided that the terms obtained for the bene昀椀t of the Portfolio are at least as good as those generally available elsewhere; • the Manager and its Associates are authorised in accordance with its duties under this Agreement to consider the advisability of including within the Portfolio or to e昀昀ect transactions on behalf of the Portfolio in the ordinary shares of, and/or other Securities issued by the Manager or its Associates; and

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.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 46 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 Building on existing voting criteria around gender Appendix F 6. What escalation processes do you have in place Appendix G diversity – In the UK we support the changes to the FCA’s Stewardship section of our for situations of continued underperformance on Our standard RI external manager listing rules for board diversity and expect companies to the engagement objective? Please give two recent disclose whether they comply – or, if not, why – with the ESG Questionnaire examples of where this has occurred in practice. contract terms following targets: at least 40 per cent of board seats and at least one senior board position (Chair, CEO, CFO or Our ESG Questionnaire is a scored mandatory list of 7. Please also describe in detail your approach to 1.1. The Fund Parties acknowledge the importance SID) held by a woman, and at least one board seat held questions that prospective investment managers must voting shares, and whether your voting actions are that the Board places on principles of corporate by someone from an ethnic minority background. answer on a pass/fail basis to progress through the tender determined internally or outsourced to a proxy voting governance and responsible investment. The Fund process. Below is a sample list of questions within the agency. If the latter, do you ever override the agency’s Parties agree to give appropriate consideration to the In 2023, we consider the following to be minimum Stewardship section of the questionnaire. recommendations? Please give a recent example. relevant principles which may include the Principles expectations and will likely oppose the chair or other for Responsible Investment, to which the Board is a responsible directors if not met: 1. Are you a signatory or do you intend to apply for 8. How do you approach ESG and climate-related ballot signatory. The Fund Parties acknowledge that they signatory status to the revised Stewardship Code in items in your voting decisions? Have you voted against have received, read and understood the Board’s • FTSE 350 boards to comprise at least 33 per cent women 2020, or other national stewardship codes? Yes/No management and/or 昀椀led or supported shareholder Statement of Investment Principles. The Fund Parties and executive teams to have at least one female member. resolutions on ESG or climate issues? If so, please give acknowledge the Board’s need to consider long- • FTSE 100 boards to have at least one member from an a) If you are not a signatory to the Stewardship Code, an example of where you have done this, and your term and systemic risk factors in order to manage ethnic minority background (we will extend this to the please provide rationale. rationale for doing so. risks which are relevant to its long-term investment FTSE 350 from 2024). 2. Please explain how active ownership practices, 9. How do you overcome challenges such as shareblocking horizon and its statutory responsibilities. • Women to comprise at least 25 per cent (FTSE 100) such as company engagement, are integrated into markets or stock lending procedures when looking to 1.2 The Fund Parties will have a process for monitoring or 20 per cent (FTSE 250) of the combined population investment decisions. exercise your votes? current or potential investments in relation to relevant of the executive committee and its direct reports. 3. How do you set objectives, measure progress and report long-term factors including ESG and climate-related 10. What customisation do you o昀昀er to clients on voting In Japan, we are likely to vote against the nomination on the outcomes of your engagement with issuers on decisions, can clients retain votes to determine in concerns. The Fund Parties will ensure that their sta昀昀 committee chair or board chair at TOPIX 100 companies ESG issues? line with their own policies? Please also describe the apply due care and diligence to implementing this if fewer than two directors are female. This builds on the fund-speci昀椀c reporting on all voting that you provide. monitoring process, including considering the extent prior 2022 guideline requiring 10 per cent of directors 4. How do you encourage better disclosure from to which such factors generate investment risks to be female. Below the TOPIX 100, the requirement will corporates, especially regarding climate risks? 11. Please describe what engagement activities you or opportunities. be at least one female director. In Malaysia, following 5. For what percentage of investments (by value, over the carry out from a policy, market-functioning or the updated Corporate Governance Code, our minimum industry perspective. 1.3. The Fund Parties will, in accordance with the Board’s female representation at board level is being increased last year) have you undertaken engagement on climate commitment to responsible ownership set out in its to 30 per cent. Previously 20 per cent of the board was change, environmental, social and governance issues? Statement of Investment Principles, engage in such required to be female. • If percentage > 0, please provide detail on processes activities as are appropriate in the circumstances (e.g. on monitoring processes, engagement strategy) to monitor and in昀氀uence the management of the Executive committee diversity – Following the by engagement topic. issuing entities and other underlying assets, where introduction of executive committee/C-Suite diversity such activity is considered by the Fund Parties to be expectations in 2022, we have extended these requirements • Please provide recent examples of such engagement likely to enhance the value of such securities and in in the UK from the FTSE 100 to the FTSE 350 this year. and your assessment of the e昀昀ectiveness of your the best 昀椀nancial interests of the Fund. Executive committees of companies within the FTSE 100 stewardship activities, e.g. instances of positive change are now expected to comprise at least 25 per cent females at issuers versus the level of in昀氀uence you had on 1.4. The Fund Parties will procure the exercise of any and FTSE 250 executive committees to have at least the issuer. voting rights attached to the Portfolio investments 20 per cent female representation. • If percentage = 0, please explain why engagement on the Board’s behalf, in accordance with the Fund was not undertaken. Parties’ voting policy and any market-speci昀椀c All other gender diversity targets introduced within the US, guidelines approved by the Board. The Board Australia, Denmark, France, Germany, Italy, Netherlands, reserves the right to rescind, upon one day’s Spain and Sweden will stay the same as for 2022. advance written notice, the Fund Parties’ authority to make voting decisions for speci昀椀c companies, issues or time periods. The Fund Parties will use best endeavours to facilitate such Board voting decisions to be implemented. The Fund Parties will have in place appropriate policies to manage any con昀氀icts of interest in relation to voting matters and shall report at least quarterly on all votes involving companies where the Fund Parties or an a昀케liate has a contractual relationship or other material 昀椀nancial interest.

