The Trustees of the Coloplast Limited Retirement Benefits Scheme (the ‘Trustees’ and the ‘Scheme’ respectively) have prepared this implementation statement in compliance with the governance standards introduced under The Occupational Pension Plans (Investment and Disclosure) (Amendment) Regulations 2019.
Its purpose is to describe the actions taken over the past year and to demonstrate how the Trustees have followed the policies on voting, stewardship and engagement, as set out in the Scheme’s Statement of Investment Principles (the ‘SIP’) dated March 2022. This statement covers the year to 30 September 2022.
The Scheme’s assets are held in pooled investment funds (via the Mobius Life investment platform) and the day-to-day management of these investments (including the responsibility for voting and engaging with companies) is delegated to the fund managers of the pooled investment funds (the ‘Fund Managers’).
Following the acquisition of BMO’s EMEA Asset Management business by Columbia Threadneedle in 2021, as of 1 July 2022 the enlarged business operates under the Columbia Threadneedle Investments brand.
The Fund Managers of the pooled investment funds are Legal & General Investment Management (‘LGIM’), BNY Mellon Investment Management (‘BNYM’) and Columbia Threadneedle Investments (‘CT’).
As Trustees of the Scheme’s assets, we are responsible for the selection and retention of the funds accessed via Mobius. Reviewing the voting and engagement activities, for which we include details below, is an important exercise to help us ensure they remain appropriate and are consistent with the Fund Managers’ stated policies in this regard. We are satisfied with the voting and engagement activities of the Fund Managers, and in particular, that they are using their position as stakeholder to engage constructively with investee companies; however, we will engage with the Fund Managers should we have any concerns about the voting and/or engagement activities carried out on our behalf.
The Trustees had no cause to challenge the Fund Managers’ voting and/or engagement activities during the year to 30 September 2022.
Voting and engagement
Details on voting and engagement activities provided by LGIM, BNYM and CT are set out below. In order to produce this statement, we have asked the Fund Managers a series of questions on their policies and actions and to provide examples relating to their voting and engagement activities during the year. We have then reviewed these and selected the most relevant comments for the purpose of this statement.
LGIM have provided information relating to the World (ex UK) Equity Index Fund (GBP currency hedged) and the Dynamic Diversified Fund, as these funds hold equities for which they have voting rights.
The BNYM Global Dynamic Bond fund does not hold equities and given that bonds do not confer voting rights, there was no voting carried out in relation to this fund. However, BNYM does undertake engagement activities in respect of its bond holdings and we have included examples below.
The CT Dynamic LDI Funds do not hold equities and given that these investments do not confer voting rights, there was no voting carried out in relation to these funds. However, CT does undertake engagement activities with counterparty banks on relevant issues, where applicable. CT report on this on a bi-annual basis, therefore the information provided covers the year to 30 June 2022.
LGIM voting and engagement activities
The following commentary is based on the information that LGIM have provided in response to our questions and illustrates how they co-ordinate their voting and engagement activities with companies.
‘LGIM’s voting and engagement activities are driven by ESG professionals and their assessment of the requirements in these areas seeks to achieve the best outcome for all our clients. Our voting policies are reviewed annually and take into account feedback from our clients.
Every year, LGIM holds a stakeholder roundtable event where clients and other stakeholders (civil society, academia, the private sector and fellow investors) are invited to express their views directly to the members of the Investment Stewardship team. The views expressed by attendees during this event form a key consideration as we continue to develop our voting and engagement policies and define strategic priorities in the years ahead. We also take into account client feedback received at regular meetings and/ or ad-hoc comments or enquiries.
All decisions are made by LGIM’s Investment Stewardship team and in accordance with our relevant Corporate Governance & Responsible Investment and Conflicts of Interest policy documents which are reviewed annually. Each member of the team is allocated a specific sector globally so that the voting is undertaken by the same individuals who engage with the relevant company. This ensures our stewardship approach flows smoothly throughout the engagement and voting process and that engagement is fully integrated into the vote decision process, therefore sending consistent messaging to companies.
