Context

NatWest Group Pension Fund (the Fund) is a hybrid pension scheme with over £50 billion of assets and almost 200,000 members. The average age of members is 58 years. The Fund’s pensioner members currently represent just under 40% of the membership population with the remaining 60% being deferred and active members, some of whom are still accruing benefits.

The Fund is well-funded and a majority of the Fund’s assets (by value) are held in gilts, swaps, cash and liquidity funds – assets for which stewardship activity generally does not apply.

The Fund’s membership characteristics dictate that NatWest Pension Trustee Limited (the Trustee) should be a long-term investor. The Trustee therefore seeks assets with longer maturity profiles or where reinvestment risk is low. The Trustee also seeks assets where uncertain residual values have less of an impact on total return.

The Trustee has an investment strategy aligned to long-term objectives and is of the view that active stewardship helps to protect the value of assets and thereby increases the probability of scheme members' benefits being paid, consistent with its fiduciary obligations.

The Trustee’s stewardship activity in global quoted equity and investment-grade credit is delegated to a specialist provider (EOS at Federated Hermes; EOS), as described and explained elsewhere in this document. These asset classes form the largest part of the Fund’s assets after gilts, cash, etc. Furthermore, these are long-term investments (even credit allocations are often ‘rolled over’ at maturity). Therefore, good stewardship of these assets is likely to have the biggest environmental, social and governance (ESG) – risk-reducing impact for the Fund’s assets, and therefore for members’ benefits over the long term (the appropriate horizon, given the Fund’s maturity profile). EOS activity is subject to quarterly review at the ESG sub-committee. The reporting framework established by EOS ensures that voting and engagement activity is detailed and comprehensive.

Asset Allocation as at 31 December 2021

For all other applicable assets, RBS Investment Executive Limited (RIEL) ensures that the Trustee’s investment managers take account of its approach to stewardship as outlined in its Responsible Ownership (RO) Policy. Investment managers are required to report regularly (quarterly where there is something to report, and no less than annually) on activity covered by the RO Policy.

Activities & Outcomes

The Trustee is transparent with members and publishes relevant information on its website including in relation to matters covered by its RO Policy.

The Trustee communicates ESG and RO matters with the Fund’s beneficiaries mainly through their RO Annual Report and their EOS Annual Report which allows members to stay up to date with recent engagements made by EOS on the Trustee’s behalf and with any changes to policies. These two reports are published publicly on the Trustee website.

No members contacted the Trustee regarding ESG or stewardship matters during the reporting period.