Implementation Statement, covering 1 January 2020 to 31 December 2020

The Trustee of the Pearson Pension Plan (the “Plan”) is required to produce a yearly statement to set out how, and the extent to which, the Trustee has followed its Statement of Investment Principles (“SIP”) during the year, as well as details of any review of the SIP during the year, subsequent changes made with the reasons for the changes, and the date of the last SIP review. Information is provided on the last review of the SIP in Section 1 and on the implementation of the SIP in Sections 2-11 below.

The Statement is also required to include a description of the voting behaviour during the year by, and on behalf of, trustee (including the most significant votes cast by trustee or on their behalf) and state any use of the services of a proxy voter during that year. This is provided in Section 12 below.

This Statement uses the same headings as the Plan’s SIP dated 23 June 2020 and should be read in conjunction with the SIP which can be found here.

1. Introduction

The SIP was reviewed and updated during the Plan year on 23 June 2020 to reflect the Trustee’s policies in relation to the arrangements with its asset managers in line with the EU Shareholder Rights Directive (including asset manager remuneration and incentivisation), the agreed changes to the investment objective of the Blended Multi Asset Fund in the Money Purchase Section of the Plan and the investment objectives for the following funds in the Money Purchase Section of the Plan: Aquila World (ex-UK) Equity Index Fund, Threadneedle Pensions Property Fund and Blended Index Linked Gilt Fund. Further detail and the reasons for these changes are set out in Section 5. As part of this SIP update, the employer was consulted and confirmed it was comfortable with the changes.

The Trustee has, in its opinion, followed the policies in the Plan’s SIP during the year. The following Sections provide detail and commentary about how and the extent to which it did this. 

2. Investment objectives

2.1. Final Pay Sections

Progress against the long-term funding target is reviewed as part of the quarterly monitoring reports. The Trustee is also able to view the progress on an ongoing basis using LCP Visualise online.  

As at 31 December 2020 the Plan was on track to achieve full funding on the long-term funding target basis by 2027.

2.2. Money Purchase and Auto Enrolment Sections (Defined Contribution (“DC”) Sections)

As part of the performance and strategy review of the DC default arrangement which began on 1 June 2020 the Trustee considered the DC Section membership demographics, projected pot sizes at retirement1 and the variety of ways that members may draw their benefits in retirement from the Plan. This review also considered the range of alternative strategies and funds that members may choose from.

Based on the outcome of this analysis, the Trustee concluded that the relevant default strategies remain appropriate to meet the long and short-term investment requirements of the majority of DC and DB AVC members and have been designed to be in members’ best interests reflecting the Plan’s member demographics. 

The Drawdown Lifecycle is the current default arrangement for both DC Sections, while the Cash Lifecycle is the default arrangement for AVCs paid by DB Section members. For members whose needs may not be met by their  section’s default strategy, the Trustee has made available the two lifecycles listed above or the Annuity Lifecycle, which targets annuity purchase at retirement. These lifestyle strategies were considered as part of the strategy review on 1 June 2020 and were found to still be appropriate. 

The Trustee also provides members with access to a range of self select fund investment options covering all major asset classes, which it believes are suitable for this purpose and enable appropriate diversification.  These fund options are set out in the Plan’s SIP (page 77 of the Report and Financial Statements).  The Trustee monitors the take up of these funds and it is limited. Following the strategy review the Trustee continues to believe the range of funds offered are suitable; however the Trustee is currently investigating enhancements that could be made to the sustainable equity fund options currently available. 

The Trustee reviewed the membership demographics, choices, behaviours and trends as part of the last formal strategy review on 1 June 2020. 

1 Pot size is the accumulated pension fund that the member has built up.     

3. Investment strategy

3.1. Final Pay Sections

The Trustee did not feel it was necessary to review the Final Pay investment strategy over the period.

The Trustee monitors the asset allocation as part of the quarterly monitoring reports, and it is understood that the allocation to each asset class will vary, but only modestly, due to market movements.  In Q4 2020, the Trustee carried out a £25m top-up of the Aegon buy & maintain credit portfolio, using surplus cash that had built up in the LGIM sterling liquidity fund.  