LGIM’s Investment Stewardship team uses ISS’s ‘ProxyExchange’ electronic voting platform to electronically vote clients’ shares. All voting decisions are made by LGIM and we do not outsource any part of the strategic decisions. Our use of ISS recommendations is purely to augment our own research and proprietary ESG assessment tools. The Investment Stewardship team also uses the research reports of Institutional Voting Information Services (IVIS) to supplement the research reports that we receive from ISS for UK companies when making specific voting decisions.
To ensure our proxy provider votes in accordance with our position on ESG, we have put in place a custom voting policy with specific voting instructions. These instructions apply to all markets globally and seek to uphold what we consider are minimum best practice standards which we believe all companies globally should observe, irrespective of local regulation or practice.
We retain the ability in all markets to override any vote decisions, which are based on our custom voting policy. This may happen where engagement with a specific company has provided additional information (for example from direct engagement, or explanation in the annual report) that allows us to apply a qualitative overlay to our voting judgement. We have strict monitoring controls to ensure our votes are fully and effectively executed in accordance with our voting policies by our service provider. This includes a regular manual check of the votes input into the platform, and an electronic alert service to inform us of rejected votes which require further action.We also believe public transparency of our vote activity is critical for our clients and interested parties to hold us to account. In determining significant votes, LGIM’s Investment Stewardship team takes into account the criteria provided by the Pensions & Lifetime Savings Association consultation (PLSA).’
LGIM Dynamic Diversified Fund
LGIM voted on 98,210 resolutions. Votes: For 78%, Against 22%, Abstained <1%. There were 633 engagements over the year in relation to this fund.
Evidence that LGIM do not always vote ‘For’ management proposals, or in line with external recommendations (eg from ISS) is encouraging because it indicates that they are actively engaging with the companies they invest in, on behalf of the Scheme.
The Trustees have reviewed LGIM’s voting activity and have noted in particular the following vote for this fund: PROLOGIS, INC
Resolution: Elect Director Hamid R. Moghadam
A vote against is applied as LGIM expects companies to separate the roles of Chair and CEO due to risk management and oversight. Independence: A vote against is applied as LGIM expects a board to be regularly refreshed in order to maintain an appropriate mix of independence, relevant skills, experience, tenure, and background.
LGIM will continue to engage with our investee companies, publicly advocate our position on this issue and monitor company and market-level progress.’
LGIM Global Equity Market Weight (30:70) Index - 75% GBP Hedged Fund
LGIM voted on 75,194 resolutions. Votes: For 80%, Against 18%, Abstained <2%. There were 626 engagements over the year in relation to this fund.
The Trustees have reviewed LGIM’s voting activity and have noted in particular the following vote for this fund: GLENCORE PLC
Resolution: Approve Climate Progress Report
‘Climate change: A vote against is applied as LGIM expects companies to introduce credible transition plans, consistent with the Paris goals of limiting the global average temperature increase to 1.5°C.While we note the progress the company has made in strengthening its medium-term emissions reduction targets to 50% by 2035, we remain concerned over the company's activities around thermal coal and lobbying, which we deem inconsistent with the required ambition to stay within the 1.5°C trajectory.
LGIM will continue to engage with our investee companies, publicly advocate our position on this issue and monitor company and market-level progress.’
BNYM - engagement activities
The following commentary is based on the information that BNYM have provided in response to our questions and illustrates how they co-ordinate their voting and engagement activities with companies. Newton are a subsidiary of BNYM and are the entity that manage the Global Dynamic Bond Fund
‘We believe the value of our clients’ portfolios can be enhanced by the application of good stewardship. This is achieved by engagement with investee companies and through the considered exercise of voting rights. Our understanding of a company’s fundamental business enables us to assess the appropriate balance between the strict application of corporate governance policies and taking into account a company’s unique situation.
