University of Leeds Pension and Assurance Scheme Implementation Statement as at 31 March 2022
Purpose of this statement
This implementation statement has been produced by the Trustee of the University of Leeds Pension and Assurance Scheme (PAS) to set out the following information over the year to 31 March 2022:
• the voting activity undertaken by the PAS’s investment managers on behalf of the Trustee over the year, including information regarding the most significant votes; and
• how the Trustee’s policies on exercising rights (including voting rights) and engagement activities have been followed over the year.
Trustee policies on voting and engagement
The Trustee’s Statement of Investment Principles (SIP) in force at 31 March 2022 describes the Trustee’s policy on the exercise of rights (including voting rights) and engagement activities as follows:
Investment managers are expected to exercise rights and voting powers with the objective of preserving and enhancing long-term shareholder value. In addition to the exercise of rights and voting rights, investment managers are expected to engage with key stakeholders (which may include issuers of debt or equity, corporate management, regulators and governance bodies) relating to their underlying investments in order to improve corporate behaviours and governance, improve performance and social and environmental impact and to mitigate financial risks.
With the exception of the segregated Liability Driven Investment portfolio with Schroders (previously River & Mercantile), which has no voting rights and limited ability to engage with key stakeholders given the nature of the mandate, the PAS invests entirely in pooled funds. As such, the Trustee has delegated responsibility for carrying out voting and engagement activities to the PAS’s investment managers.
Summary
The Trustee believes that its policies on voting and engagement have been met over the year. In particular:
- At the start of the year, the Trustee completed a review of the PAS’s Responsible Investment Policy, which included consideration of how Environmental, Social and Governance (ESG) issues are taken into account within the PAS’s investment strategy. This also included considering the extent to which the Trustee will seek to achieve consistency with the University’s Responsible Investment Policy.
- As part of a wider review of the PAS’s Equity Portfolio, and following the review of the PAS’s Responsible Investment Policy, the Trustee made investments in the LGIM RAFI Multi-Factor Climate Transition Fund and the LGIM ESG Paris Aligned World Equity Fund towards the end of the year. These investments were made to reflect the Trustee’s Responsible Investment Policy, in particular to address climate risk.
- The Trustee communicated the changes made to the PAS’s investment strategy to incorporate ESG as part of its annual newsletter and is committed to communicating its approach to ESG with members on a regular basis.
- Annually the Trustee receives voting information and engagement policies from the PAS’s investment managers, which is reviewed to ensure alignment with the Trustee’s own policies. The Trustee believes that the voting and engagement activities undertaken by the investment managers on their behalf have been in the members’ best interests. During the year, the Trustee reviewed each of the PAS’s investment managers’ approaches to ESG and engagement, and carried out monitoring of their activity over the year to 31 March 2021, to ensure this was in line with expectations. This involved considering ESG ratings provided by its investment consultant, as a measure of how the PAS's investment managers take account of ESG issues.
- As part of ongoing monitoring of the PAS’s investment managers, the Trustee uses ESG ratings information available within the pensions industry or provided by its investment consultant, to assess how the PAS’s investment managers take account of ESG issues.
- Overall, we do not have any material concerns with the ESG and Stewardship activities of the PAS's holdings, and therefore there are no direct challenges we propose to raise with any of the investment managers relating to their ESG or Stewardship activities. Most of the PAS’s investment managers were able to provide evidence that they are actively engaging with key stakeholders on behalf of the Trustee where possible, although the nature of some of the funds the PAS invests in means this is not always possible.
Towards the end of the year, the PAS made a number of changes to the funds within the Equity Portfolio, which involved disinvesting fully from some funds and making investments in new funds. This report does not show the voting and engagement activity of the new funds that the PAS invested in, as these investments were made towards the end of the reporting period. The Implementation Statement produced next year will include full reporting for the new funds.
Stewardship policy
The Trustee’s Statement of Investment Principles (SIP) in force as at 31 March 2022 describes the Trustee’s stewardship policy on the exercise of rights (including voting rights) and engagement activities. It was last reviewed in March 2022. The Trustee has delegated the exercise of rights attaching to investments, including voting rights and in undertaking engagement activities, to the PAS’s investment managers.
