Implementation Statement for the Warner Howard Limited Pension and Life Assurance Plan

Covering 1 May 2019 to 30 April 2020

1.      Background

The Trustees of the Warner Howard Limited Pension and Life Assurance Plan (the “Plan”) is required to produce a yearly statement to set out how, and the extent to which, the Trustees have followed the Plan’s Statement of Investment Principles (“SIP”) during the previous Plan year. This statement also includes the details of any reviews of the SIP during the year, any changes that were made and reasons for the changes. This is the first implementation statement produced by the Trustees.

A description of the voting behaviour during the year, either by or on behalf of the Trustees, or if a proxy voter was used, also needs to be included within this statement.

This statement should be read in conjunction with the Plan’s SIP and has been produced in accordance with The Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018 and the subsequent amendment in The Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019.

A copy of the most recent SIP can be found at https://phswarnerhoward.co.uk/pension-scheme/

2.      Investment Objectives and activity

The objective of the Plan is over the long term, to return the on-going funding level of the Plan to 100% of the projected past service liabilities and then to maintain the funding level at least at this level.

During the year, progress was reviewed as part of the formal actuarial annual updates. No formal manager selection or strategy decisions were made during the last Plan year.

The SIP was fully reviewed and updated on 30 September 2019 to incorporate the Trustees’ policy on Environmental, Social and Governance (“ESG”) factors, stewardship and climate change, as required under new regulations effective from 1 October 2019. The SIP was further updated after the reporting period end, on 29 September 2020, to further detail the Trustees’ arrangements with asset managers as required under new regulations effective from 1 October 2020.

3.      ESG, Stewardship and Climate Change

The Plan’s SIP includes the Trustees’ policy on Environmental, Social and Governance (“ESG”) factors, stewardship and climate change. This policy sets out the Trustees’ beliefs on ESG and climate change, and the processes followed by the Trustees in relation to voting rights and stewardship.

This was last reviewed in November 2019 during the Plan year and has since been reviewed after the reporting period end in July 2020.

The Trustees discussed the ESG and stewardship considerations as part of their November 2019 Trustee meeting and will review these further in the next Plan year and provide information in the next implementation statement. The Trustees also intend to interrogate the manager’s ESG policies including the application of voting rights in the next Plan year.

4.       Voting and Engagement

The Trustees are keen that their equity managers are signatories of the UK Stewardship Code, their equity manager is a current signatory.

All of the Trustees’ holdings are within pooled funds and the Trustees have delegated to their investment manager the exercise of voting rights. Therefore, the Trustees are not able to direct how votes are exercised and the Trustees have not used proxy voting services over the year.

The Plan’s funds are:

  • Legal & General Investment Management (“LGIM”) Global Equity Fixed Weights (60:40) Index Fund
  • LGIM Over 15 Year Gilts Index Fund
  • LGIM Over 5 Year Index-Linked Gilts Index Fund
  • LGIM Investment Grade Corporate Bond – Over 15 Year – Index Fund

 

The Trustees were unable to include voting data for any of its pooled funds, other than the LGIM Global Equity Fixed Weights (60:40) Index Fund, as the others are predominantly fixed income and do not hold assets with voting rights.

a.                  Description of LGIM’s voting processes

LGIM describe their voting process as follows:

“All decisions are made by LGIM’s Investment Stewardship team and in accordance with our relevant Corporate Governance & Responsible Investment and Conflicts of Interest policy documents which are reviewed annually. Each member of the team is allocated a specific sector globally so that the voting is undertaken by the same individuals who engage with the relevant company. This ensures our stewardship approach flows smoothly throughout the engagement and voting process and that engagement is fully integrated into the vote decision process, therefore sending consistent messaging to companies.”

b.                 Summary of voting behaviour over the year

A summary of the LGIM’s voting behaviour over the period is provided in the table below:

 

 

Summary Info*

Manager name

Legal & General Investment Management

Fund name

Global Equity Fixed Weight (60:40) Index

Approximate value of trustee’s assets

c.£4.0m as at 30 April 2020

Number of meetings eligible to vote

3059

Number of resolutions eligible to vote

38265

% of resolutions voted

98.39%

% of resolutions voted with management

85.34%

% of resolutions voted against management

14.56%

% of resolutions abstained

0.10%

% of meetings with at least one vote against

managements

64.86%

% of resolutions voted contrary to the proxy

adviser recommendation

9.36%

*LGIM only produce reports at quarter end, so this information is shown as at 31 March 2020.

c.                   Most significant votes over the year

LGIM define their process for determining the “most significant” votes as follows:

“As regulation on vote reporting has recently evolved with the introduction of the concept of ‘significant vote’ by the EU Shareholder Rights Directive II, LGIM wants to ensure we continue to help our clients in fulfilling their reporting obligations. We also believe public transparency of our vote activity is critical for our clients and interested parties to hold us to account.