Our head of responsible investment (RI) is responsible for the decision-making process of the RI team when reviewing meeting resolutions for contentious issues. We do not maintain a strict proxy voting policy. Instead, we prefer to take into account a company's individual circumstances, our investment rationale and any engagement activities together with relevant governing laws, guidelines and best practices.
It is only in the event of a material potential conflict of interest between Newton, the investee company and/or a client that the recommendations of the voting service used (Institutional Shareholder Services, or the ISS) will take precedence. We employ a variety of research providers that aid us in the vote decision-making process, including proxy advisors such as ISS. We utilise ISS for the purpose of administering proxy voting, as well as its research reports on individual company meetings.
We regard as material issues, all votes against management, including where we support shareholder resolutions that the company’s management are recommending voting against. As active managers, we invest in companies that we believe will support the long term performance objectives of our clients. By doing so, we are making a positive statement about the business, the management of risks and the quality of management. Voting against management, therefore, is a strong statement that we think there are areas for improvement. As such, by not supporting management, we think that this is material, which is different to a passive investor where there is no automatic assumption of a positive intent in ownership. As such, we report publicly our rationale for each instance where we have voted against the recommendation of the underlying company’s management.’
BNYM Global Dynamic Bond Fund
The fund does not hold equities and given that bonds do not confer voting rights, there was no voting carried out in relation to this fund. However, BNYM does undertake engagement activities in respect of its bond holdings.
There were 22 engagements over the year in relation to this fund, for example:
‘We met the company to understand its ESG initiatives. While the company has disclosed emissions savings and consumption data, we wanted to understand the work being undertaken on disclosing its emissions profile in detail. The company conveyed that it is currently assessing and working towards how it can disclose and report scope 3 emissions effectively.’
‘We met the bank to understand its views regarding the current weakening economic environment and the impact of this on investors’ and customers’ ESG appetite. The bank emphasised that ESG is still fundamentally important; however, it may have moved down investors’ priority list.’
CT - engagement activities
The following commentary is based on the information that CT have provided in response to our questions and illustrates how they co-ordinate their engagement activities with companies. These examples provide evidence that the Fund Manager is engaging actively with the companies they invest in on behalf of the Scheme.
“We take responsible investment seriously. The identification of financially material environmental, social and governance (ESG) issues forms part of our investment process, helping us to manage risk and support long-term returns. Beyond the management of opportunity and risk, we also see responsible investing and broader investment stewardship activities as part of our duty as an investor acting in the best interest of our clients, and as a participant in the global financial system.
LDI portfolios are very different to traditional equity or bond portfolios and so our engagement programme primarily focuses on trading counterparties and clearing members. This engagement work is structured both in terms of prioritisation (both in terms of companies to whom we have the greatest exposure and to companies whom we feel have the greatest ESG deficiencies) and in terms of progress monitoring against predefined milestones.”
CT Dynamic LDI Funds
These funds contain investments that provide exposure to long dated interest rates / inflation. They do not hold any equity investments and hold no voting rights. However, CT does still engage with counterparty banks on relevant issues.
There were 16 engagements over the second half of 2021 and 40 engagements over the first half of 2022 in relation to all CT LDI portfolios.
They have provided the following examples:
HSBC HOLDINGS PLC
‘HSBC's new Energy Policy includes reference to a stronger coal exit policy, a dedicated client engagement program as well as limitations of financing for new large dams, new nuclear power projects, new greenfield oil sands projects, or new offshore oil and gas in the Artic. We have been engaging on clear limitations for its energy financing for a while and give its energy portfolio these commitments are sizeable.’
BANCO SANTANDER SA
‘Committed to achieve net-zero greenhouse gas financed emissions by 2050, and to align its power generation portfolio with the Paris Agreement by 2030. As part of this commitment, Santander will also develop and publish decarbonisation targets for other material sectors, including oil & gas, transport and mining & metals. The implementation of these commitments will enhance the bank's response to climate change risks in its lending, advisory and investment activities.’