Stewardship policy

In setting our investment strategy, we seek to act in the best financial interests of the Fund, our members and our stakeholders, pursuing the best return that is consistent with a prudent and appropriate level of risk. We will consider material environmental, social and governance (ESG) issues where they are likely to affect the value of our investments or potential investment opportunities, especially over the long-term. We consider this a prudent approach to investment and risk management. 

In line with the PPF’s Sustainability Policy, we believe that good corporate governance and management of ESG risks goes hand in hand with good risk management overall. In particular, consistent mishandling of ESG issues can be an early indicator of wider management or financial problems yet to emerge, and can impact the stability of capital markets, alongside more dominant factors such as issuer or market level liquidity. Active ownership through purposeful dialogue, utilising the use of our votes and engagement, is a key part of our role as a responsible asset owner. 

We are committed to exercising our ownership rights, in order to safeguard sustainable returns for the Fund in the long-term. The PPF, or agents operating on our behalf, will demonstrate active ownership as part of our oversight role, through decisions around portfolio construction, access to company management, and voting on matters such as capital structure, risk management, strategy, financial performance, social and environmental issues - including climate change - and corporate governance. We see this as an essential means of ensuring that boards are accountable and that are fulfilling their stewardship obligations to key stakeholders (including but not limited to shareholders), in order to deliver long-term value. 

The PPF recognises the good practice set out in the UK Stewardship Code 2026, and supports the principles underpinning the UK Corporate Governance Code 2024, while also acknowledging best practice or standards in other markets, both in and outside of the UK, across various asset classes. The United Nations-supported Principles for Responsible Investment (PRI) form a core element of our own RI approach, including Principle 2: we will be active owners and incorporate ESG issues into our ownership policies and practices, Principle 5: we will work together to enhance our effectiveness in implementing the Principles and the more recently published PRI’s Active Ownership 2.0. We also support the broader context of stewardship as defined by the International Corporate Governance Network (ICGN) Global Stewardship Principles that effective stewardship enhances overall financial market stability and economic growth.

The PPF’s RI strategy puts our core RI beliefs into practice through a robust RI framework as follows:
 

Stewardship sits as one of our three key priorities within our RI framework. We take a blended approach across several aspects regarding the oversight and implementation of stewardship at the PPF, dependent on how the assets are managed. This includes the selection of fund managers, the setting of mandate-specific parameters (such as segregated versus pooled investments), and the agreement about how stewardship will be carried out (e.g. in-house by the PPF, or through the external fund manager or third-party provider).ESG integration across the Fund is achieved by engaging with our internally managed assets, our external fund managers and their underlying issuers. As a large and diversified asset owner, we have the opportunity to encourage improvements in practices from the top down and bottom up. This is particularly important when looking to address systemic issues and achieve outcomes at the market-wide level, for example the transition to a low-carbon world. We primarily believe in engagement over divestment, as a fundamental enabler to the objective of achieving more sustainable outcomes.

We have a minimum standards policy that stipulates a certain level of responsible conduct from our underlying issuers, and seek to avoid investing in issuers that contravene this. This policy is aligned with international conventions or norms for controversial activities that are ratified into UK law, for example the production of specific controversial weapons.

As an investor with holdings in both corporate equities and debt, we believe it is important to consider both the shareholders and creditors as providers of corporate capital, in stewardship activities. We also believe that good stewardship practices should be applied to other asset classes aside from listed equities and corporate debt (such as private debt, private equity, real estate and infrastructure), although the level of control or influence and how it impacts stewardship may lead to differing approaches by asset class or strategy.

Our duty to preserve and enhance the value of our investments for our beneficiaries forms the basis of our governance structure and practices within the PPF. The PPF’s Investment Committee (IC) has responsibility for developing investment principles, risk management of investments and strategic approach to investment of the Fund, including developing and overseeing our RI principles and policies. The CIO and Investment Team (which includes a team of ESG specialists) have operational accountability, ensuring adherence to the RI framework and underlying policies. 

RI Governance at the PPF:

The IC receives regular updates on the implementation of this Policy to support their ongoing oversight. These updates are prepared by the ESG Team, and are informed by the regular reporting received from our external agents and fund managers alongside any activities carried out internally. 

We continuously monitor market practice and regulatory developments around stewardship, and will review this Policy at least annually and apply updates as necessary.

