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Asda Group Pension Scheme Statement of Investment Principles Implementation Statement

September 23, 2021 07:40am
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Introduction to this statement

This implementation statement (the “Statement”) is a new addition to the Trustee Report and Accounts and is required by new pensions regulations[1]. Asda Group Pension Scheme Trustees Limited (the “Trustee” or “we”) as trustee of the Asda Group Pension Scheme (the “Scheme”) has prepared this Statement to provide a transparent and accurate review of how we have acted in line with the stewardship and engagement policies set out in the Statement of Investment Principles (the “SIP”) during the year.

The purpose of this Statement is to improve accountability, highlighting the proactive steps taken by us and our service providers to ensure members’ assets are invested responsibly and for the long-term.

This Statement includes details of:

  • Our compliance with our stewardship and voting policies (the “Stewardship Policy”);

  • Any changes made to the Stewardship Policy during the year; and

  • Specifically, how our investment managers voted and engaged on our behalf where relevant

This Statement has been prepared by the Trustee to cover the accounting year ending on 5 April 2021.

To the best of its knowledge, the Trustee has followed all the SIP’s policies during the period.

Since the end of the accounting year, the Trustee has completed its Buy-out (explained below) by converting the buy-in policy to a buy-out policy. As a result, the responsibility for meeting all members’ benefits has now been transferred from the Trustee to Rothesay Life plc. Therefore, reviewing the stewardship and engagement policies set out in the SIP will no longer be relevant in future years.

This Statement is publicly available at https://corporate.asda.com/asda-group-pension-scheme-statement-of-investment-principles-implementation-statement

Section 1: Our investment policies

Review of our Statement of Investment Principles

During the year, the Trustee undertook a full review of the Scheme’s SIP and the SIP was formally updated in September 2020. The SIP was updated to clarify policies and requirements applicable to the Scheme’s investment managers and confirmed the Trustee’s position on responsible investment. The intent of these revised policies is to improve accountability and to more clearly align with environmental, social and governance initiatives set at a legislative level.

What is our investment objective?

The primary objective of the Trustee is to pay members’ benefits in full as they fall due (the “Primary Objective”). To this end, the Trustee, in consultation with the Scheme’s sponsoring employer, Asda Stores Limited, has appointed Rothesay Life plc (the “Insurance Provider”) to provide a buy-in policy for the Scheme. The buy-in policy is designed to meet all members’ benefit payments as they fall due.

The buy-in policy was implemented on 16 October 2019. The buy-in policy has subsequently been converted into a buy-out policy on 12 July 2021 (the “Buy-out ”). At that point, the responsibility for meeting members’ benefits was transferred from the Trustee to the Insurance Provider. To support the Buy-out the Trustee has been realising the remaining investments held in the Scheme’s name.

In the interim period, the Trustee retained overall responsibility for reviewing the ongoing operation of and risks associated with the buy-in policy. This includes, but is not limited to, the Insurance Provider’s ongoing credit quality and the timeliness and accuracy of payments made to the Scheme.

Given that the Scheme did not directly or indirectly hold assets such as public equities in the reporting year there is limited voting or engagement activity that the Trustee can report on in this Statement.

What is our responsible investment policy?

The Trustee recognises that being a responsible investor can improve financial outcomes. The Trustee considers responsible investment to be the integration of financially material environmental, social and governance factors (including the potential impact of climate change) into investment decisions where financial risk and / or return could be materially affected (“ESG Factors”).

ESG Factors are taken into account in relation to the Trustee’s investment decisions where the Trustee is advised by its professional adviser that they are relevant financially material considerations or where, in relation to any delegated decision making, its fiduciary manager or other investment manager considers them relevant to the selection, retention or realisation of investments.

In the context of the Buy-out and in relation to the selection and appointment of the Insurance Provider and the buy-in policy, relevant aspects of the Insurance Provider's corporate governance and approach to risk management were assessed before implementing the buy-in policy.