3.1. Defined Contribution Sections

The Trustee, with the help of its advisers, reviewed the strategy and performance of the default arrangement in June 2020.  The Trustee concluded, based on analysis of member demographics and projected pot sizes, that drawdown remains an appropriate retirement target as the default for DC Section members.  The Trustee also concluded from its analysis that targeting Cash at retirement remained appropriate for DB AVC members; however, they decided that members with both DC and DB AVC assets would be best suited in the default arrangement targeting drawdown at retirement. The Trustee also reviewed the de-risking phases of the default arrangements and considered the impact of changing the risk profile of the de-risking phases.  The Trustee agreed to reduce the expected risk in the run up to retirement by replacing the allocation to long-dated corporate bonds with an allocation to short-duration credit in all three of the lifecycles.

As part of this review the Trustee made sure all the Plan’s default arrangements were adequately and appropriately diversified between different asset classes and that the self-select options provide a suitably diversified range to choose from. For the Lifecycles, this included the Drawdown Lifecycle as a default for members with DC assets, the Cash Lifecycle as the default for members with DB AVC assets, and the Annuity Lifecycle which is a legacy default since (members were defaulted into this strategy in 2018 as part of the last full strategy review). Within the self select fund range, the Plan’s BlackRock Sterling Liquidity Fund is also deemed a default for governance purposes from May 2020, following the redirection of all property fund contributions due to a suspension of the Threadneedle Pensions Property Fund. 

4. Considerations in setting the investment arrangements

As stated as above, the Trustee did not carry out a review of the Final Pay investment strategy during 2020.

When the Trustee undertook a performance and strategy review of the DC default arrangement, beginning in June 2020, it considered the investment risks set out in Appendix 2 of the SIP.  It also considered a wide range of asset classes for investment, taking into account the expected returns and risks associated with those asset classes as well as how these risks can be mitigated.

Following developments in investment markets and a review of recent evidence of the financial materiality of climate-related risks and related discussions, the Trustee is now reviewing its DC Section investment manager mandates to understand the extent to which ESG/ climate factors are incorporated in the funds currently available in the DC Section of the Plan, and where enhancements can be made. 

5. Implementation of the investment arrangements

The Trustee appointed Baillie Gifford and Schroder Life in July 2020 to manage DGF mandates of the DC section for the Scheme over the period as the BlackRock DGF was removed.  The Trustee obtained formal written advice from its investment adviser, LCP, before investing in the funds and made sure the investment portfolio of the funds chosen were adequately and appropriately diversified.  Before appointing the two new investment managers, the Trustee received information on the investment process and philosophy, the investment team and past performance.  The Trustee also considered the managers’ approaches to responsible investment and stewardship. AVC assets which had previously been held with Equitable Life until 31 December 2019 were taken over by Utmost Life and Pensions following the sale of Equitable Life. Following formal written advice from its investment advisor, LCP, the Trustee opted to transfer all assets now with Utmost Life to its current DC Section arrangement with Aviva, into the Cash Lifecycle strategy which is the default arrangement for AVC assets. 

The Plan’s investment adviser, LCP, monitors the investment managers on an ongoing basis, through regular research meetings. The investment adviser monitors any developments at the managers and informs the Trustee promptly about any significant updates or events they become aware of that may affect the managers’ ability to achieve their investment objectives.  This includes any significant change to the investment process or key staff for any of the funds the Plan invests in, or any material change in the level of diversification in the fund.

The Trustee regularly invites the Plan’s investment managers to present at Trustee meetings.  In November 2020, the Trustee met with Aegon, the buy & maintain credit manager for the Final Pay section, to discuss responsible investment in the context of investment-grade credit.  

The Trustee was comfortable with all of its investment manager arrangements over the year; however, an additional ESG fund is due to be added in 2021.  

The Trustee monitors the performance of the Plan’s investment managers on a quarterly basis, using the quarterly monitoring reports.  Both the Final Pay report and the DC Section report show the performance of each manager over the quarter, 1 year, 3 years and 5 years.  Performance is considered in the context of the manager’s benchmark and objectives.  

To 31 December 2020 all managers have produced performance broadly in line with expectations over the long-term. 

Over the period, the Trustee undertook a value for members assessment which considered a range of factors, including the fees payable to managers in respect of the DC Section which were found to be reasonable when compared against schemes with similar sizes mandates. 

