The UK’s Pension Protection Fund (PPF) has published its first responsible investment (RI) report, saying it recognised that “sharing what we do more widely” was an area for improvement.
The defined benefit lifeboat fund was an early signatory of the Principles for Responsible Investment (PRI), signing up one year after their launch in 2006, and in a foreword to the new report, chair Arnold Wagner wrote about “reaffirming” the fund’s commitment to responsible investment.
“RI has always been at the core of how we do things and I am delighted that, with a lot of work done behind the scenes, we are now publishing our inaugural RI report,” he is quoted as saying.
The report sets out PPF’s approach to responsible investment, the execution of its key priorities, and its perspective on future developments.
According to the report, the fund has reported in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), with the disclosures presented in its 2019/20 annual report and accounts. These have been delayed and, according to a PPF spokesperson, will be published in the autumn.
“As we had expected as a result of the challenging market conditions at the year-end, some assets needed more time for complete valuations to be obtained,” the spokesperson added. “Our annual report and accounts has to be laid in parliament; this can only be done when parliament is sitting and the next available slot is in October. “We are close to finalising our results and, whilst subject to audit, they show that we’re still in strong financial health.”
In his statement in the RI report, Barry Kenneth, CIO of the £32bn (€35bn) fund, said applying the TCFD’s recommendations had been a key area of focus.
“To obtain a thorough oversight of our portfolios in relation to ESG risks and opportunities, we are investing significantly in expertise to monitor these portfolios ourselves”
Barry Kenneth, CIO of the Pension Protection Fund
He explained that the PPF was “pushing strongly” for increased disclosure and reporting, saying the fund would not be able to fully deliver on its own reporting requirements without underlying transparency from its external managers, many of whom provided a limited level of fund-specific ESG reporting.
“In the meantime, to obtain a thorough oversight of our portfolios in relation to ESG risks and opportunities, we are investing significantly in expertise to monitor these portfolios ourselves,” said Kenneth. “Whilst challenging, we recognise that a tailored approach is often necessary as different schemes will have different characteristics and expectations.
“The momentum around ESG integration has built in recent years, yet we are still in the early stages of the journey, and recognise that all partners must work together to deliver on this successfully.”
Better reporting, new stewardship policy
A “key action” for the coming year, according to the RI report, is for the fund to work with its external managers of pooled funds to improve the quality and comparability of reporting.
The PPF said it was “striving […] to the best standards available” to help fulfil the UK government’s ambition for large asset owners to report to the TCFD guidelines by 2022.
“Our external managers are also being advised of our requirements for climate-risk assessment reporting on our mandates from them within the next fiscal year,” it said.
In the report, the PPF also states that it is developing a new stewardship policy, with a bespoke voting and engagement focus for certain themes. It indicated that this was at least also with a view to aligning with the new Stewardship Code.
The PPF engages with companies and votes directly via its external provider, EOS at Federated Hermes, in the context of its segregated equities mandates. Since last year “at least one milestone moved forward” for around 50% of its objectives as a result of engagement with companies, it added.
It said that it expected external managers in asset classes besides equity “to also engage in active stewardship with companies where practicable”.
Alongside expanding carbon footprinting to further asset classes, the fund would also start undertaking scenario analysis on a selection of private markets’ assets, and planned to expand the physical risks metrics for real assets, it said.
Supporting climate change targets
The UK government’s pledge to achieve carbon neutrality by 2050 was “a positive example” in light of next year’s UN climate change conference (COP26), it said.
“In order to understand what tangible actions investors can practically take to support the achievement of country or regional targets, we are actively collaborating with the IIGCC through their Paris Aligned Investment Initiative (PAII), and following the developments of the Science Based Targets Initiative (SBTi) framework for Financial Institutions,” it added.
In 2018, the PPF hired Claire Curtin as head of ESG from Trucost – now part of S&P Dow Jones Indices.
This article was updated to include a statement provided by PPF about the delayed publication of its latest annual report and accounts.