Being a good steward and demonstrating responsible stewardship requires us to work with our external fund managers and any other agents in the investment chain that we entrust our assets with or allocate capital to. In accordance with Sections 6 and 9 of the PPF’s SIP, this encompasses activities such as the responsible allocation of our capital, monitoring our assets and agents, engaging with issuers and agents and holding them to account on any issues (including ESG issues) that can have a material impact on the long-term value of our assets. While underlying stewardship with our issuers is largely outsourced, we maintain oversight of our external agents. This will be achieved through ongoing monitoring of our agents’ practices in order to enhance the quality and quantity of their stewardship activities and ensure consistency with the PPF’s own investment beliefs, policies and guidelines. 

External fund manager selection incorporates a competitive tender process with full due diligence to ensure the fund manager has sufficient investment expertise and experience, operational processes and responsible investment practices, including their commitment to stewardship. Managers are required to at least meet the PPF’s minimum ESG requirements prior to selection, and commit to continued improvement. 

Legal mandate agreements between the PPF and the fund manager will clearly state the PPF’s particular objectives, time horizons and expectations for the given asset class or strategy to ensure managers are aligned and incentivised to meet them. These agreements explicitly incorporate clauses detailing the PPF’s ESG requirements for responsible investment, including the integration of material ESG considerations into the investment process, stewardship practices and applying our exclusions. The clauses also require regular reporting on our specific portfolio, including ESG exposures, engagement and voting activities and outcomes. 

We expect our external managers to also engage in active stewardship with issuers or assets in other asset classes, where practicable for the strategy, as we believe that effective engagement can maintain and enhance long-term value across a broad range of asset classes. The absence of formal governance structures for stewardship, or voting rights, should not preclude good stewardship practices, although we recognise there are limitations on the ability to engage with sovereign bond issuers, or change contractual terms in secondary investments, for example. Our stewardship expectations will be consistent with the mandate, as the most active forms of engagement may not align well with certain investment styles and approaches, and not all types of engagement will be appropriate for every situation or geographical region. Generally speaking, we expect all managers to focus on the next link in the investment chain, and have greater expectations for fund managers with longer holding periods. 

Direct stewardship activities at an issuer-level for our segregated equity holdings are primarily undertaken by our provider of stewardship services, EOS at Federated Hermes (‘EOS’), appointed through a competitive tender process. EOS carries out engagements and exercises votes in line with the Hermes Responsible Ownership Principles, which are devised to contribute to better management of companies and the sustainability of investments over the long term. EOS also complies with the Best Practice Principles for Providers of Shareholder Voting Research & Analysis. This approach ensures that the PPF’s shares are voted cost-efficiently across our active segregated listed equity holdings, and that our portfolio companies (across segregated equities and internally managed corporate credit and cash) are monitored for ESG risks, and engaged with where concerns arise. 

For pooled equity investments, we predominantly outsource stewardship activities in relation to these funds to the relevant managers, due to current operational barriers to extracting voting rights from our pooled equity funds. EOS or the fund manager concerned may engage on behalf of the Fund with regard to investee companies in these funds. However, we will have oversight of our managers’ stewardship activities and outcomes through regular review and quarterly reporting from them. We expect to see our managers’ stewardship practices align with our principles and expectations and will challenge them on this accordingly. For high profile issues, where possible, we will enquire about our external managers’ voting intentions ahead of AGMs.

At an asset class and individual portfolio level, ESG risks (including climate-related risks) are monitored internally by the ESG Team using processes, tools, data and systems to track and manage our risk exposure. ESG data is available through our portfolio management systems. The findings from our monitoring will be used to discuss risk identification and management of issues with our managers and agents. Our stewardship provider, EOS, will also monitor our segregated portfolio companies for material ESG risks and any potential breaches of international norms, to feed into their engagement universe and inform their voting recommendations. We also expect our fund managers to carry out a similar identification process for the assets they are managing on our behalf, and to regularly update us on the management of material ESG risks.

Our monitoring will inform both reactive engagements for more serious issues and more thematic engagements around risks and/or opportunities within a certain industry or region. It will also inform who should take ownership of the engagement, depending on the portfolio or asset class and whether it is internally or externally managed.

The PPF’s SIP (Section 5) states that the Board has approved a strategic asset allocation for both the Matching Portfolio and the Growth Portfolio. The Matching Portfolio is predominantly made up of hedging assets that aim to replicate the interest rate and inflation sensitivities of the PPF’s liabilities. These assets include bonds, derivatives, and hybrid assets. Hybrid assets have hedging characteristics but also generate excess returns which help to finance the limited leverage in this portfolio. The Growth Portfolio is made up of a diversified set of assets which, over the long term, are expected to generate an expected return for the given strategic risk target.