During the year the Trustee also assessed the Final Pay investment managers’ fees in light of LCP’s fee survey.  Overall the Trustee believes the investment managers provide reasonable value for money.

6. Realisation of investments

6.1. Final Pay Sections

The Trustee reviews the Plan’s net current and future cashflow requirements on a regular basis.  The Trustee’s policy is to have access to sufficient liquid assets in order to meet any outflows whilst maintaining a portfolio which is appropriately diversified across a range of factors, including a suitable balance between both liquid and illiquid assets.

The Trustee receives income from the Plan’s illiquid property and infrastructure investments, which is retained in the Trustee bank account and used towards paying benefit payments.

6.2. Defined Contribution Sections

It is the Trustee’s policy to invest in funds that offer daily dealing to enable members to readily realise and change their investments. All of the DC Section funds which the Trustee offers are daily priced.

7. Consideration of financially material considerations and non-financial matters

As part of its advice on the selection and ongoing review of the investment managers, the Plan’s investment adviser, LCP, incorporates its assessment of the nature and effectiveness of managers’ approaches to financially material considerations (including climate change and other ESG considerations), voting and engagement. 

As part of the Plan’s quarterly monitoring reports, the Trustee reviews LCP’s responsible investment (RI) scores for the Plan’s existing managers and funds, along with LCP’s qualitative RI assessments for each fund and red flags for any managers of concern.  These scores cover the manager’s approach to ESG factors, voting and engagement.  Fund scores and assessments are based on LCP’s ongoing manager research programme and it is these that directly affect LCP’s manager and fund recommendations.  Manager scores and red flags are based on LCP’s Responsible Investment Survey 2020.

During 2020, the Trustee was satisfied with its reviews of the RI scores and no further action was taken. 

When Aegon presented to the Trustee during the year, the Trustee asked several questions about the manager’s ESG practices and were satisfied with the answers they received. The Trustee also reviewed reports from their managers on voting and engagement activities undertaken on their behalf. 

The Trustee invested in two new pooled funds, the Schroders Dynamic Multi Asset Fund and the Baillie Gifford Multi Asset Growth Fund on 30 June 2020, as underlying components of the white-labelled Blended Multi Asset Fund.  In selecting and appointing these managers, the Trustee took into account how responsible investment is incorporated into each of the shortlisted managers.

The DC section includes an equity investment option as a choice for members who wish to invest in a fund focused on ESG risks. At this time, it does not believe there are any ESG-focused investment options available that meet its needs in any asset classes other than equity but will keep this under review. The Trustee is also currently monitoring investment options that incorporate ESG and/or climate-related matters, to determine if they would be suitable for inclusion in the DC Sections of the Plan.

8. Voting and engagement

This is covered in Section 7 above.

9. Investment governance, responsibilities, decision-making and fees (Appendix 1 of SIP)

As mentioned in Section 5, the Trustee assesses the performance of the Plan’s investments on an ongoing basis as part of the quarterly monitoring reports it receives. 

The performance of the professional advisers is considered on an ongoing basis by the Trustee. 

The Trustee has put in place formal objectives for its investment advisor and will review the advisor’s performance against these objectives on a regular basis.

During the year, the Trustee reviewed the effectiveness of its decision making and governance processes in June 2020 as part of  the annual Trustee Governance review.  The Trustee was satisfied it is well placed to fulfil its role as Trustee to the Plan.  

10. Policy towards risk (Appendix 2 of SIP)

Risks are monitored on an ongoing basis with the help of the investment adviser.  

The Trustee maintains a risk register and this is discussed at quarterly meetings.

The Trustee’s policy for some risks, given their nature, is to understand them and to address them if it becomes necessary, based upon the advice of the Plan investment adviser or information provided to the Trustee by the Plan’s investment managers.  

With regard to the risk of having insufficient assets in the Final Pay Sections to cover liabilities, the required return for the Plan to meet expected benefit payments on the Long Term Funding Target basis is monitored as part of the quarterly monitoring reports, along with the best estimate expected return of the Plan’s current investment strategy.  

With regard to mismatching risk, the Plan’s interest and inflation hedging levels are monitored on an ongoing basis in the quarterly monitoring report and periodically rebalanced. 

