The Trustee exercised its investment responsibilities over the year as part of its duty to act in members’ best interests. Oak Pension Asset Management Ltd (“OPAM”) operates under formal delegation from the Trustee, in line with parameters agreed by the Trustee. OPAM is responsible for the management of the UKRF asset portfolio and the implementation of the Trustee strategy, including the appointment, supervision and management of the Fund’s underlying investment managers and the implementation and monitoring of the Fund’s investment policy. The terms of the relationship between the Trustee and OPAM are set out in an Investment Advisory and Management Agreement (“IAMA”) which documents the Trustee’s expectations of OPAM, alongside Investment Guidelines under which OPAM is required to operate. There were no material changes in the year to the investment governance framework through which the Trustee makes investment-related decisions.

The SIP is owned by the Trustee with the detailed implementation and monitoring of the DB investment policy formally delegated to OPAM.

The performance of the DB assets, against the objectives set out in the SIP, is monitored by the Trustee with support from its strategic investment adviser and OPAM, with performance calculations provided by J.P. Morgan, the Fund’s DB custodian.

The funding level of the DB section improved during the year. The portfolio remains well diversified with an appropriate level of investment risk and expected return, with key financial risks (compared to liabilities) being mostly mitigated through hedging. The Trustee has closely monitored performance against the Fund’s investment objectives throughout the year using a monitoring framework called the Pensions Risk Management Framework (“PRMF”). This sets the investment objectives and acts as a reference point for decision making. The Fund is currently ahead of plan against its strategic funding objectives and the investment strategy has remained robust throughout the financial year. Actions were taken by OPAM throughout the year to proactively maintain cash buffers and during September 2022 to maintain a strong collateral position in response to the market activity impacting on Liability Driven Investment ("LDI"). Alongside this, all benefits were paid as they fell due in the year.

To understand the potential impact of different market environments and climate scenarios on the UKRF, the Trustee, supported by its strategic investment adviser and OPAM, undertook stress test and scenario analysis. The Trustee considered possible mitigation strategies should the chosen scenarios materialise and decided that for the purposes of prudent risk management, the stress test and scenario analysis will be included within the Fund’s regular reporting, including the PRMF, for monitoring on an ongoing basis.

The Trustee has a standalone Responsible Investment (“RI”) policy, which describes the Trustee’s approach to RI in the context of managing the UKRF, outlining the guiding principles the Trustee has adopted and the core activities undertaken. An abridged version of the RI policy is included in the SIP. The full version of the RI policy can be found here.

The Trustee believes there is evidence that sustainable business practices lead to better risk-adjusted returns and outcomes in the long-term and so considers ESG factors and their potential implications for the UKRF throughout its investment process and within the Fund’s overall RI approach.

The Trustee sees climate change as a key financial risk affecting its investment asset portfolio and climate change is therefore the subject of specific risk management, measurement, stewardship, and collaborative efforts as part of the UKRF’s wider investment and RI activities. Further details of the Trustee’s governance and approach to addressing climate change risks faced by the UKRF can be found in the UKRF’s 2022 Task Force on Climate-related Financial Disclosures (“TCFD”) Report which will be published by 30 April 2023 here. This the UKRF’s first mandatory TCFD statement and is part of our initial work on climate change, which has included in the year assessing appropriate ESG metrics and targets that will help facilitate improved measurement and management of climate-related risks.

The Trustee requires its appointed investment managers to be cognisant of ESG-related financial risks and opportunities. The Trustee is supported by OPAM in its engagement with managers, who also perform ongoing investment and operational due diligence and regular monitoring. This ensures that the Fund’s appointed managers incorporate ESG risks and opportunities into the investment process.

