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Strathclyde Pension Fund

PRI reporting framework 2017

You are in Direct - Listed Equity Active Ownership » Engagement

Engagement

Overview

LEA 01. Description of approach to engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate whether your organisation has a formal engagement policy.

01.2. Indicate what your engagement policy covers:

01.3. Attach or provide a URL to your engagement policy. [Optional]

Attach document


01.4. Provide a brief overview of your organization’s approach to engagement

SPF has a well-developed Responsible Investment strategy based firmly on the UNPrinciples for Responsible Investment (PRI) The SPF strategy is to be an active and activist investor. Key elements are active engagement with companies to hold them to account; collaboration with other investors to improve corporate governance and company behaviour; and active investment in projects with a positive environmental, social or local impact. Activity spans a very wide range of concerns including labour rights, living wage, worker safety, executive remuneration, endangered species, child labour, water rights, and farm animal welfare. The current development focus is on carbon reduction.

LAPFF’s engagement approach is based on the following core principles:

Company engagement is conducted on the basis of reputational risk and long-term value for shareholders.

Engagement seeks to improve the performance of laggard companies while also striving to acknowledge and encourage companies that are leaders.

The Forum seeks to understand the company perspective on controversial issues before suggesting opportunities to improve governance or corporate responsibility practices.

All engagement meeting notes and company correspondence are kept strictly confidential to allow for open and honest dialogue.

In the interest of transparency and stewardship, the Forum reports on its engagement activities quarterly and annually.

01.5. Additional information [optional]


LEA 02. Reasoning for interaction on ESG issues

02.1. Indicate the method of engagement, giving reasons for the interaction.

Type of engagement

Reason for interaction

Individual/Internal staff engagements

Collaborative engagements

Service provider engagements

02.2. Additional information. [Optional]


Process

Process for engagements run internally

LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagement activities carried out by internal staff.

03.2. Describe the criteria used to identify and prioritise engagement activities carried out by internal staff.

03.3. Additional information. [Optional]


LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

04.1. Indicate if you define specific objectives for your engagement activities.

04.2. Indicate if you monitor the actions that companies take following your engagements.

04.3. Indicate whether your organisation defines milestones and goals for engagement activities carried out by internal staff.

04.5. Additional information. [Optional]


Process for engagements conducted via collaborations

LEA 05. Process for identifying and prioritising collaborative engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

05.1. Indicate whether your organisation has a formal process for identifying and prioritising collaborative engagements

05.2. Describe the criteria used to identify and prioritise collaborative engagements

other description

          As a follow-up from a voting decision
        

05.3. Additional information [Optional]

The Fund is committed to a rnage of initiatives and engagement threads through its retaining of Global Engagement Services (GES). GES runs a range of thematic engagments which the Fund is committed too including water, carbon and child labour.

The LAPFF Executive Committee gathers input from the members and the primary service provider and advises on what engagement collaborations to pursue and prioritise.

Where a significant number of LAPFF funds hold a company, where LAPFF funds hold a large percentage of the company or a priority issue has been identified, LAPFF will seek to engage with the relevant company.

 


LEA 06. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

06.1. Indicate if you define specific objectives for your engagement activities carried out collaboratively.

06.2. Indicate if you monitor the actions companies take following your collaborative engagements.

06.3. Indicate whether your organisation defines milestones and goals related to engagement activities carried out via collaborations.

06.5. Additional information. [Optional]

The GES engagement model follows a systematic and structured process. The quarterly GES report to the Fund provides full transparency of engagements and progress. The Fund will report this through the quarterly RI reports. The Fund's investment manager's are expected to provide outcomes to engagement which maybe reported via GES but often by the manager individually. They, like GES, provide an RI report to the Fund which is used to discuss cases and detail progress. GES also provide a dedicated engagement progress report on an annual basis. This is a table of target companies with information on the previous years engagement and the state of progress.

The fund is careful to lend its voice to collaborative work that is structured and that offers clear objectives.

It is typical for the collaborative work to be done over an extended period of time with outcomes requiring patience and flexibility.

The Fund either directly or through GES will monitor and report outcomes.

For LAPFF-initiated engagements, progress is monitored by the service provider and progress reports are provided to members in the form of the Quarterly Engagement Report. Before each engagement meeting LAPFF sets out two or three objectives, then following the meeting an indication is provided of whether these objectives were achieved and if so how. An assessment is provided of progress, ranging from ‘no progress’ to ’substantial improvement’.