With regard to the risk of not meeting members’ reasonable expectations in terms of pension proceeds on retirement  for the DC Sections, the Trustee incorporates equity and equity-based funds in their member offering, which are expected to provide positive returns above inflation over the long term.  These are used in the growth phase of the default option and are also made available within the self-select options. These funds are expected to produce adequate real returns over the longer term.

Together, the investment and non-investment risks set out in Appendix 2 of the SIP give rise generally to funding risk. The Trustee formally reviews the Plan’s funding position as part of its annual actuarial report to allow for changes in market conditions.  On a triennial basis the Trustee reviews the funding position allowing for membership and other experience.  The Trustee also informally monitors the funding position more regularly, on a quarterly basis at Trustee meetings and the Trustee Directors also have the ability to monitor this daily on LCP Visualise.

The following risks are covered earlier in this Statement: diversification risk in Sections 3 and 5, investment manager risk and excessive charges in Section 5, illiquidity/marketability risk in Section 6 and ESG risks in Section 7.

11. Investment manager arrangements (Appendix 3 of SIP)

There are no specific policies in this section of the Plan’s SIP, which sets out details of the Plan’s investment managers and their investment guidelines.  During the period covered by this Statement, the Trustee updated this section to take into account changes to the DC investment managers, and to better reflect the Trustee’s arrangements with its existing managers.

12. Description of voting behaviour during the year

All of the Trustee’s holdings in listed equities are within pooled funds and the Trustee has delegated to its investment managers the exercise of voting rights. Therefore the Trustee is not able to direct how votes are exercised and the Trustee itself has not used proxy voting services over the year.

In this section we have sought to include voting data on the Plan’s funds. In order to take a pragmatic approach to this, we have only included funds that hold significant equities; therefore, we have only included funds used in the DC default strategy, as these are deemed to be the Plan’s material DC holdings:

  • BlackRock World Equity Index Fund;
  • BlackRock Fundamental Equity Index Fund;
  • BlackRock Minimum Volatility Index Fund;
  • BlackRock World Emerging Markets Equity Index Fund;
  • Baillie Gifford Multi Asset Growth Fund; 
  • Schroders Dynamic Multi Asset Fund; and
  • Newton Real Return Fund.

If Plan members require any further information on voting behaviour for a fund not set out in the Implementation Statement, please send a message on the ‘Contact Us’ page of the Plan website and the pensions team will supply any further information, to the extent available.

In addition to the above, the Trustee contacted the Plan’s Final Pay Section asset managers that do not hold listed equities, to ask if any of the assets held by the Plan had voting opportunities over the period.  The Trustee also contacted the Plan’s buy-in providers, L&G and Aviva, to ask if any of the assets held to back members’ insured liabilities had any voting rights over the period.  These managers and annuity providers all confirmed that none of the assets in question had material voting opportunities over the period that were not simply votes on fund terms.

12.1. Description of the voting processes

BlackRock

Voting decisions are made by members of the BlackRock Investment Stewardship team (BIS) with input from the wider investment team as required, in accordance with BlackRock’s Global Corporate Governance and Engagement Principles and custom market-specific voting guidelines. BlackRock takes a case-by-case approach to the items put to a shareholder vote. Analysis is informed by internally-developed proxy voting guidelines, its pre-vote engagement with the company, its research, and any situational factors for a particular company.

BlackRock aims to vote at all shareholder meetings of companies in which its clients are invested and generally prefers to engage with the company in the first instance where there are concerns and give management time to address the issue. BlackRock will vote in favour of proposals where it supports the approach taken by a company’s management or where it has engaged on matters of concern and anticipates management will address them. BlackRock will vote against management proposals where it believes management may not have adequately acted to advance the interests of long-term investors. BlackRock ordinarily refrains from abstaining from both management and shareholder proposals, unless abstaining is the valid vote necessary.

Whilst BlackRock does subscribe to research from proxy advisory firms, ISS and Glass Lewis, this is just one among many inputs into its voting decision process. Other sources of information BlackRock uses include the company’s own reporting, its engagement and voting history with the company, the views of its active investors, public information and ESG research. BlackRock has for over a decade used an independent fiduciary to vote proxies where it is required by regulation not to vote itself or where there are actual or perceived conflicts of interest. The independent fiduciary makes voting decisions based solely on BlackRock’s publicly available proxy voting guidelines, which aim to advance clients’ long-term economic interests, and public information disclosed by the relevant company. 

