Context

• Governance Structure

  NatWest Group Pension Fund (the Fund) is an English law trust; it is managed according to the terms of the trust deed and all applicable laws and regulations. Stewardship of the Fund’s assets is implemented by RBS Investment Executive Limited (RIEL) and overseen by NatWest Pension Trustee Limited (the Trustee).

  The key entities in the governance structure, as it relates to investment stewardship, are shown diagrammatically.

  

  The Trustee is ultimately responsible for oversight of all strategic matters related to the Fund. This includes approval of the governance and management framework relating to environmental, social and governance (ESG) considerations and climate-related risks and opportunities.

  The Asset and Liability Committee (ALCO) is responsible for the Fund’s investment and funding strategy, including climate and other ESG risks and opportunities. ALCO reviews the Trustee’s Responsible Ownership (RO) Policy at least annually to adapt to changes in the Fund, changes to regulation, industry guidance and best practice.

  The RBS Investment Executive Limited (RIEL) is responsible for advising the Trustee (including ALCO and the ESG sub-committee) on its long-term objectives and strategy and then supporting the implementation of that strategy with delegated responsibility in relation to investment management. This includes:

  • Advising on all aspects of integrated risk management, including responsible ownership policies
  • Reviewing all significant asset purchases, including reviewing their climate and other ESG risks and opportunities
  • Oversight of fund manager activities and reporting including stewardship reporting
  • Agreeing the exclusions list at a company level, subject to policy decisions taken by the ESG sub-committee
  • Reporting to the ALCO annually on the implementation of the Trustee’s RO Policy

  The ESG sub-committee meets at least quarterly to review and make decisions on stewardship activity. The ESG sub-committee maintains a close dialogue with EOS at Federated Hermes (EOS) as the Trustee’s engagement partner, and with the four sponsoring employers ¹ of the Fund. The over-riding responsibility of the ESG sub-committee is to support ALCO and the Trustee Board on all responsible ownership matters, including engagement. The sub-committee will also address ESG (including climate-related) risks and opportunities for the Fund. With the support of the Trustee’s standing committees, the ESG sub-committee is responsible for the following key activities:

  • Regularly reviewing the RO Policy and proposing any changes to ALCO
  • Approving the annual engagement activity which will be carried out by the Fund’s engagement partner
  • Identifying any risks that could impact the Trustee’s adherence to the RO Policy and on identification, recommending any remedial actions; ensuring such risks and actions are notified to the appropriate parties
  • Ensuring that stewardship activities are being undertaken appropriately on the Fund’s behalf
  • Strategic decisions in relation to the Trustee’s disclosures on climate, ESG and responsible ownership matters

  The minutes of the ESG sub-committee are made available to the ALCO every quarter.

  Engagement partner and voting adviser: EOS provides engagement and voting services for the Fund’s listed equity and investment grade credit. It monitors the performance of companies against the UN Global Compact Principles, engages on relevant government policy initiatives and promotes collaboration between asset owners, on the behalf of the Trustee. EOS reports to the Trustee and RIEL on engagement and voting activity on a quarterly basis. In turn, the Trustee monitors the engagement through EOS’s progress map which summarises key milestones achieved with underlying holdings on a quarterly basis. EOS’s engagement goals are reviewed on an annual basis through consultation on the EOS Engagement Plan. RIEL oversee that EOS’s services and engagements are provided to an acceptable standard, in a timely manner and at an appropriate price.

  The RO Consultant supports the Trustee and RIEL on the preparation of the Task Force on Climate-Related Financial Disclosures (TCFD) and advises on aspects of its approach to responsible ownership.

• Oversight & Accountability

  The Trustee monitors the stewardship activity undertaken by EOS on its behalf.

  • Policy

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    Stewardship is a core part of the RO Policy, which was developed with input from, and is regularly reviewed by, the ESG sub-committee. That policy, in common with all other policies relating to the Fund, is ultimately approved and ‘owned’ by the Trustee.

  • Accountability

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    RIEL is accountable for the implementation of the RO Policy. It meets every quarter to review and assess internal and external stewardship activity. This includes monitoring EOS’s performance through its Quarterly Highlights reports, that EOS tailors to the Fund.