For other collaborative engagements, LAPFF will monitor companies for progress where LAPFF has a direct engagement interest or ongoing relationship with that company. For companies where LAPFF does not have a direct relationship, we allow other collaborators to evaluate company progress and report back.

 


Process for engagements conducted with/on your behalf by service providers

LEA 07. Role in engagement process

New selection options have been added to this indicator. Please review your prefilled responses carefully.

07.1. Indicate if you play a role in the engagement process that your service provider conducts on your behalf.

07.2. Indicate the role(s) you play in engagements that your service provider conducts on your behalf.

07.3. Additional information. [Optional]

The Fund will require the service providers (investment managers) to support its engagement work in themes, sectors and companies identified by the engagement overlay provider. In that case the issues, objectives and the selection of the companies will provided to the service provider. Ther service providers are also expected to carry out engagements and other RI work on their own inititative.

SPF devotes significant resource to responsible investment activity. This includes: internal resource and expertise; dedicated resource within the Fund’s external investment managers; retention of Global Engagement Services (GES)

As a LAPFF member, we have an opportunity to suggest topics or companies for engagement. The Executive Committee makes the decision on whether or not to go forward with an engagement suggested by a LAPFF member. LAPFF’s progress is actively monitored and reviewed at each quarterly Business Meeting. In addition, the Executive Committee assesses the performance of LAPFF’s primary service provider annually.

As an organisation with a member on the LAPFF Executive Committee, our fund is able to participate directly in engagement meetings with companies.


LEA 08. Monitor / discuss service provider information

08.1. Indicate whether you monitor and/or discuss the following information provided to you by your service provider

Please select all that apply

08.2. Additional information. [Optional]

The Fund receives a quarterly and annual report on progress from GES.

The Fund recieves quarterly ESG reports from its investment managers

Our fund monitors the progress of LAPFF on the topics listed above by means of the quarterly Business Meeting


General processes for all three groups of engagers

LEA 09. Share insights from engagements with internal/external managers

09.1. Indicate if insights gained from your engagements are shared with your internal or external investment managers.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

Service provider engagements

09.2. Additional information. [Optional]

The investment managers are partners in the GES lead collaborative engagement and have full access to the GES research and engagement outcomes. The managers are kept informed of engagement work carried out directly by GES and are expected to monitor the quarterly Fund RI reports to understand the full picture.

Officers of the Fund and GES meet with each investment manager semi annually to discuss portfolio monitoring of global compact norm breaches, engagements, voting and ESG integration in the investment process.


LEA 10. Tracking number of engagements

10.1. Indicate if you track the number of engagements your organisation participates in.

Type of engagement
Tracking engagements

Individual / Internal staff engagements

Collaborative engagements

Service provider engagements

10.2. Additional information. [OPTIONAL]

The investment managers provide full and detailed quarterly reports of the engagement work undertaken with the Fund's portfolio companies. The engagements are then reported through the Funds RI reporting. The GES engagement model follows a systematic and structured process. GES also provide a dedicated engagement progress report on a quarterly basis. The GES annual engagement progress report provides a table of target companies with information on the previous years engagement and the state of progress. Officers report in detail all their engagement work through the Fund's quarterly RI reports.

LAPFF tracks the number of companies that it engages with directly and reports this quarterly as well as annually. All incoming and outgoing correspondence as well as all meetings and phone calls with companies are saved and recorded, allowing LAPFF to  provide accurate and comparable statistics on number and type of engagements year on year.

For collaborative engagements, LAPFF endeavors to track how many companies it reaches. However, the number of companies where the number of companies contacted numbers into the hundreds in a collaborative engagement is not systematically tracked.


Outputs and outcomes

LEA 11. Number of companies engaged with, intensity of engagement and effort

11.1. Indicate the amount of your listed equities portfolio with which your organisation engaged during the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion (to the nearest 5%)
Specify the basis on which this percentage is calculated

Individual / Internal staff engagements

5 Number of companies engaged
5 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

Collaborative engagements

150
10 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

Service provider engagements

150
10 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

11.2. Indicate the proportion of engagements that involved multiple, substantive and detailed discussions or interactions with a company during the reporting year relating to ESG issue.