Given that most of the Scheme’s assets are now held in a buy-in policy, the Trustee's expectation is that the scope for meaningful responsible investment over the appropriate time horizon of the remaining investments will be significantly reduced. The Trustee considers that the appropriate time horizon of the investments is when the Buy-out is achieved.

Section 2: How our policies were implemented

What is stewardship?

The Trustee believes that “stewardship” is the responsible allocation, management and oversight of capital to create long-term value for our members, which should also lead to sustainable benefits for the economy, the environment and society. In practice, stewardship is affected through exercising our right to vote on any shares owned by the Scheme and engaging with the management of any companies or properties where an investment has been made.

What is our Stewardship Policy?

The Trustee reviewed and considered its Stewardship Policy during the reporting year and confirmed its Stewardship Policy in September 2020. Our position on Stewardship over the year was as follows:

“The Trustee’s policy in relation to the exercise of any rights including voting rights attached to investments is normally to delegate relevant decision making to its investment managers with monitoring and reporting provided by its fiduciary manager for pooled investments and the relevant investment manager for direct investments. The fiduciary manager encourages investment managers to discharge their responsibilities in respect of investee companies in accordance with the Stewardship Code published by the Financial Reporting Council.”

How have we implemented our Stewardship Policy?

The majority of the Scheme’s assets are invested in the buy-in policy managed by the Insurance Provider. In addition, the Scheme holds some residual investments in private equity, property and hedge funds. The residual investments are being realised to support the Buy-out Objective; however, they have limited liquidity and hence cannot be realised in a short timeframe.

The residual investments are all held indirectly through commingled fund structures. The reason that these investments were implemented in this way is that:

  • It provided access to a broader range of investment opportunities which helped to improve the diversification of investments and manage the risks faced by the Scheme;
  • Fixed costs are shared amongst several investors which reduced our overall costs; and
  • It simplified the implementation process as existing funds can be used with standard terms and agreements, reducing the overall governance burden on both the Trustee and the sponsoring employer

Where investments are made in pooled funds, the Trustee follows the investment managers’ voting and engagement policies. However, the Trustee remains responsible for ensuring that the investment managers that its fiduciary manager appoints act consistently with the Stewardship Policy.

The fiduciary manager has been aligned with our Stewardship Policy throughout the reporting year and has been a signatory of the UN Principles of Responsible Investment since 2011. They are a signatory of the UK Stewardship Code and have a Tier 1 rating from the Financial Reporting Council.

Several core beliefs drive the fiduciary manager’s approach to engagement. They are:

  • Focused governance – spending most time on the most material issues;

  • Transparency – improved reporting enables better quality dialogue, risk awareness and higher engagement impact with investee companies

  • Engagement – through education and close, regular, dialogue; and

  • Integration – leads to consistency, clarity of messaging and improved dialogue leading to greater engagement impact

The Trustee focuses its efforts on any managers where voting and engagement is material.

How were our rights to vote exercised?

None of the Scheme’s residual investments had direct or indirect voting rights attached to them over the course of the reporting period.

The table below is based on the average allocation to each investment manager excluding the buy-in policy:

ManagerAverage % of Scheme assets over the yearNumber of potential votesProportion of votes cast
Private equity manager1.6%0n/a
Credit long/short manager6.8%0n/a
Drug royalties manager2.9%0n/a
Private credit manager0.0%0n/a
Private equity manager0.1%0n/a
Private equity fund of funds manager11.3%0n/a
Private equity manager0.0%0n/a
Private equity manager1.4%0n/a
Hedge fund manager8.3%0n/a
Real estate manager1.9%0n/a
Private equity manager0.1%0n/a
Infrastructure manager1.7%0n/a
Private equity fund of funds manager11.8%0n/a
Private equity energy manager3.2%0n/a
Real estate manager1.4%0n/a
Real estate manager3.6%0n/a
Mining manager1.9%0n/a
Private equity manager2.3%0n/a
Private equity manager3.2%0n/a

[1] The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (as amended)

Use of proxy voting services

Proxy voting services are specialist firms that provide an outsourced voting service. Some investment managers choose to use these services rather than voting themselves. The reasons for using a proxy voting service could include:

  • The investment manager lacks the resource to research each vote and submit votes
  • The investment manager wants to follow a recognised code of practice and the proxy voting service is a cost-effective means of implementing this approach

Using a proxy voting service does not necessarily mean that voting is done poorly. In fact, many professional proxy voting services can devote significant resource to researching AGM motions and are able to follow best practice guides like the Financial Reporting Council’s Stewardship Code.