Voting activity over the year to 31 March 2022 | Summary
This section provides a summary of the voting activity undertaken by the investment managers within the PAS’s Growth Portfolio on behalf of the Trustee over the year to 31 March 2022.
| Manager | Legal and General (LGIM) | Ninety One Asset Management | First Eagle Investment Management | ||
| Fund name | LGIM UK Equity (5% Capped) Passive Fund | World (ex UK) Developed Equity Index Fund | Ninety One Global Core Equity Strategy | Ninety One Emerging Market Multi Asset (EMMA) Fund | First Eagle Amundi International Fund |
| Structure | Pooled | Pooled | Pooled | Pooled | Pooled |
| Ability to influence voting behaviour of manager | The pooled fund structure means that there is limited scope for the Trustee to influence the manager’s voting behaviour. | ||||
| Number of eligible meetings | 763 | 2,931 | 96 | 131 | 115 |
| Number of eligible votes | 10,720 | 34,024 | 1,284 | 1,443 | 1,653 |
| Percentage of resolutions voted | 100% | 100% | 97% | 94% | 92% |
| Percentage of resolutions abstained | 0% | 1% | 1% | 4% | 0% |
| Percentage of resolutions voted with management * | 93% | 79% | 90% | 90% | 97% |
| Percentage of resolutions voted against management * | 7% | 20% | 10% | 6% | 3% |
| Proxy voting advisor employed* | All three managers use ISS who provide them with research recommendations based on their internal voting policies. The managers consider and discuss this with their respective investment teams to make a decision in the best interest of the shareholders. | ||||
| Percentage of resolutions voted proxy voter recommendation | 5% | 14% | 3% | 2% | 5% |
*As a percentage of the total number of resolutions voted on. Values may not sum to 100% due to rounding.
Voting activity over the year to 31 March 2022 | Significant votes
The change in Investment and Disclosure Regulations that came into force from October 2020 requires information on significant votes carried out on behalf of the Trustee over the year to be set out. The guidance does not currently define what constitutes a “significant” vote, so for this Implementation Statement the Trustee has asked the investment managers to determine what they believe to be a “significant vote”. The PAS’s equity managers have provided a selection of votes which they believe to be significant, and in the interest of concise reporting a summary of some of the key votes provided by the investment managers is set out below, across environmental, social and governance issues.
Legal and General - Passive Equity funds
| Vote 1 | Vote 2 | Vote 3 | |
| Company name | Apple Inc | JD Sports Fashion Plc | Mitsubishi UFJ Financial Group, Inc. |
| Summary of the resolution | Report on Civil Rights Audit | Re-elect Peter Cowgill as Director | Amend Articles to Disclose Plan Outlining Company's Business Strategy to Align Investments with Goals of Paris Agreement |
| How the manager voted | For | Against | For |
| Rationale provided for the voting decision | LGIM supports proposals related to diversity and inclusion policies as they consider these issues to be a material risk to companies. | LGIM has a longstanding policy advocating for the separation of the roles of CEO and board chair. These two roles are substantially different, requiring distinct skills and experiences. Since 2020 they have voted against all combined board chair/CEO roles. | LGIM expects companies to be taking sufficient action on the key issue of climate change. |
| Outcome of the vote | 53.6% supported the resolution | 84.8% of shareholders supported the resolution | 22.7% of shareholders supported the resolution |
| Implications of the outcome | LGIM will continue to engage with their investee companies, publicly advocate their position on this issue and monitor company and market-level progress. | LGIM will continue to engage on this important ESG issue. | |
| Criteria on which the vote is considered “significant” | LGIM views gender diversity as a financially material issue for their clients, with implications for the assets they manage on their behalf. | LGIM considers this vote to be significant as it is an example of them escalating their voting policy on the topic of the combination of the board chair and CEO. | LGIM views climate change as a financially material issue for clients, with implications for the assets they manage on their behalf. This was also a high-profile proposal in Japan, where climate-related shareholder proposals are still rare. |
Ninety One - Global Core Equity Fund
| Vote 1 | Vote 2 | Vote 3 | |
| Company name | Microsoft Corporation | AutoZone | Ferguson Plc |
| Summary of the resolution | Prohibit Sales of Facial Recognition Technology to All Government Entities | Report on Annual Climate Transition | Authorise UK Political Donations and Expenditure |