For many years, LGIM has regularly produced case studies and/ or summaries of LGIM’s vote positions to clients for what we deemed were ‘material votes’. We are evolving our approach in line with the new regulation and are committed to provide our clients access to ‘significant vote’ information.

In determining significant votes, LGIM’s Investment Stewardship team takes into account the criteria provided by the Pensions & Lifetime Savings Association consultation (PLSA). This includes but is not limited to:

  • High profile vote which has such a degree of controversy that there is high client and/ or public scrutiny;
  • Significant client interest for a vote: directly communicated by clients to the Investment Stewardship team at LGIM’s annual Stakeholder roundtable event, or where we note a significant increase in requests from clients on a particular vote;
  • Sanction vote as a result of a direct or collaborative engagement;
  • Vote linked to an LGIM engagement campaign, in line with LGIM Investment Stewardship’s 5-year ESG priority engagement

We will provide information on significant votes in the format of detailed case studies in our quarterly ESG impact report and annual active ownership publications.

If you have any additional questions on specific votes, please note that we publicly disclose our votes for the major markets on our website. The reports are published in a timely manner, at the end of each month and can be used by clients for their external reporting requirements.

Vote 1

Company name

BP PLC

Date of vote

21/05/2019

 

Summary of the resolution

Resolution 22 - Approve the Climate Action 100+ Shareholder Resolution on Climate Change Disclosures.

How you voted

For

 

Where you voted against management, did you communicate your intent to the company ahead of the vote?

LGIM publicly communicates its vote instructions in monthly regional vote reports on its website with the rationale for all votes against management. It is our policy not to engage with our investee companies in the three weeks prior to an AGM as our engagement is not limited to shareholder meeting topics.

 

 

 

 

 

 

Rationale for the voting decision

LGIM and other major shareholders put forward a proposal calling on BP to explain how its strategy is consistent with the Paris Agreement on climate change. LGIM worked with the board of BP to secure its support for the motion. At the company’s annual general meeting, the proposal was passed with overwhelming approval from shareholders. We have since met BP repeatedly – including its chair and incoming CEO – to advise on implementing the resolution. The company has announced industry-leading targets: net zero emissions from its operations, net zero carbon emissions from the oil and gas it digs out of the ground, and a 50% reduction in the carbon intensity of all the products it sells.

Outcome of the vote

99.1% support

Implications of the outcome eg were there any lessons learned and what likely future steps will you take in response to the outcome?

LGIM continues to engage with the company and monitor progress.

 

On which criteria (as explained in the cover email) have you assessed this vote to be "significant"?

This is the first shareholder resolution put forward by LGIM.

Vote 2

Company name

BAYER AG

Date of vote

26/04/2019

Summary of the resolution

Res 2 - Approve Discharge of Management Board for Fiscal 2018

How you voted

Against

Where you voted against management, did you communicate your intent to the

company ahead of the vote?

LGIM publicly communicates its vote instructions in monthly regional vote reports on its website with the rationale for all votes against management. It is our policy not to engage with our investee companies in the three weeks prior to an AGM as our engagement is not limited to shareholder meeting topics.

 

 

 

 

 

 

 

Rationale for the voting decision

Following its acquisition of agribusiness Monsanto, Bayer was asked to pay millions in damages in several court cases where plaintiffs claimed that Monsanto’s glyphosate- based weedkiller RoundUp was linked to causing cancer. The damages were reduced upon appeal, and Bayer was adamant that RoundUp was not carcinogenic. We are concerned that the Bayer supervisory and management boards had not fully considered the significant risks related to glyphosate litigation in the US. Although at the time of the merger agreement in 2016 there were only about a hundred such lawsuits, by the end of 2019, the number grew to over 40,000. From the finalisation of the acquisition in May 2018 until July 2019 Bayer’s share price fell by approximately 45%. Unrelated to the litigation, we have previously discussed the importance of a lead independent director, particularly in times of crisis. We spoke to the company ahead of its 2019 AGM to gain a better understanding of the decision-making process in relation to the Monsanto acquisition and the legal advice it received for litigation risk. We recommended establishing advisory and M&A committees, staffed by members appointed with specific expertise; appointing non-executive directors with specific expertise; and appointing new executives. In addition, we suggested that these incidents should have a bearing on remuneration awarded for the year.

Outcome of the vote

44.5% for; 55.5.% against

Implications of the outcome eg were there any lessons learned and what likely future steps will you take in

response to the outcome?

The company subsequently established a glyphosate litigation committee to monitor litigation and consult with the board. We will continue to pay close attention to the litigation and any possible settlements, as well as the decisions of Bayer’s remuneration committee. The company also announced that the chair would step down at the 2020 AGM.