For the management of the two portfolios, the PPF employs the services of investment experts as its external and internal fund managers and has specified investment guidelines and instructions concerning various types or categories of investment decisions. The Matching Portfolio is predominantly managed internally by the PPF Investment Team, while the Growth Portfolio is predominantly managed by external fund managers across a range of segregated accounts, pooled funds, closed-end funds, co-investments and passive instruments (i.e. Exchange Traded Funds (ETFs)).

Historically, although the industry has mainly considered stewardship through the lens of listed equities (for which the most established methods and approaches exist), the majority of the PPF’s assets are not invested in listed equities. Therefore, we also need to consider the best and most efficient stewardship approaches for the other asset classes that we allocate to. Stewardship practices will be determined as appropriate for the asset class and the level of control granted, for example:

• Listed equity: managers can better manage risk and utilise constructive dialogue through voting and engaging with company management, although stewardship approaches will differ, depending on whether the managers follow fundamental/concentrated (high engagement), quantitative/systematic (lower engagement due to holding periods) or passive strategies (some engagement although limited recourse);
• Fixed income (corporate, sovereign, LDI): managers can engage with borrowers, more so around reissuance or refinancing – less influence in sovereign debt, although managers can still have productive engagement, particularly with emerging market countries;
• Real estate: managers of assets with full control can engage with tenants and local community;
• Private equity & Infrastructure: managers can have direct engagement with companies or issuers in primary funds, or with operating companies in infrastructure, especially if have board seats; 
• Private credit: managers can have ongoing dialogue with borrowers, but limited control over management;
• Fund of funds: engagement with underlying fund managers or General Partners.

We seek to encourage better transparency and reporting from our external fund managers and underlying portfolio companies. This should include receiving detailed fund-specific ESG reporting by our fund managers, ISSB -aligned disclosure by issuers, and TCFD -aligned disclosure from all participants in the investment chain. Boards should clearly articulate in their documents how they oversee and manage all material risks to their business model, approach and strategy. We appreciate that there are less requirements from private issuers at present, but we are supportive of initiatives to improve disclosure from private companies such as the FRC’s Wates Corporate Governance Principles for Large Private Companies 2018 (established as a means for large private companies to meet new requirements around disclosure of corporate governance arrangements).

We engage with issuers in one of three ways (directly, through our external agents, or through collaboration initiatives) when we consider it is in our beneficiaries’ long–term interests to do so. We expect boards of investee companies to show responsibility, integrity, and independence. In cases where such a company’s board deviates from principles of good practice, it should explain its reasons for so doing.

1. International Sustainability Standards Board (ISSB)
2. Task Force for Climate-related Financial Disclosures (TCFD)

Our external provider for stewardship services on our segregated equity mandates, EOS, creates a rolling 3-year Engagement & Voting roadmap to engage with companies (see visual below). The roadmap identifies a number of themes across environment; social; strategy, risk and communication; and governance, which cover material issues relevant to companies in all regions and sectors. EOS focuses its stewardship on the issues with greatest potential to deliver long-term sustainable wealth for investors and positive societal outcomes. EOS formally consults with us at least annually to capture our long-term objectives and topics of most importance to us. 

Engagement can often take place over a multi-year period, so specific milestones will track progress that are related to clear objectives (set at the beginning of interactions).

 

EOS engages with companies that form part of the public equity and corporate fixed income holdings of their clients, focusing on the most material holdings (by size or issue) with significant risks or issues to encourage positive change in the companies and the societies in which they operate. A feasibility assessment is carried out as to whether the company is engageable, which results in around 350 companies being selected. The level of intensity and number of interactions that the engagement should take will vary. Additional companies will be engaged with throughout the year in advance of AGMs or due to unexpected issues arising. The engagement strategies are specific to each company and focus on the most material ESG risks and opportunities, where continuous dialogue is held at the board and senior executive level, which has proven to be most effective over time. More detail on EOS’s engagement plan can be found on our website: Pension Protection Fund 

Climate Watchlist: 
In line with the IIGCC’s Net Zero Stewardship Toolkit’s guidelines, we have identified a PPF Climate Watchlist. The Watchlist includes a focused number of companies collectively represent over 70 per cent of the financed Scope 1 and 2 emissions associated with our public market investments. These companies are priority companies for our external managers and internal ESG team. Engagement objectives are set and regularly reviewed, allowing us to track progress.
 