Strengthening Our investment Escalation Message from Key highlights our stewardship Our progress Our purpose approach and Our approach and exercising Our aspirations for 47 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 1.5. The Board has put in place a responsible investment 1.7. In addition, the Board will provide the Fund Parties Appendix H policy, addressing controversial weapons, company with an Excel document con昀椀rming the constituents Our ESG review process conduct and sovereign bond exposure detailed of the Exclusion List as provided in the scanned PDF further below: copy. Following receipt of such instruction, the Fund Our four-stage ESG review is an essential part of selecting Parties shall use reasonable endeavours to e昀昀ect and appointing managers that align with our principles. 1.5.1. the Board will expect companies that are directly such exclusions within a reasonable timeframe and involved in the production of anti-personnel will con昀椀rm to the Board that the portfolio has been RI criteria and ESG considerations as part of our landmines, cluster weapons, chemical weapons and brought in line with the requested exclusions. If it will investment process biological weapons and of essential components become clear to the Fund Parties that for any reason of these weapons to be excluded from its it will not be possible to bring the portfolio in line 1. Request for proposal/ 2. Selection/ investment universe; with the requested exclusions, the Fund Parties will Stage identi昀椀cation due diligence 3. Appointment 4. Post funding 1.5.2. the Board will expect the Fund Parties to exclude from notify the Board. ESG Evidence of 昀椀rm-level Ensure ESG processes Binding ESG and climate Ongoing monitoring the investment universe sovereign bonds issued by 1.8. The Fund Parties shall prepare and send to the Board requirement and strategy-level ESG are in place, appropriate risk clauses inclusion in and engagement with countries subject to complete UN arms embargoes and such other person or persons noti昀椀ed from time policy; PRI support; and industry guidelines are legal documentation external managers, which the UK supports; and to time to the Fund Parties in writing on behalf of the capabilities or resources followed and reporting (e.g. IMAs, side letters) regular fund-level ESG, 1.5.3. the Fund Parties acknowledge the Board’s interest Board as soon as reasonably practicable and in any for ESG integration is available carbon and stewardship in investee companies making all reasonable e昀昀orts event no later than eight (8) Business Days after the reporting; commitment to to abide by the UN Global Compact and the OECD end of the relevant quarter, quarterly reports on: continuous improvement Guidelines for Multinational Enterprises and that the 1.8.1. compliance with the policies and standards set out in Board expects its managers to assess the signi昀椀cance the Statement of Investment Principles and Principles of risks and opportunities in relation to their fund’s for Responsible Investment, including any instances investments. Such assessment may include, where where those policies and standards were set aside in applicable and appropriate, the consideration of order to achieve investment objectives; the above guidelines. The Fund Parties will assist the Board as is reasonably necessary to manage 1.8.2. the key material ESG and climate-related concerns reputational risk and/or investigations that may arise and relevant metrics associated with Portfolio from individuals investments made where investee investments and an explanation of how the Fund companies fail to abide by the above guidelines. Parties have sought to identify, monitor and Such assistance may include the sharing of the manage them; investment research or, in the extreme, divestment or future segregation of pro昀椀t or loss relating to 1.8.3. the stewardship activities – including issuer any investment for which material reputational engagement – during the reporting period, including issues arise. evidence of the e昀昀ectiveness of those activities; and 1.6. In respect of clauses 1.5.1 and 1.5.2 above, the 1.8.4. voting activities over the reporting period, including Fund Parties will be provided with a list of excluded full disclosure of any votes and an explanation of any companies and countries which may be updated by exercises of discretion under the Fund Parties’ voting notice given in writing from time to time using the guidelines and con昀氀icts of interest. form speci昀椀ed in Annex A, signed in accordance with the Board’s signing authorities. Such noti昀椀cations may be sent via email containing a scanned PDF copy of the instruction, sent to the Fund Parties to con昀椀rm (or such other email account as is noti昀椀ed by the Fund Parties to the Board in writing).

Statement We con昀椀rm that we have taken appropriate measures to ensure that our stewardship reporting is fair, balanced and understandable. Oliver Morley, Chief Executive Renaissance 12 Dingwall Road Croydon CR0 2NA T: 020 8406 2107 www.ppf.co.uk