Baillie Gifford

All Baillie Gifford’s voting decisions are made by its Governance & Sustainability team in conjunction with investment managers. Baillie Gifford does not regularly engage with clients prior to submitting votes; however, if a segregated client has a specific view on a vote then it will engage with them on this. 

Thoughtful voting of Baillie Gifford’s clients’ holdings is an integral part of its commitment to stewardship. Baillie Gifford believes that voting should be investment led, because how it votes is an important part of the long-term investment process, which is why its strong preference is to be given this responsibility by its clients. Its Governance and Sustainability team oversees its voting analysis and execution in conjunction with its investment managers. Unlike many of its peers, Baillie Gifford does not outsource any part of the responsibility for voting to third-party suppliers. It utilises research from proxy advisers for information only. Baillie Gifford analyses all meetings in-house in line with its Governance & Sustainability Principles and Guidelines and endeavours to vote every one of its clients’ holdings in all markets.

Whilst it is cognisant of proxy advisers’ voting recommendations (ISS and Glass Lewis), Baillie Gifford does not delegate or outsource any of its stewardship activities or follow or rely upon their recommendations when deciding how to vote on its clients’ shares. All client voting decisions are made in-house. Baillie Gifford votes in line with its in-house policy and not with the proxy voting providers’ policies. 

Schroders

Schroders evaluates voting issues arising at its investee companies and, where it has the authority to do so, votes on them in line with its fiduciary responsibilities in what it deems to be the interests of its clients. Schroders utilises company engagement, internal research, investor views and governance expertise to confirm its intention. 

Schroders receives research from both ISS and the Investment Association’s Institutional Voting Information Services for upcoming general meetings, however this is only one component that feeds into its voting decisions. In addition to relying on its policies it will also be informed by company reporting, company engagements, country specific policies, engagements with stakeholders and the views of portfolio managers and analysts.

Schroders’ own research is also integral to its final voting decision; this will be conducted by both its financial and ESG analysts. For contentious issues, Schroders’ Corporate Governance specialists will be in deep dialogue with the relevant analysts and portfolio managers to seek their view and better understand the corporate context. Schroders continues to review its voting practices and policies amid ongoing dialogue with portfolio managers.

Newton

Where Newton plans to vote against management on an issue, it often engages with the company in order to provide an opportunity for its concerns to be allayed. It does alert a company regarding an action it has taken at their annual general meeting to explain its thought process and often communicates further with the company’s board/investor relations teams to gain a better understanding of the situation.

Overall, Newton prefers to retain discretion in relation to exercising its clients’ voting rights and has established policies and procedures to ensure the exercise of global voting rights. 

Newton’s head of responsible investment (RI) is responsible for the decision-making process of the RI team when reviewing meeting resolutions for contentious issues. Contentious issues may be referred to the appropriate industry analyst for comment and, where relevant, Newton may confer with the company or other interested parties for further clarification or to reach a compromise or to achieve a commitment from the company. 

All voting decisions are made by Newton. Newton uses ISS to administer proxy voting as well as its research reports on individual company meetings. ISS’s recommendations will only take precedence in the event of a material potential conflict of interest, which could include registering an abstention, despite Newton’s general stance of either voting in favour or against proposed resolutions. Newton’s voting decisions take into account local market best practice, rules and regulations while also aiming to support their investment rationale.

12.2. Summary of voting behaviour over the year

A summary of voting behaviour over the period is provided in the table below.

Fund 1Fund 2Fund 3Fund 4Fund 5Fund 6Fund 7
Manager nameBlackRockBlackRockBlackRockBlackRockBaillie GiffordSchroder LifeNewton
Fund nameWorld Equity Index FundFundamental Equity Index FundMinimum Volatility Index FundWorld Emerging Markets Equity Index FundMulti Asset Growth FundDynamic Multi Asset FundReal Return Fund
Total size of fund at end of reporting period£8,118m£996m£960m£13,916m£2,279m£888m£5,495m
Value of Plan assets at end of reporting period1£120.3m£120.3m£120.3m£27.2m£21.2m£21.2m£21.2m
Number of equity holdings at end of reporting period1,5822,9083681,3046970891
Number of meetings eligible to vote1,0723,1734052,4176478784
Number of resolutions eligible to vote15,33438,9325,71622,8496969,8981,179
% of resolutions voted91.493.996.697.196.099.199.2
Of the resolutions on which voted, % voted with management93.094.496.591.390.290.585.5
Of the resolutions on which voted, % voted against management7.05.63.58.77.98.614.5
Of the resolutions on which voted, % abstained from voting0.721.020.523.021.80.20.0
Of the meetings in which the manager voted, % with at least one vote against managementN/AN/AN/AN/A23.444.141.0
Of the resolutions on which the manager voted, % voted contrary to recommendation of proxy advisorN/A3N/A3N/A3N/A3N/A9.3