Type of engagement

% Comprehensive engagements

 

 

Individual / Internal staff engagements

 

 

Collaborative engagements

 

 

Service provider engagements

11.3. Indicate the percentage of your collaborative engagements for which you were a leading organisation during the reporting year.

Type of engagement

% Leading role

 

 

Collaborative engagements

11.4. Indicate the percentage of your service provider engagements that you were highly involved in during the reporting year.

Type of engagement

% High involvement

 

 

Service provider engagements

11.5. Additional information. [Optional]

LAPFF engaged with 59 companies in 2016.

GES engaged on 120 cases associated with violations of international norms and conventions. They held 169 meetings with companies related to these cases, including 89 conference calls and 80 face-to-face meetings. In total, GES was in contact with companies 2341 times through emails, conference calls and meetings.

The Funds external investment managers engaged with many hundreds of companies during the year on all ESG themes, this is captured in the Funds own quarterly RI reporting.

http://www.glasgow.gov.uk/councillorsandcommittees/viewSelectedDocument.asp?c=P62AFQDNDNDX2UNTUT


LEA 12. Engagement methods

12.1. Indicate which of the following your engagement involved.

12.2. Additional information. [Optional]

GES engaged on 120 cases associated with violations of international norms and conventions in 2016. The topics GES covered in service provider engagement included:
Child labour
Fire & Building safety in the Bangladesh garment industry
Mine safety
Climate change
Welfare and sustainability in the cocoa industry
Executive remuneration
Water rights
Farm animal welfare
Corporate corruption
UK Corporate Governance Code
Labour rights
Protection of endangered species
Human rights
Inhumane weapons
Fossil fuel to renewables
Tax transparency
Oil and gas exploration and extraction in the Arctic
Factory farming emissions
 

The topics LAPFF covered in ‘service provider engagement’ included: Audit Practices, Board Composition and diversity, Governance (General), Remuneration, Finance and Accounting, Shareholder Rights, Reputational Risk, Climate Change, Employment Standards, Social Risk, and Human Rights.

AGM attendance (LAPFF attended 22 during 2016)

SPF officers attended one AGM, participated in several company engagement conference calls and attended RI events that included engagement with portfolio companies


LEA 13. Engagements on E, S and/or G issues

13.1. Indicate if your engagements in the reporting year covered E, S and/or G issues, providing an estimation of the breakdown.

Individual / Internal staff engagements

0 % Environmental only
0 % Social only
0 % Corporate Governance only
100 % Overlapping ESG issues
Total 100%

Collaborative engagements

40 % Environmental only
20 % Social only
20 % Corporate Governance only
20 % Overlapping ESG issues
Total 100%

Service provider engagements

30 % Environmental only
20 % Social only
10 % Corporate Governance only
40 % Overlapping ESG issues
Total 100%

13.2. Additional information. [optional]

LAPFF Environmental (42%), Social (36%), Governance (55%).


LEA 14. Companies changing practices / behaviour following engagement

14.1. Indicate whether you track the number of cases during the reporting year where a company changed its practices, or made a formal commitment to do so, following your organisation’s and/or your service provider's engagement activities.

14.2. Indicate the number of companies that changed or committed to change in the reporting year following your organisation’s and/or your service provider's engagement activities.

Number of company changes or commitments to change

Individual / Internal staff engagements

5

Collaborative engagements

50

Service provider engagements

50

14.3. Additional information [Optional].

The Fund was directly involved in significant collaborative engagment including ShareActions Living Wage campaign, the RE100 renewable energy initiative and the FAIRR farm Animal Welfare initiative. These three alone saw significant numbers of companies either changing or pledging to change policies, procedures and/or  business preactice following the engagment. I have suggested a number of 50 but in relaity the number will be well in excess of that. The Re100 collaborative engagment alone has 89 RE100 companies making a commitment to go '100% renewable'.

The Fund's quarterly RI report includes a section on executive remuneration voting and engagement. The engagement section details many occassions of companies changing policy and actions as a result of engagement with the Fund's managers and GES. Officers will also provide input.

GES have a record of helping deliver change at portfolio companies, this list is added to every year. For example:

GES met with Harmony Gold in South Africa and discussed Health & Safety (H&S) management in combination with other topics. The company was responsive and has taken actions in the H&S area.

