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Railways Pension Trustee Company Limited

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities

ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
100 %
Total actively managed listed equities 200%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

A Sustainable Ownership framework has been developed that considers the impact of ESG factors through four lenses as set out below:

  1. Improves investment returns
  2. Reduces investment risk
  3. Impacts our reputation as a responsible investor
  4. Impacts the world our beneficiaries retire into

We have three main strategies: passive (external and internal managers), active fundamental portfolio (internal), and alternative risk premia (ARP) strategies (external and internal).

For the active fundamental portfolio, ESG considerations are considered ex-ante before selection of the constituents of the portfolio and are also considered on an ongoing basis. Joint engagements between the fund managers and ESG professionals - both for this portfolio and for companies in the wider portfolio - also took place. This helps us to improve our integration and stewardship capabilities. We have held a number of joint meetings with our internal managers and the portfolio companies.

We completed two projects to integrate climate risk and corporate governance into our equity portfolios. They resulted in the exclusion of a total of 175 companies on the basis of climate risk, and six companies for governance and conduct reasons.

As a signatory to the Montreal Pledge, we have made an annual commitment to measure and disclose the carbon footprint of part or all of the equities portfolio managed on behalf of the scheme. This also contributes to our understanding of the impact of climate change on the equities portfolio.

This can be found at: https://www.rpmirailpen.co.uk/long-term-risks-opportunities/

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

In addition to ongoing integration of ESG considerations prior to investment and on an ongoing basis, screening is carried out annually.


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

In 2019, we implemented exclusions on certain companies on the grounds of climate risk, cluster munitions and governance and conduct.

As a step to managing climate risk in our portfolios, we have divested from companies which derive greater than 30% of their revenues from the thermal coal and tar sands sectors. We also excluded companies on the grounds of poor governance and conduct from our equity portfolios. Our view of governance risk takes into account local market and sector norms. Companies may be excluded for their conduct in relation to bribery and corruption, human rights, labour relations or environmental issues.

We continue to exclude companies that are involved in the production of cluster munitions and land mines.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

The exclusion lists are signed off by the Railpen Investments Board. We communicate our approach to exclusions in our annual Sustainable Ownership report, which is published on our website: https://www.rpmirailpen.co.uk/wp-content/uploads/2018/05/Sustainable-Ownership-Report-2019.pdf

A summary of this report is also communicated to members in a newsletter.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

We use third-party research for our initial screening for the cluster munitions and land mines, climate and governance and conduct exclusions. We review our ESG research providers at least annually, and receive regular updated data feeds. All exclusion lists are reviewed and updated annually.

For cluster munitions and land mines, all companies identified in the third-party screen were reviewed by a member of the Sustainable Ownership team, and checked by the Head of Sustainable Ownership. In cases where the involvement was not clear, we contacted the data provider to verify, and also cross-check the list against other publicly available exclusion lists. Additional research may also be carried out internally.

For the climate exclusion list, all companies identified in the screening process were notified in writing that they had been identified as deriving more than 30% of their revenues from thermal coal and/or tar sands, and were given time to respond and verify the revenue assessment. Where companies provided information in the public domain that disputed the research provider’s data, we updated the exclusion list.

For governance and conduct, all companies identified in the screen underwent a qualitative review by a member of the Sustainable Ownership team. All qualitative analyses were reviewed within the team and the most significant received a letter asking for dialogue on governance and sustainability practices. Following the engagement, the team identified which companies to place on an exclusion list.

All exclusion lists were reviewed and signed off by the Railpen Investments Board. Following this, the exclusion lists were added to our internal trading platform.


LEI 06. Processes to ensure fund criteria are not breached (Private)


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

The investment analysis for every active equity portfolio constituent involves an assessment of the most material ESG factors.


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information. [Optional]

For the active fundamental portfolio, ESG considerations are considered ex-ante before selection of the constituents of the portfolio. An assessment of potentially material ESG factors is carried out by a member of the Sustainable Ownership team, and discussed with the portfolio managers to highlight any potential ESG risks or opportunities. As part of the review, we also identify potential areas of concern and topics for engagement.

For companies in the fund, ESG considerations are also considered on an ongoing basis. We aim to engage with companies in this portfolio annually, and all engagement notes are shared with the portfolio managers, who also attend engagement meetings that focus on ESG. We regularly update our ESG research notes to reflect our engagement and voting.

For the other portfolios, we work closely with the portfolio manager to prioritise company engagement activity and share engagement notes after the event as appropriate. We hold regular meetings with the Chief Investment Officer and Head of Public Markets updating them on our active ownership activities, including engagement and proxy voting.


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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