We have a commitment to responsible investment across our portfolio. We believe that our responsible investment (RI) strategy helps us manage the environmental, social and governance risk in our portfolio and aligns us with the evolving regulatory and policy framework in the UK. Furthermore, it opens opportunities to pursue sustainable investment performance.
The Board and its Investment Committee have adopted responsible investment principles that closely align us with the Principles for Responsible Investment (PRI). Our two core beliefs, expressed in our Statement of Investment Principles, are that:
- by acting as a responsible and vigilant asset owner, we can protect and enhance the value of our investments, and
- environmental, social and governance (ESG) factors can have an impact on the long-term performance of our investments, and the management of ESG risks and exploitation of ESG opportunities can, therefore, add value to our portfolio.
Responsible investment criteria in manager selection
RI criteria are formally part of our manager selection process. However, RI factors on their own do not determine our view of managers. Weights given to RI considerations vary from asset class to asset class depending on relevance and availability of best practice. As part of the appointment process we include RI due diligence, where appropriate through dedicated meetings.
RI clauses in our manager mandates
During 2012, we began following Model contract terms set out by the International Corporate Governance Network (ICGN) in including RI clauses in investment management agreements. Their inclusion allows us to communicate our RI expectations formally at the outset.
Ongoing monitoring and scoring of managers’ RI performance and engagement
Our investment team monitors the degree to which managers' RI approach is aligned with our requirements. The team uses a RI rating (red, amber or green) which is fully integrated into the PPF’s wider performance-monitoring framework. It is based on five performance areas: alignment, ESG integration, stewardship, resources, and reporting. The RI rating is one of a number of equally weighted qualitative factors assessing manager performance more widely and which sit alongside a quantitative performance assessment. No single factor determines the view we take of our managers. Our fund managers are required to report RI issues alongside investment performance. RI is a standing agenda item in manager meetings. The team engages with fund managers on their rating. Since the introduction of the rating, the majority of our fund managers have taken steps towards better alignment with the PPF’s RI policies, and RI reporting has significantly improved in quantity and quality. More detail can be found in the PPF RI rating system.
Collaborative efforts to improve or set RI standards across asset classes
During the year, our staff has actively contributed to industry working groups that develop RI best practice standards. The RI Manager continues to chair the Principles for Responsible Investment’s (PRI’s) fixed income work stream; participates in the PRI’s farmland work stream; was part of the ICGN Sustainable Mandates group; and participated in collaborative efforts to improve disclosures from private equity managers. We seek to continuously complement our manager monitoring and engagement with best practices identified through those collaborations.
We have been a signatory to the Principles for Responsible Investment (PRI) since 2007. The PRI are set of principles that build a framework for global best practice in responsible investment.
PPF is a signatory to the Carbon Disclosure Project (CDP) and its offshoot, CDP Water. We are also members of the International Limited Partners Association (ILPA).
Identifying and implementing sustainable investment opportunities
Sustainable investment opportunities need to fulfil three criteria: the existence of a solid investment case; the ability to exploit opportunities arising from long-term macro trends or to help mitigate macro risks; and the ability of managers to meet or move towards meeting our responsible investment criteria. Our farmland and timberland investment programme is an example of an asset allocation that takes into account long-term macro trends and risks that could impact our investments, such as climate change and resource scarcity.
Exercising our shareholder rights
We believe that voting our shares and engaging with companies are part of our oversight role in relation to the companies in which we invest. Exercising our shareholder rights is not an end in itself but an essential means of ensuring that boards are accountable, and are fulfilling their stewardship obligations to shareholders, including the delivery of long-term value.
This is why we have adopted a Statement of Stewardship Principles which sets out our beliefs and principles that underpin our role as a shareholder in listed companies.
To vote the PPF’s shares cost-efficiently across a growing global listed equity portfolio, we appoint external agents who also monitor portfolio companies for ESG risks, and where concerns arise, engage with company management. For our segregated portfolios, we use an overlay service. Due to operational barriers to extracting voting rights from our pooled equity funds, we outsource stewardship activities in relation to these funds to the relevant managers.
We actively monitor our voting and engagement agents throughout the year and work with them to improve the quality and quantity of their stewardship activities globally. We are currently in the process of developing corporate governance principles to underpin our commitment to responsible share ownership.
The PPF has published its Statement of Compliance with the UK Stewardship Code. This Code, adopted by the Financial Reporting Council (FRC) in July 2010, aims to improve the quality of engagement between investors and companies to help maximise long-term returns to shareholders as well as improve and strengthen corporate governance. The PPF is listed as a signatory to the UK Stewardship Code on the FRC’s website.
The PPF strives to be transparent on its responsible investment activities. The reports below provide information on the voting and engagement activities carried out on behalf of the PPF on its segregated portfolios.