The key elements of our approach to RI, in line with our commitments in our Statement of Investment Principles, are:
RI criteria in manager due diligence at selection stage
RI criteria are formally part of our manager selection process. However, RI factors on their own do not determine our view of managers. Equal weights are given to RI considerations for each asset class, we are however cognisant that the relevance and availability of best practice varies between asset classes. As part of the appointment process we include RI due diligence, sometimes through dedicated meetings.
RI clauses in our manager mandates
Since 2012, we have followed best practice set out by the International Corporate Governance Network (ICGN) in including RI clauses in investment management agreements. While these clauses are still subject to negotiation with individual managers, their inclusion allows us to communicate our RI expectations formally at the outset.
On-going monitoring and scoring of managers' RI performance and engagement
Much of our RI efforts focus on where we have the most influence - on the interface with our external managers. The purpose is to move our managers, through proactive engagement, towards better RI practice. The tool that we use for this is our RI rating (red, amber or green) which is fully integrated into our wider performance-monitoring framework. It is based on five performance areas: alignment, ESG integration, stewardship, resources, and reporting.Our investment team uses it to monitor the degree to which managers' RI approach is aligned with our requirements. 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 our RI policies, and RI reporting has significantly improved in quantity and quality.
We have internal guidance documents or policies which set out our expectations of managers in various asset classes. This are updated as best practices emerge in the market; their main purpose is to guide our investment team in forming an RI opinion of a manager; and to help establish specific proposals for improvement/development that may lead to a ratings upgrade. These documents are not public, but for the use of the team only.
Collaborative efforts to improve or set RI standards across asset classes
Internally within the PPF, we continue develop our internal RI ratings framework focussed on improving ESG risk mitigation reporting by our asset managers. Similarly we continue to engage with industry peers on their experiences, and approaches taken to measure risks concerning fossil fuels and contraversial weapons.
Exercising our ownership rights, such as shareholder rights and votes on advisory committees
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.
Another aim is to ensure greater accountability and improve the way in which we monitor our external voting agents. The Board approved a Standard of Diligence, which defines our expectations regarding the quality of voting and engagement decision-making and implementation by our agents. This document is not public.
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.
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. Information is available on its website, including quarterly reports on the voting and engagement activities carried out on behalf of the PPF.
Identify and implement sustainable investment opportunities
We continue to investigate sustainable investment opportunities that fulfil three criteria:
- the existence of a solid investment case
- the ability to exploit opportunities arising from long-term macro trends or help mitigate macro risks
- the ability of managers to meet or move towards meeting our responsible investment criteria, and can be implemented at scale.
We continue to implement our farmland and timberland investment programme which was previously prioritised under these criteria, due to the demographic trend underpinning the opportunity (population growth, emerging markets growth and associated urbanisation), the relative resilience in both investment and climate change terms, the direct link to our resource theme and the importance placed by the industry on developing sustainability standards.