NH4 Implementation Statement Advice

NH4 Implementation Statement Advice

Implementation Statement, covering the year to 30 April 2020

Introduction and last review of the voting and engagement policies

The Trustee of the Nelson Hurst Group Pension Scheme 4 (the “Scheme”) is required to produce a yearly statement to set out how, and the extent to which, the Trustee has followed the voting and engagement policies in its Statement of Investment Principles (“SIP”) during the year.  This is provided in Section 1 below.

The SIP was reviewed and updated during the Scheme year in June 2019.  This included changes to more fully describe the Trustee’s policies on voting and engagement, the main change being the addition of the phrase “The Trustee seeks to appoint managers that have appropriate skills and processes to do this, and from time to time reviews how its managers are taking account of these issues in practice”.

The Statement is also required to include a description of the voting behaviour during the year by, and on behalf of, trustees (including the most significant votes cast by trustees or on their behalf) and state any use of the services of a proxy voter during that year. This is provided in Section 2 below.

1. Voting and engagement

As part of its advice on the selection and ongoing review of the investment managers, the Scheme's investment adviser, LCP, incorporates its assessment of the nature and effectiveness of managers’ approaches to voting and engagement.

In March 2020, the Trustee reviewed LCP’s responsible investment (“RI”) scores for the Scheme’s investment managers and funds.  These scores cover the approach to Environmental, Social and Governance (“ESG”) factors, voting and engagement.  The manager scores are based on LCP’s Responsible Investment Survey 2020.  The 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.  The highest score available is 4 (strong) and the lowest is 1 (weak).  The Trustee was comfortable with the results of the survey as each of its managers and funds had an acceptable score, therefore no further action was taken.

In August 2019, the Trustee made a new investment into L&G’s pooled Buy & Maintain Credit Fund.  In selecting this new fund, the Trustee reviewed LCP’s formal investment advice on L&G’s Buy & Maintain Credit Fund, which incorporated RI assessments including consideration of L&G’s voting and engagement policies for the fund.

2. Description of voting behaviour during the year

The Scheme invests in a number of pooled funds with L&G and one pooled fund with Pyrford.  L&G is the investment platform provider to the Scheme, and allows the Scheme to invest in both L&G funds and externally managed funds (including the Pyrford fund).

The Trustee’s only holdings with voting opportunities over the period comprised of a modest allocation to equities within the Pyrford Global Total Return Fund (which itself makes up only around 8% of the Scheme’s assets).  The Trustee has delegated to Pyrford the exercise of voting rights within this fund, therefore the Trustee does not direct how votes are exercised and the Trustee itself has not used proxy voting services over the year.  The information that follows has been sourced from Pyrford.

Description of the voting process

The Trustee notes the following statements made by its investment manager:

“It is Pyrford’s policy to consider every resolution individually and to cast a proxy on each issue; the sole criteria for reaching these voting decisions being the best interests of the client.  This is part of Pyrford’s broader fiduciary responsibility to its clients. 

Pyrford have appointed ISS Proxy Voting Services to monitor meetings data and to produce a voting schedule based upon Pyrford’s guidelines.  This schedule requires authorisation by an appropriately authorised member of the Pyrford Investment team before the votes are registered.

Pyrford will only abstain on a vote where it proves impossible to obtain adequate or reliable details of the proposals to be voted on within the required time frame. Pyrford believe that, having appointed ISS, this is now only likely to happen in exceptional circumstances.”

Summary of voting behaviour over the year

The Trustee notes the following statements made by its investment manager:

“As long-term shareholders of companies Pyrford have the ability, and in their view the responsibility, to try and influence the business practices of companies.

Pyrford’s Investment team engage with companies worldwide and ESG issues are a standing agenda item in every meeting they conduct.”

  • Over Q2 2019 Pyrford voted 1022 ballots in 72 company meetings.  They voted against management in over 50% of meetings. 

  • Over Q3 2019, Pyrford voted 212 ballots in 10 company meetings.  They voted against management in 70% of meetings.

  • Over Q4 2019 Pyrford voted 172 ballots in 10 company meetings.  They voted against management in 15% of meetings.

  • Over Q1 2020 Pyrford voted 252 ballots in 14 company meetings.  They voted against management in 64% of meetings.

Most significant votes over the year

Commentary on some significant votes over the year are set out below (these are some examples highlighted by the Investment manager in its correspondence with us and is not an exhaustive list).

Telenor, Norway, May 2019:

Telenor Group is a large telecoms company with operations across the Nordic region and Asia.  Shareholders were asked to vote to approve the remuneration policy for executive management.

Pyrford voted against management because the long-term incentives in the remuneration of senior management were not clearly aligned with the best interests of long-term shareholders.

In their view the proposed long-term incentive plan was questionable due to the lack of performance conditions that applied over the lock-in period.  Pyrford generally requires long-term incentive programs to have well-described performance criteria and to have performance periods of at least three years.

SGS SA, Switzerland, March 2020:

SGS is a multinational company headquartered in Switzerland which provides inspection, verification, testing and certification services.  Shareholders were asked to re-elect Paul Desmarais Jr. as a Director and also to appoint Ian Gallienne and Shelby du Pasquier as Members of the Compensation Committee.

Pyrford felt a vote against management was warranted on account of the poor attendance record of Paul Desmarais Jr.  He attended less than 75 percent of board meetings over the previous full year and no explanation for this was provided by the company.  Under Pyrford’s voting policy, it may choose to vote against or withhold voting for those directors who have a poor attendance record at board meetings.

Pyrford also felt votes against the non-independent nominees Ian Gallienne and Shelby du Pasquier were warranted due to the failure to establish a majority independent committee. The Swiss Code of Best Practice recommends that the compensation committee comprise exclusively independent members and that the audit committee be majority independent, in order to assure a clear separation from group management, and to guarantee that the views of outside shareholders are represented. Following the proposed elections, the compensation committee would only be 33 percent independent, which falls short of market best practice and Pyrford therefore choose to vote against management.

Woodside Petroleum, Australia, April 2020:

Woodside is a major oil exploration and production company based in Australia. At the 2020 annual general meeting, a shareholder proposal requested that the company publish a detailed report on its lobbying activities relating to climate, resources and/or energy policy. The proponent of the resolution had expressed concern that some of the company’s lobbying activities, particularly through its membership of trade groups, may not have been consistent with the Paris Agreement goals.

Management recommended voting against this shareholder resolution on the grounds that it had already committed to conduct and publish the results of a review into how its lobbying activities were aligned with its climate related commitments. It also pointed out that whilst membership of industry bodies helped the company increase its awareness of policy issues, better understand stakeholder expectations and engage constructively, the company was only one voice amongst many and the formal positions of such groups are not necessarily the views of any individual member.

Having considered both arguments Pyrford decided to vote against management and in favour of the shareholder resolution. The company has committed to achieving net zero carbon emissions from its own operations by 2050. The company is also investing in the development of new energy businesses which could help in the transition to a low carbon world. That said, Pyrford felt that greater transparency on how participation in lobbying was assessed would be in shareholders’ interests.  Pyrford also felt that there could be greater responsibility taken for the credibility that Woodside’s membership gave to certain trade bodies.