On which criteria (as explained in the cover email) have you assessed this

vote to be "significant"?

Vote of no confidence, a rare escalation step.

Vote 3

Company name

ESSSILORLUXOTTICA

Date of vote

16/05/2019

 

Summary of the resolution

Res A, B and C: Elect Wendy Evrard Lane as Director; Elect Jesper Brandgaard as Director; Elect Peter James Montagnon as Director

How you voted

For

Where you voted against management, did you communicate your intent to the company ahead of the vote?

LGIM publicly communicates its vote instructions in monthly regional vote reports on its website with the rationale for all votes against management. It is our policy not to engage with our investee companies in the three weeks prior to an AGM as our engagement is not limited to shareholder meeting topics.

 

 

 

 

 

 

Rationale for the voting decision

In 2018, French lenses producer Essilor merged with Italian frame manufacturer Luxottica. Upon conclusion of the merger, the executive chair of Luxottica´s holding company (Delfin) owned 32.7% of the merged company’s share capital. Under the terms of the merger agreement, the aforementioned executive chairman and Essilor’s executive vice-chairman were both given equal powers. A board was also established, with membership split equally between Essilor and Delfin. In March 2019 an internal disagreement between the two heads of the merged entity occurred. Two of the company’s shareholders – Comgest and Valoptec – put forward three board nominees in a bid to break the impasse. We contacted EssilorLuxottica to discuss the issue, but received no reply. We engaged extensively with Comgest, Valoptec and the board nominees. We publicly announced our support for the board nominees ahead of the AGM to ensure the current board knew our intentions and to raise awareness to the other shareholders.

Outcome of the vote

Res A: 43.7% support ; Res B: 34.1% support

 

 

 

Implications of the outcome eg were there any lessons learned and what likely future steps will you take in response to the outcome?

Before the AGM was due to take place, the company’s board announced that it had reached a governance agreement and all disputes had been resolved. EssilorLuxottica’s CEOs had been tasked with focusing on the integration process and to accelerate the simplification of the company. The board confirmed that neither CEO would seek to become the leader of the combined entity. The board nominees received significant support from the company’s independent shareholders, equalling respectively 43.7% and 35% of the total votes. We continue to engage with the company for the benefit of our clients.

 

On which criteria (as explained in the cover email) have you assessed this vote to be "significant"?

Escalation of engagement. We publicly announced our support for the board nominees ahead of the AGM to ensure the current board knew our intentions and to raise awareness to the other shareholders.

Vote 4

Company name

FIRSTGROUP

Date of vote

25/06/2019

Summary of the resolution

Resolution a - Remove Wolfhart Hauser as Director

How you voted

For

Where you voted against management, did you communicate your intent to the company ahead of the vote?

LGIM publicly communicates its vote instructions in monthly regional vote reports on its website with the rationale for all votes against management. It is our policy not to engage with our investee companies in the three weeks prior to an AGM as our engagement is not limited to shareholder meeting topics.

 

 

 

 

 

 

 

 

 

Rationale for the voting decision

The performance of the company had been weak for a number of years. Following a profit warning in February 2018, the chief executive stepped down.

On 25 June 2019, shareholder activist Coast Capital convened a shareholder meeting to appoint seven directors to the board of the company and remove six company directors including the board chair and the chief executive.

Coast Capital made strategy proposals such as: the company exits its rail business; separate the company’s US and UK assets; the immediate payment of a dividend.

David Martin, one of the nominees of the activist, failed to confirm his intention to stand for election before the deadline. The resolution on his appointment to the board could not therefore be validly voted on by shareholders.

LGIM engaged directly with both sides: the company’s Senior Independent Director (SID) and the activist. We also consulted other top shareholders on their views.

LGIM decided to cast a vote against the board chair to signal our concerns around the pace of execution of the strategy and poor performance. We supported the rest of the board and opposed the activist’s nominees.

Outcome of the vote

29.3% for

 

 

 

 

 

Implications of the outcome eg were there any lessons learned and what likely future steps will you take in response to the outcome?

Many of the company’s top shareholders publicly preannounced their support to the activist’s proposals.

More than 20% of shareholders voted in favour of several resolutions against the board’s recommendations. The activist’s proposal to remove the chair from the board obtained 29% of support from shareholders. The chair took into account the shareholder vote and decided to leave the board.

The SID led the succession process and David Martin, ex-CEO of Arriva but also one of the original candidates put forward by the activist, was appointed board chair.

LGIM subsequently met the new board chair to discuss the composition of the board, but importantly also the performance of the management team and execution of the strategy.

On which criteria (as explained in

the cover email) have you assessed this vote to be "significant"?

The activist's proposals were potentially disruptive for the company.