GES continuously engaged with Olam and the wider cocoa industry in 2016. In October, GES travelled to Côte d’Ivoire to visit a cocoa growing community and to participate in a conference on sustainable cocoa farming. Olam has strengthened its efforts by rolling out child labour monitoring and remediation systems in its supply chain.

Cemex (Mexico) Several meetings have been held during the year including in Mexico. The company now has in place policies and programs with the necessary components, including respect for international law.

LAPFF assesses the outcomes of each company engagement. There are substantially more engagements than number of companies engaged with because LAPFF engaged with a number of companies more than once during the reporting period.The performance for the reporting period is as follows.

Satisfactory response – 9

Change in process – 6

Moderate improvement – 11

Substantial improvement – 9

Dialogue – 84

Small improvement – 6

Awaiting response –11

No Improvement - 1

It is estimated that LAPFF engagement helped to foster improvements at 35 companies.

LAPFF maintains a reliable estimate of the number of cases during the reporting year in which a company changed its practices or made formal commitment to do so. After each engagement, LAPFF records the engagement outcome according to the categories set out above.


LEA 15. Examples of ESG engagements

15.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

Topic or ESG issue
          Environment
        
Conducted by
Objectives

Strategic resilience resolution to encourage companies to set out their  strategic approach to global climate and energy challenges

Scope and Process

Vote in favour of the strategic resilience reporting

Outcomes

LAPFF, in support of the ‘Aiming for A’ coalition, issued voting alerts for mining and energy company AGMs including Rio Tinto, and Exxon. Shareholder resolutions called on Rio Tinto and Exxon to publish annual assessments of long term portfolio impacts of public climate change policies and asked Exxon to assess the impact on the company’s oil and gas reserves and resources under a two-degree scenario and the resilience of the Company’s portfolio of reserves and resources through 2040 and beyond. Officers of the Fund voted the Fund’s holdings in support of the resolutions.

The resolution at Rio Tinto received unprecedented support with 99.1% of shareholders voting in support. The Exxon resolution was defeated at the May AGM. However, it gained record support with 38% of shareholders voting in favour. The Exxon board stated that the company continues to take steps to improve efficiency, reduce emissions and contribute to effective long-term solutions to manage climate change and had urged shareholders to vote against the resolution.

Topic or ESG issue
          Environment / Corporate Governance
        
Conducted by
Objectives

Collaborative letter to the Chairman of the Supervisory Board of Volkswagen.

Scope and Process

In March the Fund signed a GES collaborative letter to the Chairman of the Supervisory Board of Volkswagen. The letter communicated a number of investor concerns following the recent automotive emissions testing scandal. The letter urged Volkswagen to undertake a thorough review of all types of engines for all its brands to ensure that any kind of discrepancy is eliminated and further damage is prevented and to undertake a full review of the functionality of its risk management and compliance systems, including the development of a stronger whistleblowing procedure that would potentially prevent any legal violations in the future. The letter questioned the Supervisory Board’s oversight of the company, and whether the Supervisory Board has the right skills and expertise to fulfil its oversight duty effectively. On sustainability investors recommended the appointment of a dedicated board member to be accountable to the shareholders for the environmental and consumer protection measures undertaken.

Outcomes

GES and clients had a meeting with Hans Dieter Pötsch, the Chairman of Volkswagen’s Supervisory Board, in June 2016.

The company is no longer fitting vehicles with a device that helps to defeat emissions testing.

GES have written another letter to the company requesting another meeting with Chairman of the Supervisory Board ahead of Volkwagen’s AGM in May 2017.

Topic or ESG issue
          Human health / Environment
        
Conducted by
Objectives

Collaborative letters to leading fast food, pub and restaurant chains urging them to take immediate action to reduce antibiotic use in their meat and poultry supply chains.

Scope and Process

The Fund co-signed collaborative letters to leading fast food, pub and restaurant chains urging them to take immediate action to reduce antibiotic use in their meat and poultry supply chains. This was insupport of a collaborative initiative by the Farm Animal Investment Risk and Return initiative (FAIRR).

When passed up the food chain, these antibiotics are generating highly resistant bacteria which are a threat to humans and animals alike.

The investor letter also points out that future regulations to curb the veterinary use of antibiotics may catch out companies that are slow to act, whereas there will be cost savings and reduced disruption for forward-looking companies who have established relationships with higher- welfare producers.