  • Implementation

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    For quoted equities and credit, the Trustee has appointed a specialist provider of stewardship services (EOS) to ensure that the Fund benefits from best-in-class stewardship of those assets in collaboration with the other investors who EOS represents. The Fund also invests in several privately-owned assets. Management of these assets is influenced by RIEL and the relevant investment managers. Investment managers will make decisions taking account of the RO Policy and will refer certain decisions to RIEL to ensure the Trustee's stewardship goals are met.

  Responsible Ownership Policy

  A comprehensive statement of the Trustee’s underpinning principles and practical approach to Responsible Ownership. The Policy covers all the Fund’s assets and the implementation actions for each asset class are listed under the headings: Engagement, Disclosure, Influence, Manage and Positive Investments.

  “The Trustee has the opportunity to exercise its rights as owner of assets within the Fund (including deciding whether to buy, sell or hold assets according to factors other than pure economic factors). Ownership rights vary according to the asset and the ability to exercise those rights varies according to the manner in which they are held. The Trustee should exercise its ownership rights where possible, as to do so is consistent with its fiduciary duties and regulatory guidance and will help protect the value of the Fund’s assets.”

• Resourcing

  The people involved in the governance of the Fund have a wide range of relevant experience and expertise, including several with many years of experience in asset management and ownership.

  Recognising the importance of stewardship, the Trustee was one of the first ‘external’ clients of EOS and has been closely involved with them ever since their appointment, including holding a position on their client advisory board since 2012. The Trustee appointed EOS recognising that their resources are ‘best in class’ in terms of the skill, experience, qualifications and ongoing training of their staff; the quality and robustness of their systems and processes; and the breadth and depth of their research and analysis. Over the past several years EOS have been able to invest in and develop their resources far better than any individual pensions plan would be able to do, and they have maintained their position as the pre-eminent provider of stewardship services.

  The Trustee also favours using a third-party provider for stewardship in order to better leverage its scale by joining forces with other large institutional investors globally. This ‘combined weight’ significantly magnifies the impact of the ownership activities that EOS carries out on the Trustee’s behalf, and therefore is more able to elicit beneficial change to the underlying ‘target’ firms, to the benefit of the Fund but also more widely to the benefit of society.

  EOS is paid a fixed fee for its role which is regularly reviewed by RIEL. Third-party investment managers are contractually obliged to follow the Trustee's approach to stewardship set out in its RO Policy and do not receive additional remuneration for doing so.

Activities

There are a number of routine governance activities in the area of Stewardship:

• ALCO review the ESG committee activity quarterly
• The Trustee review the reporting provided by EOS; this is also published on the Trustee website
• RIEL review EOS’s and the investment managers’ latest position and policies on ESG issues
• RIEL respond to public consultations throughout the year
• RIEL contribute to the EOS annual Engagement Plan review

There were also a number of other significant activities during the year.

• The most recent review of the RO Policy led to a number of additions, including (but not limited to):

  • Clarifying the Trustee’s position in relation to climate change, particularly in light of the TCFD requirements on the Trustee
  • Adding the dimension of Positive Investments to the practical considerations for each asset class

  The updated policy was then distributed to all managers.

• RIEL presented at the Trustee Strategy Day on ESG including Climate Change and subsequently helped the Trustee to articulate a position on Net Zero.
• The Trustee carried out a selection exercise and appointed a Responsible Investment Consultant to advise on its approach to responsible ownership and assist in the preparation of disclosures including the annual TCFD report. The Consultant was selected based on a number of factors including their ability and experience in this area.

Outcomes

The new TCFD requirements were helpful for the Trustee in two ways. Firstly, they confirmed that the governance arrangements currently in place for ESG, climate and stewardship issues were appropriate (for example, that RIEL already had an ESG sub-committee which included climate issues in its remit and has a reporting line to the Trustee). Secondly, it confirmed the value of the Trustee’s recent focus on climate-related issues, such as decisions related to the Fund’s forestry assets (noted elsewhere in this document).

The appointment of an RO Consultant provides valuable additional resource and experience for the Trustee to call on when addressing ESG, climate, and the increasing disclosure requirements in those areas.