Escalation Policy: 
As an engaged investor, it is important that we use the rights we have as providers of capital to full effect, when considered appropriate. In cases where the desired progress in engagement does not materialise, it may be appropriate to escalate our engagement effort. 
Escalation is the process an investor utilises to increase the intensity, formality, or visibility of their stewardship actions when initial engagement with a company does not lead to satisfactory progress on material issues. A formal PPF escalation policy was approved during 2023 to provide a framework for escalation.

Where an engagement is not progressing at a sufficient pace privately with the company, there are a range of potential escalation strategies, including collaborating with other investors or campaign groups, issuing a public statement or filing a shareholder resolution. We will consider voting against board recommendations as part of a thoughtful escalation of an issue, but not as a shortcut to grabbing a board’s attention. When problems persist, thoughtful voting action can be an important tool at our disposal, and one that we will use where necessary. We will seek to engage with the board and/or company management to express our intention regarding any votes against management. 

Collaborations:
The PPF also undertakes joint or collaborative engagements with other asset owners or institutional investors through public and industry initiatives, to promote better practices in the various markets in which the Fund invests. We collaborate with peers on initiatives that support progression towards our goals, such as supporting the Paris Agreement and the transition towards a decarbonised economy. For a global, systemic issue such as climate change, collective engagement is essential to push for industry-wide change. The PPF is a member of the Institutional Investors Group on Climate Change (IIGCC) and Climate Action 100+, one of the largest collective engagement initiatives for institutional investors. More recently we have also joined the Net Zero Engagement Initiative (NZEI) organised by the IIGCC. We will consider participating in other such initiatives as appropriate, according to the level of resourcing required. 

Up-to-date details on our collaborations, memberships and initiatives we are involved with are listed here: Sustainability Report 2024/25

In addition to engagement at the company level, we engage with public, industry and regulatory bodies in the various markets in which the PPF invests to promote better practices. We also collaborate across the financial markets value-chain, with e.g. banks, treasuries, other counterparties and policy makers on issues where engagement with the wider financial and regulatory community is appropriate. We carry this out directly, in markets where we have a level of influence, through collaborations such as the IIGCC or PRI public policy workstreams, and through the services provided by EOS.

PPF will always seek to exercise our rights as shareholders to vote our ballots, unless it is operationally impractical or prohibitively expensive, for example due to share blocking markets or overly complex Power of Attorney requirements. EOS and, where applicable, our fund managers are instructed to execute all votes for the PPF’s directly held public securities, or explain why any votes have not been cast. 

We expect our agents to vote in an informed and non-mechanistic manner, taking all relevant and material issues into consideration, ideally following engagement that has given the company sufficient time to respond. Voting decisions should be based on the spirit of the PPF’s RI strategy and SIP, and should consider best practice set out by the PRI, ICGN and the OECD Principles of Corporate Governance.

Key to all of this is clear and detailed disclosure, without which an informed opinion of the company’s board or governance practices is challenging to obtain. Companies should use their annual reports and accounts to detail their corporate cultures and working practices in a narrative form that relates the way they manage and engage their workforce to their wider strategy and business model. More quantitative performance metrics should also be included (e.g. on diversity, pay ratios, staff training and development, employee engagement and accidents and safety metrics).

EOS takes a pragmatic engagement-led approach to voting our segregated equities as a way of effecting positive change at a company, to protect long-term shareholder value. EOS partners with Institutional Shareholder Services (ISS) to leverage on ISS’s extensive resource with regard to voting research, recommendations and execution. However, we are always in control of the vote and have the ability to exercise voting rights in holdings in line with our own policy and principles. 

EOS uses proprietary voting guidelines, reflecting their views of best practice globally and the principles outlined in their Engagement Plan, plus regional Corporate Governance Principles tailored to 21 specific markets. EOS’s Regional Corporate Governance Principles can be found here: EOS library

EOS also uses proxy voting guidelines for 50+ markets (reviewed annually), considering local characteristics and best practice – drawing from the abovementioned Regional Corporate Governance Principles where possible.

Whilst accepting this as the basis for the broad voting policy across our investment portfolio, the PPF will review certain votes proposed by EOS across key topics prior to them being cast. These key topics are based on our stewardship priorities as detailed above and can be the result of engagement initiatives or proprietary research undertaken on portfolio companies. Significant holdings within the portfolio are also reviewed prior to voting.  

