Thorntons Pension Scheme (the “Scheme”)

Implementation Statement for the year to 31 May 2020

This statement sets out how, and the extent to which, the stewardship (voting and engagement) policies set out in the Statement(s) of Investment Principles (‘SIPs’) produced by the Trustee have been followed during the year to 31 May 2020. This statement has been produced in accordance with the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 the Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018 and the Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019 as amended and the guidance published by the Pensions Regulator.

The Trustee considers that its polices in relation:

  1. the exercise of the rights (including voting rights) attaching to the investments has been followed during the year; and
  2. undertaking engagement activities in respect of the investments (including the methods by which, and the circumstances under which, trustees would monitor and engage with relevant persons about relevant matters) have been followed during the year.

Details of how and the extent to which, in the opinion of the Trustee, these policies have been followed during the year are set out in the "Policy on ESG, Stewardship and Climate Change" and "Engagement" sections below.

Investment Objectives of the Scheme

The Trustee believes it is important to consider the policies in place in the context of the investment objectives it has set. The Trustee has agreed a number of objectives to help guide it in its strategic management of the assets and control of the various risks to which the Scheme is exposed

The Trustee’s primary objectives are as follows:

  • To make sure that the Trustee can meet its obligations to the beneficiaries of the Scheme taking into account the funding level of the Scheme and the strength of covenant of the Employer; and
  • To pay due regard to the interest of the Employer on the size and incidence of its contribution payments.

Given the nature of the liabilities, the investment time horizon of the Scheme is potentially long-term (i.e. several decades). However, any future opportunities to transfer liabilities (fully or partially) to an insurance company (e.g. through the purchase of bulk annuities with an insurance company) may shorten the Scheme’s investment horizon significantly

The Trustee understands, following discussions with the Employer, that the Employer is willing to accept some degree of volatility in its contribution requirements in order to reduce the long-term cost of the Scheme’s benefits.

Policy on ESG, Stewardship and Climate Change

The Scheme’s SIP includes the Trustee’s policy on Environmental, Social and Governance (‘ESG’) factors, stewardship and Climate Change. This policy sets out the Trustee’s beliefs on ESG and climate change and the processes followed by the Trustee in relation to voting rights and stewardship. A further review of the Trustee’s policy on ESG factors, stewardship and Climate Change has taken place after 31 May 2020, but prior to the signing of the accounts. The SIP was updated in September 2020 to reflect the revised policy.

The following paragraphs set out the work undertaken during the year relating to the Trustee’s policy on ESG factors, stewardship and climate change, and also how the Trustee’s engagement and voting policies were followed and implemented during the year.

Engagement

  • With the assistance of its investment consultant, Mercer Limited, the Trustee reviews the mandates of Legal and General Investment Management (“LGIM”), BlackRock, Aviva Investors (“Aviva”), Ninety One, Hermes Investment Management (“Hermes”) and Mercer Global Investments, together the (“Investment Managers”), in relation to ESG factors, including climate change, on both an ad hoc and ongoing basis. The Trustee will not consider the ESG policies of Additional Voluntary Contributions provider(s) and associated investment funds as these are a small proportion of total assets. Further details relating to the Investment Managers are given below.
  • When the Trustee received the training outlined above in August 2019, it also undertook a review of the ESG ratings (determined by the investment consultant) and policies of the Scheme’s current investment mandates.
  • The review included a benchmarking study, by asset class / mandate type comparing the ESG rating of the Scheme’s mandates to those of the wider Mercer universe. The results showed that the ESG ratings of the Scheme’s investments are generally above average. The Trustee will repeat the exercise annually and monitor developing trends.
  • The review also included summary commentary from the investment consultant explaining the rationale for the ESG rating of each mandate. This was discussed during the 7 August 2019 Trustee meeting. The Trustee was encouraged by the level of ESG integration into the investment processes of its managers but acknowledged that there is scope to go further in some areas and will continue to monitor developments by its managers and in the wider market.
  • The Scheme’s investment consultant also produces a quarterly investment performance report which is reviewed by the Trustee and is discussed as a standing item during Trustee meetings. The report includes ratings (both general and specifically relating to ESG) from the investment consultant’s manager researchers. The report also includes how each investment manager is delivering against its specific mandate.
  • The Trustee does not meet with the investment managers at each meeting but will receive presentations from them periodically and if the Scheme’s monitoring process identifies any significant issues that need to be addressed. Managers are expected to comment on ESG issues where relevant as part of this process
  • All of the managers remained generally highly rated during the year, taking into account the asset class / investment structure of each mandate. Where managers may not be highly rated from an ESG perspective the Trustee will continue to monitor.
  • When implementing a new manager the Trustee will consider the ESG rating of the manager as part of the manager selection process (no new managers were introduced during the Scheme year).
  • The Trustee expects the Scheme’s investment managers to undertake engagement activities on relevant matters including ESG factors (including climate change considerations) and to exercise voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code. Managers who are FCA registered are expected to report on their adherence to the UK Stewardship Code on an annual basis.
  • The Trustee has recently requested that the Investment Managers confirm compliance with the principles of the UK Stewardship Code. All managers confirmed that they are signatories of the current UK Stewardship Code and plan to submit the required reporting to the Financial Reporting Council by 31 March 2021 in order to be on the first list of signatories for the UK Stewardship Code 2020 that took effect on 1 January 2020

Voting Activity

The Scheme was invested solely in pooled funds over the year and managers have therefore voted on behalf of the Trustee. The Trustee has no legal right to the votes under these arrangements and the Trustee accepts it has limited influence on the managers. However, as noted above, the Trustee expects managers to exercise voting rights and stewardship obligations attached to the investments, in accordance with their own corporate governance policies and current best practice, including the UK Corporate Governance Code and UK Stewardship Code.