1 Asset values include the Plan’s DC and AVC assets.

2 Of the resolutions on which BlackRock voted, the votes cast with and against management already include abstains (abstained votes are counted against management). Furthermore, if there were multiple vote strings in a given meeting, any proposal voted different ways in the vote strings were counted twice.

3 BlackRock does not follow any single proxy research firm’s voting recommendations, though it subscribes to two research firms. BlackRock’s voting and engagement analysis is determined by several key inputs including a company’s own disclosures, and BlackRock’s record of past engagements.

12.3. Most significant votes over the year

Commentary on the most significant votes over the period, from the Plan’s asset managers who hold listed equities, is set out below.  We have interpreted “most significant votes” to mean those that:

  • might have a material impact on future company performance;
  • the investment manager believes to represent a significant escalation in engagement;
  • impact a material fund holding, although this would not be considered the only determinant of significance, rather it is an additional factor;
  • have a high media profile or are seen as being controversial; or
  • the Plan or the sponsoring company has a particular interest in.

BlackRock World Equity Index Fund

Santander Consumer USA Holdings, Inc., United States, June 2020, Vote: For 
(size of mandate’s holding at voting date: 0.09%)

Shareholders filed a non-binding proposal requesting that Santander Consumer Holdings’ board prepare a report in advance of the 2021 annual meeting on the risk of discrimination in vehicle lending and any steps the company has taken to prevent racial discrimination against borrowers. While Santander Consumer Holdings has been responsive in addressing historical material weaknesses in financial reporting and recommended voting against the proposal, BlackRock believes that the company has an opportunity to provide investors with a more detailed explanation of how it assesses managers and mitigates the risk of racial discriminatory lending practices. 

BlackRock voted for the shareholder proposal, as discriminatory lending practices (of all forms) are a material risk to the company’s business. Shareholders would benefit from increased and improved disclosure on compliance programs, processes and procedures, as well as risk mitigation processes and procedures, to prevent discriminatory lending (including racial discrimination).

BlackRock Fundamental Equity Index Fund

Mizuho Financial Group, Japan, June 2020, Vote: Against
(size of mandate’s holding at voting date: 0.16%)

In March 2020, Mizuho FG received a shareholder proposal from a Japanese NGO to amend the company’s Articles of Incorporation to add a clause to disclose in its annual reporting a plan outlining the business strategy to align its investments with the goals of Paris Agreement. Mizuho FG recommended that its shareholders vote against the shareholder proposal, noting that they have already acknowledged the importance of managing climate risk and have clearly disclosed policies related to such risk. Furthermore, they believe the proposed language in the shareholder proposal may restrict Mizuho FG from providing corporate financing to companies in the energy and utilities sector as general working capital, including for research and development in new technology or innovation. The company also believes it can drive more positive outcomes through engagement with clients in the energy and utilities sectors to help them adapt their businesses during the transition to a low carbon economy, rather than simply ceasing to lend to them.

Based on BlackRock’s proxy voting guidelines, the independent fiduciary voted against the proposal, considering the company’s policies and the announcements made since the shareholder proposal was filed. The independent fiduciary determined that the company now has policies in place that address the issues raised in the proposal.

BlackRock Minimum Volatility Index Fund

Air Liquide SA, France, May 2020, Vote: Against
(size of mandate’s holding at voting date: 0.14%)

Air Liquide SA provides gases-related technologies and services; the company is listed in France. BlackRock has engaged with Air Liquide’s board and management team over the past several years on a range of governance and material sustainability topics, including climate-related disclosures. In November 2017, BlackRock wrote a letter to Air Liquide’s CEO and Lead Independent Director asking the company to closely review the Task Force on Climate-related Financial Disclosures (“TCFD”) framework and to consider reporting in alignment with their recommendations.

