Context

The Responsible Ownership (RO) Policy sets out NatWest Pension Trustee Limited’s (the Trustee’s) approach to stewardship and is shared with EOS at Federated Hermes (EOS) and NatWest Group Pension Fund’s (the Fund's) investment managers who are obliged to take it into account when making engagement, voting and investment decisions.

The Trustee reviews its RO Policy at least once a year. The review takes account of changes to law, regulation and market practice and is facilitated by the RBS Investment Executive Limited (RIEL) environmental, social and governance (ESG) sub-committee. Less frequently, changes to Fund asset classes may be a trigger for policy amendments.

RIEL and the Trustee regularly look for opportunities to improve stewardship in line with the desire to constantly improve the Trustee RO Policy. As part of this process, RIEL will take feedback on the policy from EOS, investment managers, the Fund’s Responsible Investment Consultant, the Fund's legal advisers and the scheme sponsor on the policy approach. However, the contents of the RO Policy and the methods of implementation are determined by the Trustee in its sole discretion.

RIEL will also discuss stewardship activity with its investment managers and review the market regularly to ensure the Trustee's approach is consistent with other pension funds. Fundamentally, the approach of joining other pension funds in collective engagement via EOS is still seen as the best way for the Trustee's stewardship activity to have a significant impact. The Trustee regularly reviews EOS (as with all providers) to ensure that they continue to deliver for the Fund. This review process makes sure that activities carried out by EOS align with the Trustee’s stewardship principles, and that voting and engagement actions have been carried out in a fair and transparent manner. An important part of that review is to ensure that collaboration via EOS remains the preferred approach. The Trustee continues to favour this approach rather than acting alone or via its investment managers.

This review process – combining annual internal review with regular external review – ensures that the RO Policy is kept current and relevant, capturing the impact of both internal changes (e.g. to the asset allocation) and external changes (e.g. to market developments or legal requirements).

An additional layer of assurance is the fact that the voting process of the Trustee’s chosen stewardship service provider, EOS, is independently assured by Audit and Assurance Faculty (AAF) 01/06 annually. In addition, the quarterly review of investment manager ESG activity and annual survey provide assurance that the RO Policy is being implemented.

RIEL prepares an annual Responsible Ownership Report which reviews activity covered by the RO Policy and includes information on all stewardship activity. This substantially leverages reporting provided by EOS, which is subject to quarterly review by RIEL. RIEL has provided feedback to EOS over time on its reporting including as a member of the EOS Client Advisory Board. EOS provides comprehensive reporting for the Trustee on the engagement and voting activities undertaken on its behalf.

The Responsible Ownership Report is reviewed and approved by the Trustee Asset and Liability Committee (ALCO) and Board to ensure it is fair, balanced, accurate, clear and appropriate for members and other stakeholders.

Having a dedicated review process as described above with regular input from the ESG sub-committee gives the Trustee the necessary assurance that EOS and its investment managers are fulfilling their roles in the implementation of the Trustee's RO Policy and supporting its stewardship activities.

Activities & Outcomes

Responsible Ownership Report

Once a year, RIEL prepares a Responsible Ownership Report which reviews activity covered by the RO Policy and includes information on all stewardship activity. The report is reviewed and approved by the Trustee ALCO and Board to ensure it is accurate and appropriate for members and other stakeholders.

The preparation of the 2021 RO Report was deferred by the Trustees in order to align it with mandatory Task Force on Climate-Related Financial Disclosures (TCFD) disclosures in 2022.

The 2020 RO Report noted that the Trustee Statement of Investment Principles (SIP) was being updated in line with new provisions in the area of Responsible Ownership. The SIP is reviewed by the Trustee Board at least every three years and after any significant change in investment policy. The most recent version of the SIP (February 2022) addresses the requirements of The Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018 and also The Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019 expanding the SIP disclosure requirements. Trustees are required to disclose their policies in relation to financially material considerations (as referred to in the Investment Regulations) and the extent (if at all) to which non-financial matters (as referred to in the Investment Regulations) are taken into account in the selection, retention and realisation of investments. They also require trustees to disclose their policies in relation to undertaking engagement activities in respect of investments. These aspects are now captured in the updated SIP.

The 2020 RO Report also highlighted that in 2021 the Trustee would be required to prepare an Implementation Statement explaining how and to what extent the Trustee had followed its engagement policy as well as describing the voting behaviour by and on behalf of the Trustee. The Implementation Statement was duly published and included in the Fund’s Annual Report and accounts for 2020. The process is of course repeated for 2021.