 

Outcomes

As a result of this collaborative pressure and direct investor stewardship, responsible antibiotic use policies have begun to move up managements’ agendas and a number of companies have demonstrated significant progress.

McDonald’s USA have committed to eliminate the use of antibiotics important to human medicine in their chicken supply, and London-listed company The Restaurant Group has gone further and committed to, "Phasing out the routine, purely preventative use of antibiotics in groups of entirely healthy animals"

Letters have gone out through 2017 and a third round is underway for 2017

Topic or ESG issue
          Human Rights
        
Conducted by
Objectives

Seek an explicit commitment to respecting human rights

Scope and Process

GES has been urging FMC to incorporate an explicit commitment to respecting human rights, beyond those of the employees, in its policies and supplier requirements. The US based chemical manufacturing company, via its subsidiary FMC Foret, first came to the attention of GES in 2009 due to alleged human rights abuses through involvement in the importation of phosphate rock from Western Sahara.

Outcomes

In 2011 FMC exited the phosphates business however this decision was not in any way attributed to human rights concerns. Indeed, the lack of relevant due diligence across its operations left FMC exposed to further human rights violations.

GES continued engagement had been urging FMC to incorporate an explicit commitment to respecting human rights, beyond those of the employees, in its policies and supplier requirements and in February 2016 the company confirmed that it had done so.

Topic or ESG issue
          Environment impacts from mining activities
        
Conducted by
Objectives

To require Barrick Gold to cease the use of riverine tailings disposal at the Porgera Mine in Papua New Guinea.

Scope and Process

GES has been engaging with Barrick Gold since 2009 due to the company’s association with environmental impacts from mining activities, namely the use of riverine tailings disposal at the Porgera Mine in Papua New Guinea. Riverine tailings disposal can be devastating to local ecology, if untreated it will introduce toxins into the water, killing flora and fauna and impacting local water supplies. For the last few years, GES has been encouraging Barrick to adopt further policy changes.

Outcomes

Barrick confirmed that its policy on the usage of riverine tailings disposal has been amended with a statement published on the company website: “In the future, Barrick will build mines that rely on other methods of disposal of mining and processing material, and avoid riverine tailing disposal methods.” This is a good example of investor engagement having a truly positive impact.

Topic or ESG issue
          Corporate Governance
        
Conducted by
Objectives

Ensure that the Board has proper oversight and therefore that it creates long-term sustainable shareholder value.

Scope and Process

The Fund's passive equity manager, Legal and General met with Schneider Electric to discuss corporate governance arrangements, Board composition and issues raised at the last AGM regarding remuneration. It is important to ensure that the Board has proper oversight and therefore that it creates long-term sustainable shareholder value. Furthermore, the Company has a joint Chair/CEO which is not in line with best practice as power in the company is concentrated in the hands of one individual. Lastly, remuneration needs to be linked with strategy in order to incentivise management.

Outcomes

Legal & General first met with the company in April 2016 and had a follow up meeting with the Lead Independent Director (LID) in October. The LID explained how risks were mitigated around the power of the joint Chair/CEO and how succession planning on the Board would be addressed. The LID committed to better reporting on how the Remuneration Committee sets targets on how pay is linked to the long-term strategy and stated that they will be stretching beyond market expectations to challenge management.

15.2. Additional information. [Optional]

LAPFF reports on all the companies it engages with on a quarterly and annual basis. The details of these engagements can be accessed on the LAPFF website at http://www.lapfforum.org/Publications/engagement/reports and for the annual summary at http://www.lapfforum.org/Publications/annual-reports


Communication

LEA 16. Disclosure of approach to ESG engagements

16.1. Indicate whether your organisation proactively discloses information on its engagements.

16.2. Indicate if the information disclosed to the public is the same as that disclosed to clients/beneficiaries.

16.3. Indicate what engagement information your organisation proactively discloses to clients/beneficiaries and/or the public.

Engagement information disclosed

16.4. Indicate how frequently you report engagements information.

16.8. Additional information. [Optional]

We disclose in depth in the RI quarterly reports and in summary in the annual report. Links to these reports are available on the Fund and the Council's websites. They are all available to the public

LAPFF discloses engagements publicly at www.lapfforum.org to the extent that this disclosure does not compromise confidential information provided by companies engaged with.

As part of their LAPFF membership, LAPFF members have access to a greater amount of information than the general public in respect of LAPFF engagements.

 


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