| How the manager voted | Against | For | For |
| Rationale provided for the voting decision | Ninety One believed that the vote against was warranted as there did not appear to be strong evidence to suggest that management and the board are neglecting a material risk, and the proposal’s request is overly prescriptive. | The requested report and targets will allow investors to better assess how the company is managing climate-related risks. | The Company states that it does not intend to make overtly political payments but is making this technical proposal in order to avoid inadvertent contravention of UK legislation. |
| Outcome of the vote | Passed | Passed | Passed |
| Criteria on which the vote is considered “significant” | Political vote | Thematic shareholder resolution (environment) | Political vote |
Ninety One - Emerging Market Multi Asset (EMMA) Fund
| Vote 1 | Vote 2 | Vote 3 | |
| Company name | Vale SA | Anglo American Plc | Fubon Financial Holding Co., Ltd. |
| Summary of the resolution | Approve Agreement to Absorb Companhia Paulista de Ferroligas (CPFL) and Valesul Aluminio S.A. (Valesul) | Approve Matters Relating to the Demerger of Thungela Resources Limited | Approve Merger of the Company and Jih Sun Financial Holding Co., Ltd. |
| How the manager voted | For | For | For |
| Rationale for the voting decision | Ninety One believe the vote was warranted because the company effectively owns 100% of its subsidiary. In addition, the absorption will not result in any transfer of cash or shares away from the company and the company has presented reasonable rationale for the transaction. | Ninety One believe that the strategic rationale provided by the board was compelling, noting the benefits of running the two businesses independently and enabling shareholders to tailor their desired exposure to thermal coal. Existing shareholders could still participate in the potential upside of the demerged business | A vote for the transaction was warranted as it was strategically sound and the pricing fell within the range advised by an independent valuer and was deemed reasonable. |
| Outcome of the vote | Passed | Passed | Passed |
| Criteria on which the vote is considered “significant” | Significant corporate transaction | ||
First Eagle - Amundi International Fund
| Vote 1 | Vote 2 | Vote 3 | |
| Company name | Danone | Microsoft | Colgate |
| Approximate size of Fund's holding as at the date of the vote (as % of portfolio) | 1.6% | 1.5% | 1.3% |
| Summary of the resolution | Re-elect Cecile Cabanis as Director | Report on Gender/Racial Pay Gap | Reduce ownership threshold for shareholders to call special meeting |
| How the manager voted | Against | Against | Against |
| Rationale for the voting decision | First Eagle opposed this director because her role at the company has been reduced and they do not understand the importance of her continued presence on the board. | First Eagle believe that the company's current disclosures, which address how the Company is monitoring and managing issues related to pay equity and gender representation throughout its organisation, are sufficient, and that disclosure of a potentially misleading figure could present significant risks for the Company with respect to its retaining, motivating, and attracting employees. | While First Eagle support a threshold lower than the current 25%, they felt that a 10% threshold does not incorporate enough of the shareholder base to support such action and the 10% threshold seemed excessive. |
| Outcome of the vote | Passed | Failed | Failed |
| Implications of the outcome | n/a | First Eagle will continue to monitor this issue. | n/a |
| Criteria on which the vote is considered “significant” | This was against the ISS’s recommendation and a top holding in the fund. | ||
First Eagle Amundi International Fund
| Vote 1 | Vote 2 | Vote 3 | |
| Company name | Exxon | Comcast | Richemont |
| Date of vote | 15 May 2020 | 2 June 2020 | 31 August 2020 |
| Summary of the resolution | Reduce Ownership Threshold for Shareholders to Call Special Meeting | Require Independent Board Chair | Re-elect Johann Rupert as Director and Board Chairman |
| How the manager voted | Against | Against | For |