Investment managers are expected to provide voting summary reporting on a regular basis, at least annually. The reports will be reviewed by the Trustee to ensure that they align with the Trustee’s policy.

The Scheme’s equities are all managed passively by BlackRock in the following pooled funds:

  • Aquila Life UK Equity Index Fund;
  • Aquila Life World (ex UK) Equity Index Fund;
  • Aquila Life Currency Hedged World (ex UK) Equity Index Fund;
  • Aquila Life Global Minimum Volatility Fund; and
  • BlackRock Emerging Markets Index Sub-Fund

BlackRock uses the BlackRock Investment Stewardship (“BIS”) team to formulate its voting policy. Voting decisions are made by members of the team with input from investment colleagues as required and in accordance with BlackRock’s Global Corporate Governance and Engagement Principles and custom market-specific voting guidelines. The BIS team subscribes to research from the proxy advisory firms Institutional Shareholder Services and Glass Lewis. There is therefore indirect use of proxy voters by the Trustee. However, BlackRock does not simply follow any single proxy research firm’s voting recommendations and uses several other inputs, including a company’s own disclosures, and BlackRock’s record of past engagements, in its voting and engagement analysis.

The Trustee does not use the direct services of a proxy voter.

When the Trustee receives a periodic presentation from BlackRock it will ask the presenters to highlight key voting and engagement activity, as well as the impact on the portfolio.

Information on voting activity has been provided by BlackRock and is summarised below, including commentary provided by them on the most significant votes that have been undertaken on the Trustee’s behalf during the Scheme year.

Aquila Life Global Minimum Volatility Fund

  • There have been 411 votable meetings over the year, in which there were a total of 5,722 votable proposals. BlackRock voted on 98% of the proposals on which they were eligible, voting with management 95% of the time.
  • BlackRock noted a significant vote on behalf of the Trustee in respect of Goldcorp Inc, along with other major shareholders. A proposal was put forward to enter into a merger agreement with Newmont Corporation. The proposal was passed with an overwhelming majority. Shareholders will receive $0.02 per share in cash and 0.3280 of a Newmont share per share of Goldcorp. The merger consideration represents a premium of c25% to the closing price 60 days prior to the announcement.

Aquila Life World (ex UK) Equity Index Fund & Aquila Life Currency Hedged World (ex UK) Equity Index Fund

  • There have been 2,114 votable meetings over the year, in which there were a total of 25,983 votable proposals. BlackRock voted on 94% of the proposals on which they were eligible, voting with management 89% of the time.
  • BlackRock noted a significant vote on behalf of the Trustee in respect of Anadarko Petroleum Corporation (APC). The board was seeking shareholder approval to be acquired by Occidental Petroleum Corporation. The vote passed and APC shareholders will receive $59.00 in cash and 0.2934 Occidental shares per APC share. The offer was valued at $76.67 per share on the date of announcement (based on the 8 May 2019 closing price), approximately $38.5 billion in aggregate. APC shareholders are expected to own approximately 16 percent of the combined company. There was unanimous Board Support with Fairness Opinion from Evercore, Goldman Sachs and Jefferies.
  • Another significant vote was made on behalf of the Trustee in respect to Liberty Property Trust (LPT). LPT has entered into a merger agreement with Prologis, Inc. with approval from the shareholders. Shareholders will receive 0.675 Prologis shares per share of LPT. The merger consideration represents a premium of c21% to the closing price a day prior to announcement.

BlackRock Emerging Markets Index Sub-Fund

  • There have been 2,090 votable meetings over the year, in which there were a total of 19,984 votable proposals. BlackRock voted on 97% of the proposals on which they were eligible, voting with management 88% of the time
  • BlackRock noted a significant vote on behalf of the Trustee in respect of Autohome Inc.. The board was seeking approval of a new board member Junling Liu. The vote passed without agreement from BlackRock. BlackRock voted on behalf of the Trustee against due to two reasons. Junling Liu is serving on two public company boards in addition to being a CEO, which BlackRock believes raises substantial concerns about his ability to exercise sufficient oversight on this board. They also voted against nominating Junling for failure to adequately account for diversity on the board.

Aquila Life UK Equity Index Fund

  • There have been 1,104 votable meetings over the year, in which there were a total of 14,999 votable proposals. BlackRock voted on 98% of the proposals on which they were eligible, voting with management 93% of the time.
  • BlackRock noted a significant vote on behalf of the Trustee in respect of Arthur J. Gallagher & Co. The Shareholders proposed the board to adopt a policy on board diversity. The vote did not pass with support from BlackRock and the board. BlackRock voted against on this occasion because the company already has policies in place to address these issues. This is reflected in the board, which is composed of ten members of whom two are women and one is racially/ethnically diverse. Whilst BlackRock voted against on this occasion, the Trustee notes (from BlackRock’s Investment Stewardship Annual Report) BlackRock’s clear expectations of directors to ensure boards have the diversity, capabilities, and independence to effectively oversee management and help drive long-term value creation. BlackRock opposed the re-election of over 5,100 directors during 2020 due to concerns that these characteristics were lacking or that the actions taken by the board were not aligned with the interests of long-term shareholders.

The Trustee is comfortable with the voting summaries above and has reviewed BlackRock’s approach to voting during the Scheme year to 31 May 2020. The Trustee is of the view that BlackRock’s approach is aligned with the policy outlined in the Scheme’s Statement of Investment Principles. Going forwards, the Trustee will be more active in reviewing and, if appropriate, challenging voting activity.