Formal member survey on sustainability and sustainable ownership issues to be published this month.
UK pension scheme Railpen has released a review of its sustainable engagement strategy for members as part of a wider effort to solicit and reflect their investment priorities. The fund aims to hold itself accountable to its end-beneficiaries and ensure that it is prioritising the sustainability-related topics they support.
Published this week, the 2020 Sustainable Ownership Review provides examples of engagement under its 2020-25 strategy focus areas: climate transition; workforce; responsible technology; and sustainable financial markets.
“Our purpose is to secure our members’ future,” said John Chilman, Railpen’s CEO. “Our investments are predicated on investment beliefs and our sustainable ownership values.” Railpen manages £32 billion in assets on behalf of the UK’s railway pension schemes, which have over 350,000 members.
In 2020, Railpen excluded 175 companies from its portfolio on climate change grounds and 10 were excluded on governance conduct grounds. Out of 2,165 company meetings, Railpen voted against management 1,348 times.
Getting strict on climate
The scheme prefers to remain invested in carbon-intensive corporates “to give [them] a stake and a voice to improve companies’ behaviour”, the report noted.
In 2020, through the investor-led engagement initiative Climate Action 100+, Railpen led engagement efforts with CRH, which manufactures and distributes materials including cement production. Following a series of engagement letters and meetings with company management and the investor relations team, CRH has now pledged to achieve carbon neutrality along its cement and concrete value chain by 2050, with interim targets for CO2 intensity reduction by 2030.
Railpen has committed to halving its portfolio emissions by 2030 and to reach net zero by 2050 or sooner. The pension scheme’s roadmap to net zero includes active engagement with issuers responsible for 70% of the portfolio’s financed emissions, with the ambition to increase this to 90% by 2030.
UK auto-enrolment workplace pension scheme Nest and the BT Pension Scheme (BTPS) also have net zero strategies in place.
Recent research by the Make My Money Matter (MMMM) campaign noted that around £2 trillion in capital is still invested in schemes that are not yet aligned with the Paris Agreement. Ahead of COP26, MMMM called for the UK government to make net-zero commitments for pension schemes compulsory.
Focus on social issues
Following the outbreak of the Covid-19 pandemic, Railpen has increased its engagement with companies on social-related issues. Engagement covers topics such as fair pay, diversity, and executive remuneration.
Railpen voted against the pay and reward policy of a UK-based intellectual property commercialisation company in May 2019, the report noted. The limit on the firm’s executive long-term incentive plan (LTIP) was 400% more than the executive’s base salary, Railpen noted, adding that it also voted against the Chair of the company board due to low gender diversity.
In response, the company has now placed a lower cap of 300% on the LTIP and appointed two female directors to the board, allowing Railpen to vote in favour of company management at the 2020 AGM.
Communicating with members
Later this month, the fund will be publishing a formal member survey on sustainability and sustainable ownership issues, asking for end beneficiaries to disclose their views on Railpen’s main areas of focus. Findings from the survey will then be explored further through member roundtables and discussions.
Other pension schemes are increasingly asking members to share their views on sustainability-related issues. For example, in BTPS’ ‘Responsible Investment and Stewardship’ report this year, the fund also indicated that it conducts member surveys, noting that “they expect us to use our investments to make a positive impact”.
“It’s more important than ever that we talk with, and listen to, our members about how we do sustainable ownership,” said Caroline Escott, Senior Investment Manager at Railpen. “We take our role as stewards very seriously and this report shows how we are walking the walk, working to achieve impact on our members’ behalf and creating a better future to retire in.”