| Rationale for the voting decision | Last year there was a proposal to reduce the ownership threshold for being able to call a vote to 10%. In response to this proposal, Exxon lowered the threshold from 25% to 15%. This was a substantial reduction, and the new level now compares favourably with direct peers. First Eagle believed the new proposal to lower the threshold to 10% was unnecessary given the efforts put forth by the board in response to the previous proposal, especially when compared with governance best practices. | A shareholder proposal submitted in 2020 requested that the company adopt a policy that the chair of the board be an independent director. First Eagle look at these situations on a case-by-case basis. In this case, Comcast has a lead independent director (Edward Breen) who is empowered to call meetings with all the other independent directors without the CEO present. First Eagle believe this is an effective counterbalance to a non-independent board chair. | ISS (the proxy voting service used by First Eagle) recommended voting against Johann Rupert because of the failure to establish a sufficiently independent board and because he holds an excessive number of mandates at listed companies. First Eagle believe that family-controlled businesses tend to invest with a 10- or 20-year time horizon concentrating on what they can do now to benefit the next generation and mitigate the downside risk. Richemont’s emphasis on patience, long-termism and financial prudence dovetails with First Eagle’s own investment philosophy and timeframe, so they supported Mr. Rupert in his re-election. |
| Outcome of the vote | Failed | No vote was reported because it was not presented at the annual meeting by the shareholder proponent and therefore, was not acted upon by the shareholders. However, if the shareholder proposal had been acted upon, this proposal would have been defeated by over a majority of the votes cast based on proxies delivered prior to the closing of the polls for the annual meeting | Passed |
| Criteria on which the vote is considered “significant” | First Eagle’s criteria for determining whether a vote is "significant" is whether engagement with the issuer in respect of corporate governance may have had an impact on the voting decision. First Eagle also take into consideration the size of the holding to determine whether a vote is "significant". | ||
Engagement activity over the year to 31 March 2022
The investment managers may engage with investee companies on behalf of the Trustee. The tables below provide a summary of the engagement activities undertaken by each manager during the year for the relevant funds. Engagement activities are limited for the PAS’s LDI due to the nature of the underlying holdings, so engagement information for these assets have not been shown.
Engagement overview | Equity Portfolio
| Manager | Legal and General | Ninety One Asset Management | Ninety One Asset Management | First Eagle Investment Management |
| Fund name | LGIM passive equity funds | Ninety One Global Core Equity | Ninety One EMMA | First Eagle Amundi International |
| Does the manager perform engagement on behalf of the holdings of the fund | Yes | Yes | Yes | Yes |
| Number of engagements undertaken on behalf of the holdings in this fund in the year | n/a* | 52 | 33** | 250 |
| Number of engagements undertaken at a firm level in the year | 696 | 337 | 337 | 1,062 |
*LGIM did not provide fund level engagement figures for their passive equity funds. This is because they carry out engagement across all passive equity holdings together, rather than carrying out engagement separately for each individual fund.
**This figure reflects engagement with the wider emerging market universe, not just the Fund’s holdings.
Engagement overview | Non-Equity Growth Portfolio
| Manager | M&G | Mercer** | Willis Towers Watson | Cairn | Janus Henderson*** |
| Fund name | Real Estate Debt (RED) Funds II, III, IV and V | PIPV Infrastructure | Secure Income Fund | Pathfinder Fund II | Multi-Asset Credit Fund |
| Does the manager perform engagement on behalf of the holdings of the fund | Yes* | Yes | Yes | No | Yes |
| Number of engagements undertaken on behalf of the holdings in this fund in the year | n/a* | Not tracked | 48 | n/a* | 117 |
| Number of engagements undertaken at a firm level in the year | 179 | Not tracked | 150 | 34 | 686 |
*M&G's ability to control and dictate ESG initiatives at the borrower level is limited once an investment has been made, as they do not hold a controlling equity interest where they would be more readily able to influence policy. However, engagement on ESG related issues forms part of the due diligence and initial negotiation process prior to the investment being executed.
**As a fund-of-funds provider, although Mercer engage with the underlying fund managers, they do not engage directly with the underlying holdings within the fund, nor do they currently keep a record of the engagements undertaken by the underlying fund managers. This is partly due to the differing reporting provided by the underlying fund managers on engagement activities within private markets, which makes it difficult to collate and compare between different providers. Mercer are working with the underlying fund managers to improve this reporting for future years.
***The Janus Henderson firm level engagement figure has been provided using data available over the year to 31 December 2021.