The Trustee continues to integrate RI considerations within the Fund’s strategic and day-to-day management processes and decision-making, aiming for improved risk-adjusted returns across both the DB and DC sections. Over the year, the Trustee supported by OPAM and its relevant advisors implemented activities that are consistent with its RI policy. These activities included:

• Continued to perform, monitor and review ESG analytics on the Fund’s public equity and fixed income portfolios. This helps OPAM better engage with the Fund’s investment managers on ESG factors on the Trustee’s behalf. Further details on the climate metrics are provided in the TCFD report available online.
• Agreed climate investment guidelines for a selection of the Fund’s fixed income managers (as at 30 September 2022 c.19% of the UKRF assets), representing a significant step for the UKRF regarding its net zero ambition. Guidelines covered the key areas: year on year emissions de-carbonisation; selective coal exclusions; stewardship/engagement; issuers’ science based transition pathway monitoring; investments in Climate solutions; and targeting equal or higher Social and Governance scores for the portfolios.
• Participated in the first two syndications of Green Gilts issued by the UK Government in September and October 2021. The UKRF accumulated a total of c£37m across the two green gilts in the primary market. Green Gilts are intended to positively contribute to the UK Government’s Green Financing strategy, helping to finance the transition to a green economy, tackling environmental challenges and creating green jobs across the UK. This is consistent with the Trustee’s own RI objectives.
• Approved a further commitment of £200m to infrastructure projects which included social debt exposure (e.g. provision of affordable social housing), renewable energy generation (e.g. solar, wind, hydro), and energy efficiency. This commitment will be invested in projects in the coming years and will further contribute towards the UKRF’s RI goals.
• As outlined above in line with Trustee’s net zero ambition, transitioned the equity allocations within the UKRF DGF to meet the minimum standards of the European Union Climate Transition Benchmark (“CTB”) guidelines in Q2 2022. The CTB methodology introduced a forward-looking commitment to decarbonise the portfolio by 7% year-on-year.

The Trustee will continue updating and evolving its approach to investing responsibly.

The Trustee recognises its position as an asset owner with ultimate responsibility to its members and beneficiaries, accepting that effective stewardship can help protect and enhance the long-term value of its investments to the ultimate benefit of these beneficiaries.

The Trustee initially signed up to the UK Stewardship Code in 2011. The Code sets out a clear benchmark for stewardship as the responsible allocation, management, and oversight of capital to create long-term sustainable benefits for the economy, the environment and society. The Trustee also expects its investment managers to adhere to the principles within the UK Stewardship Code.

In 2022, the UKRF retained its signatory status to the substantially revised and strengthened UK Stewardship Code 2020. Here is the UKRF’s full 2021 UK Stewardship Code report. This provides additional detail on the stewardship and engagement activity carried out by the Trustee.

DB section

For the DB assets, the Trustee has appointed EOS at Federated Hermes (“EOS”) as a specialist engagement provider and proxy voter to maximise the Trustee’s influence as an active owner. EOS performs targeted engagement with companies on behalf of a number of asset owners, including the UKRF.

As part of its ongoing process, EOS identifies companies in which its clients, including the UKRF, are invested and will conduct a programme of engagement where EOS considers it both desirable and feasible to influence change. This includes opportunities pertaining to corporate governance and the management of ESG issues, including the companies' capital structure, with a view to improving long-term performance and outcomes.

The Trustee regularly monitors the effectiveness of EOS’s activities and, where appropriate, considers how engagement could inform investment decisions. As an example, the Trustee reviewed EOS’s activities for consistency with the Trustee’s net zero carbon ambition. OPAM monitors material stewardship activity by EOS pertaining to the UKRF’s investments. EOS reports to the UKRF Trustee Board on an annual basis.

DC section

The majority of funds provided to DC members are pooled funds, managed by BlackRock and Jupiter and the Trustee has therefore delegated the stewardship, engagement and voting activities to the pooled fund managers.