Whilst Air Liquide has made a number of commitments to address climate-related risks since the letter, such as a carbon intensity reduction target and a commitment to developing low-carbon solutions, its limited progress in explicitly aligning its reporting with the TCFD recommendations falls short of BlackRock’s expectation of large carbon emitters with a previous history of engagement on the topic. Therefore BlackRock voted against the re-election of Brian Gilvary as Director, due to the company’s lack of progress on climate-related reporting in alignment with the (TCFD) recommendations.

BlackRock World Emerging Markets Equity Index Fund

PT Indofood CBP Sukses Makmur TBK, Indonesia, August 2020, Vote: Against 
(size of mandate’s holding at voting date: 0.03%)

PT Indofood CBP Sukses Makmur Tbk (ICBP) is a manufacturer of food products including Indonesia’s most popular instant noodle brand, Indomie. ICBP’s board sought shareholder approval via an Extra Ordinary Meeting to acquire the entire stake of Pinehill Company Ltd (Pinehill), a private holding company that manufactures and distributes the Indomie brand of instant noodles throughout the Middle East, Africa, and South Eastern Europe. 

While the proposed acquisition has merits from a strategic perspective, with ICPG’s in-depth knowledge of Pinehill’s Indomie business and Pinehill’s established footprint in its current markets, BlackRock believed it was in its clients’ economic interests to vote against the proposed acquisition. BlackRock had significant concerns regarding the valuation and terms of transaction, a s well as the board’s oversight in relation to the inherent conflict of interest since the President Director of ICBP has influential roles and holdings in all the companies involved. BlackRock decided to vote against the proposed transaction and has escalated its concerns to relevant parties in the Indonesian market. It has proposed opening a dialogue to discuss minority shareholder protections and BlackRock intends to hold the current members of the Board of Directors and Board of Commissioners accountable by voting against their re-election at future shareholder meetings, to address the material failure in governance at the board.

Baillie Gifford Multi Asset Growth Fund

Covivio REIT, April 2020, Vote: Against
(size of mandate’s holding at voting date: 0.45%)

Baillie Gifford opposed five resolutions regarding the current and proposed long-term incentive scheme because it could lead to rewarding under-performance. Following the AGM in 2020, Baillie Gifford informed the company of its voting decision and advised that it expects more stretching performance criteria to apply to long term incentives going forward. Baillie Gifford has yet to see improvements in the targets so will continue dialogue with the company and take appropriate voting action.

Schroder Life Dynamic Multi Asset Fund

Amazon.com Inc., May 2020, Vote: Against 
(size of mandate’s holding at voting date: 0.19%)

Following concerns regarding transparency of the company’s workforce structure and that employment practices has not kept pace with the size of the workforce, Schroders supported six calls for increased disclosure on employment issues. These were recommendations from other shareholders which were voted in favour of, going against management. Schroders report that this was the first time it voted against management solely on social, rather than governance issues. It voted against the re-election of the lead independent director, the most senior individual after the CEO/Chairman, Jeff Bezos, stating ongoing concerns about labour standards and company responsiveness to shareholder concerns. Schroders then informed the company that this vote marks a 12 month window for improvement and that further escalation would be considered if no progress has been made by the 2021 AGM.

Newton Real Return Fund

NIKE, Inc., September 2020, Vote: Against (management proposals), For (shareholder proposal)
(size of mandate’s holding at voting date: 1.05%)

Newton voted against management on resolutions regarding ratifying named executive officers’ compensation and ratifying PwC as the NIKE’s auditors. Newton voted against the appointment of the external audit firm owing to it serving the company for 46 consecutive years which Newton believed compromised independence and objectivity. Votes were also instructed against the ratification of the executive compensation arrangements. Newton’s chief concern was that fewer than 50% of long-term pay awards were subject to the achievement of performance conditions. 

Newton supported a shareholder resolution requesting enhanced disclosures on political contributions. While the company’s disclosures offer some insight into the contributions made and the governance framework surrounding this risk, Newton felt that the proposal would offer increased transparency of the company’s relationships with trade associations and would bring its disclosures in line with better-performing peers. 


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