Where appropriate, and where we consider the issue material, but engagement has not been fruitful, we may vote against management on one or more resolutions, such as reports and accounts, or election of individual board members with particular responsibility for poor environmental or social performance. We will communicate directly with companies where possible if we have voted against management and we consider the holding to be material (in terms of size in our portfolio, or as a significant shareholder). In addition, where voting forms part of an ongoing engagement with a company or group of companies for a significant issue, we will inform the company management of voting intentions ahead of the AGM.

Alongside purposeful engagement, we will vote for resolutions that reinforce our own stewardship principles, and especially those that are consistent with our Climate Change policy and the goals of the Paris Agreement. Shareholders should propose shareholder resolutions under defined circumstances and for specific issues (e.g. when management has ignored reasonable and persistent requests for change on material concerns to shareholders). In deciding our vote on shareholder resolutions, we will adopt a case-by-case approach, considering the merits of the individual proposal alongside the quality and independence of reports provided by the company and the responsiveness of company management to the dialogue.

Collective shareholder engagement can be an effective way to have dialogue with companies and to achieve improvements in corporate governance. We, or our agents on our behalf, will therefore act collectively with other investors as appropriate for an organisation of our size and standing, where we deem that this will improve the value of our investments in the long term. As participants in investor initiatives such as Climate Action 100+ and the Transition Pathway Initiative (TPI), we are generally supportive of certain shareholder resolutions that encourage appropriate improvements in company management quality and the disclosure of material climate-related financial risks, and progress in terms of carbon performance.

We produce a separate annual Voting Guidelines document to be read alongside this Stewardship Policy. 

• Pooled fund voting:
  
  While our views will generally be aligned with our fund managers’, there may be situations where we want to exercise a different approach on some topics. Where this is the case, and we are able to determine the votes for our shares in a pooled fund, we will take advantage of a split voting set-up, or “override” function. For mandates where we cannot instruct this, we will carry out an ex-post assessment of the manager’s reporting of voting activities for our portfolio across our key topics or most material issues, and will also ask in advance of contentious AGMs of their voting intention (if they are able to share it). We require regular voting report from our managers and will raise any concerns about specific aspects of the manager’s voting actions.

As per the PPF’s SIP, the PPF may participate in securities lending within limits set by the PPF. To ensure that the PPF can lodge a vote at all companies held in relevant equity portfolios, the share lending policy ensures our full holding in a company is not lent, resulting in the PPF always having shares that can be voted without the need to recall lent shares. Recalling shares lent in the market for particularly contentious or significant shareholder meetings is part of our stewardship toolkit.

We are committed to conducting business in the best interests of the PPF, and have comprehensive controls across the organisation to prevent conflicts of interest from impacting the interests of our beneficiaries. All reasonable steps must be taken to prevent potential or actual conflicts of interest, or situations that might be perceived as giving rise to a conflict of interest. The PPF has a Conflicts of Interest policy, the purpose of which is to identify where a conflict of interest may arise and how any such conflict should be monitored and managed. Under the policy, PPF staff are required to disclose any interest in any company, or other entity, in which the PPF has an ownership interest.

Where there is a potential for any conflict of interest, the PPF expects our external agents to identify and manage any conflict,  putting the best interests of clients and beneficiaries first. Conflicts of interest policies will also be reviewed as part of our appointment of any fund manager through Operational Due Diligence assessments, and explicitly referenced within our investment management agreements and side letters. 

Conflicts are also considered by our stewardship provider EOS when undertaking voting and engagement on our behalf. Although we reserve the right to amend any votes proposed by our agent, and to this end review voting proposals ahead of AGMs, we are satisfied that our stewardship provider has suitable expertise, policies, research and resources to carry out stewardship activities on a day-to-day basis on our behalf. Therefore, where conflicts of interest arise, we adopt an arm’s length approach and aim not to influence or override the voting decision of our agent. EOS takes steps to avoid conflicts of interest between us and any other clients, and between us and EOS or its affiliates, and comply with our Conflicts of Interest Policy. EOS notifies us without undue delay of any conflict of interest or potential conflict of interest of which it becomes aware or to which it may be subject and the implications of such conflict of interests for the Board. Read more about how EOS approaches Stewardship conflicts of interest.

As a UK Stewardship Code signatory, we disclose in detail our policies, processes and the implementation of our responsible investment strategy annually. In line with our commitment to transparency - one of our key pillars in our RI framework- the PPF will report to our stakeholders on our RI activities and progress. Reports, disclosures and policies - including our voting statistics and engagement reports - are made available on our dedicated RI section of the PPF website throughout the year: Reporting and investing transparently