For the UKRF DGF, assets are invested through a combination of pooled funds and directly held investments. As the investment manager of the DGF, BlackRock is responsible for the stewardship, voting and engagement activities for all holdings in the DGF. Through its ongoing monitoring and due diligence on the underlying funds, the Trustee is comfortable the actions of the pooled fund managers are aligned with the Fund’s policy on stewardship and engagement. There have been no changes to the stewardship process for the DC section during the year.

Voting data

Results of the voting activity in respect of both the DB and DC sections are set out in the Voting and Engagement Data section. This section includes information related to the most significant votes by considering items including the following:

Conflicts of interest policy

The Trustee has a formal conflicts of interest policy which sets out its principles and procedures for identifying, assessing, and managing actual and potential conflicts of interest, including third party advisers, in order to minimise the possibility of such conflicts arising. Specifically, in relation to Fund investments, the Trustee has a general policy of no direct self-investment in Barclays Bank PLC or associated companies. This is reviewed annually and covers the circumstances in which conflicts might arise in line with the relevant guidance and requirements of Pensions Regulator, the Pensions Act 1995 and the Companies Act 2006.

OPAM maintains a separate policy on managing conflicts of interest. This includes a review of each investment manager’s conflicts of interest policy which is undertaken as part of the managers’ operational due diligence and review process. EOS has a publicly available Stewardship Conflicts of Interest Policy, which is reviewed by OPAM on behalf of the Trustee.

There were no breaches of the Trustee’s, OPAM’s or EOS’s conflicts of interest policies during the financial year.

The Trustee delegates the management of its relationships with third-party investment managers to OPAM with the Asset Manager policy covering both DB and DC investment arrangements. OPAM regularly monitors all UKRF managers through its investment monitoring process.

The terms of the long-term relationship between the Trustee and OPAM are set out in a separate IAMA. This documents the Trustee's expectations of OPAM, alongside the investment guidelines under which OPAM is required to operate. The investment guidelines are based on a combination of the policies set out in the SIP, the Trustee's PRMF and RI Policy. The investment guidelines are updated following any changes to one of these documents, ensuring OPAM acts in the best long-term interests of the UKRF at all times.

The Trustee remains comfortable that the IAMA is effective and, over the year, continued to monitor OPAM using a framework-based approach, as well as meeting with OPAM on a regular basis. For the DB sections, based on backdated analysis used within this framework, the UKRF’s return generated over the year has exceeded the return required to achieve the UKRF’s primary funding objective.

The IAMA sets out the Trustee’s expectation with regard to OPAM’s monitoring of fees, portfolio turnover costs and turnover range, which are reviewed by OPAM annually. In assessing the appropriateness of the portfolio turnover costs at an individual manager level, OPAM will have regard to the actual portfolio turnover and how this compares with the expected turnover range for that mandate. In addition, the Trustee reviews the costs incurred in managing the Fund's assets annually. The Trustee and OPAM are satisfied that the costs incurred in managing the Fund’s assets and those associated with portfolio turnover during the reporting year were appropriate, taking into account the size and investment strategy of the UKRF.

The Trustee has a general policy of not investing directly in shares issued by the employer, Barclays Bank PLC, or associated companies. However, the Trustee accepts indirect exposure, for example as a result of investment in index-tracking funds.

The Trustee’s employer related investment is monitored regularly by OPAM and no breaches of this policy have been reported over the year.

DB section

As part of its overarching DB investment policy, the Trustee has considered the investment return and associated risk that each asset class is expected to provide. Consistent with investment management agreements and delegations, OPAM performed its role in respect of the day-to-day selection of assets to maintain the Fund’s stated expected return target. The Fund’s expected return, relative to the required return on both the primary and long-term funding objective, is monitored on a monthly basis.

DC section

The Trustee reviews the performance of all funds within the DC section with reference to each fund’s expected return and stated objectives. For the UKRF DGF, the target is to outperform short-term cash (i.e. deposit) rates by 4.5% pa over the long term. The self-select options include return-seeking and liability-matching funds, allowing members to target an appropriate expected return and risk profile for their requirements.