However, a potential concern is that the investment manager who has chosen to invest in the company is arguably in the best position to vote and engage with the company and, by failing to do so directly, may be signalling indifference to management.

None of the Scheme’s residual investments used proxy voting services over the reporting year.

Section 3: How did the managers engage with our investments

Engagement is purposeful dialogue with a specific and targeted objective to achieve positive change in the interests of beneficiaries, thereby a key action required for delivery good stewardship.

The table below summarises selective examples of the engagement activity of the Scheme’s remaining investment managers where engagement should be a material activity in the management of the assets:

ManagerExamples of engagement activity
Private equity managerOne of the manager’s portfolio companies is a third-party logistics provider. The manager has encouraged management to implement several initiatives that align to core ESG issue areas, including:·     Environmental management: to reduce its environmental impact, the company has collaborated with a cross-industry initiative to achieve a carbon footprint reduction of 2.3 million quarter on quarter whilst moving 11 million more pounds of freight·     Social and labour conditions: the company created a COVID-19 response committee at the onset of the pandemic to develop plans and safety protocols for staff, which included offering COVID-19 testing to employees and introducing additional paid time off for affected employees along with benefits flexibilityThe company helps its customers optimise their transportation networks by reducing empty miles (i.e. the distance travelled by a truck after it makes a delivery to a receiver and then drives back empty to the original shipping location or another shipping location). The manager is supporting management with technology to measure and reduce the impact of empty miles on the firm’s carbon footprint, including planning the transition to electric trucks.
Real estate managerOne of the manager’s more recent investments involved the acquisition and refurbishment of an undermanaged, dilapidated residential, retail and industrial unit in an up-and-coming neighbourhood in Madrid. The manager is in the process of executing a business plan which explicitly aims to contribute towards addressing the chronic undersupply of affordable rental housing for young professionals in this neighbourhood. The refurbishment programme presented several opportunities to integrate environmentally friendly systems and practices:·     The buildings will be mainly refurbished rather than demolished, thereby eliminating the generation of landfill·     Most of the buildings will be retrofitted with various energy efficiency enhancing measures such as double glazing and environmental chambers to control humidity·     Interiors will be furnished with second hand upscaled products rather than low cost / low quality “fast” furniture·     Where construction of new buildings is unavoidable, solar panels will be installed to reduce their total carbon footprint
Infrastructure managerOne of the manager’s portfolio companies was a leading provider of refurbishment, repair and recycling services for electrical transformers and related equipment. Upon acquisition, the manager identified that the firm’s safety performance had meaningful room for improvement. Its number of OSHA recordables and lost work days was relatively high, and the company had experienced a fatality prior to the manager’s ownership.The manager took steps to improve the details and frequency of safety reporting, brought safety to the forefront of each quarterly board of directors meeting, and encouraged and supported the company to improve its culture relating to safety. This included implementing several new policies, procedures and initiating employee- and family-centred safety campaigns.Over the course of the manager’s ownership of the company, the company decreased the number of safety incidents it experienced by almost 90%, despite expanding its operations from four to seven facilities and increasing the firm’s revenues by over 400% and EBITDA by over 200%.
Mining managerFor one of their portfolio companies, the manager supported management’s plan to commit resources to supporting an internship programme targeting the local community. This provided training and allowed participants to earn a professional qualification whilst also enabling members of the local community to benefit from skilled labour opportunities either at the mining site or as part of their corporate operations.

Further information can be downloaded here.

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