Environmental, Social & Governance (ESG) Policy

PensionBee’s approach to integrating material ESG factors into its investments for the long-term benefit of customers, society and the planet

Contents

1. Our approach
2. Exclusionary screens
3. Engagement and active ownership
4. Working with others

Our approach

PensionBee makes pensions simple, so that everyone can look forward to a happy retirement. Because our product is for everyone, PensionBee strives to help all people achieve a happy retirement in the form of financial freedom, good health and social inclusion. In achieving our vision, we aspire to be a role model within corporate society and to lead by example. This means in 2022 we have - and seek to maintain - complete gender parity across our business, our Executive Team and our Board.

We are also very proud that c.42% of our colleagues self identify as coming from a minority ethnic group, something remarkable in financial services. As part of our mission to make pensions simple and engaging we seek to maintain a socially inclusive workplace that not only reflects the rich diversity of the UK population, but that is also a welcoming place for historically underrepresented groups in the pensions and financial services sector.

Every colleague who joins PensionBee is given an equity stake in the company, so we all enjoy and benefit from the future success of our business. We are also an accredited Living Wage employer and a signatory of the Women in Finance Charter, the Race at Work Charter and the Social Mobility Pledge. We are also an investor signatory of the Workforce Disclosure Initiative and produce disclosures under the framework.

In our local community, our colleagues strive to be good role models in the society in which we all live, through our long term partnership with a state secondary school in Poplar, London.

We believe that pursuing all of these pillars of a happy retirement - financial freedom, good health and a socially inclusive society where there are strong corporate role models - will lead to bigger pensions for our customers. As a pensions company with a long-term horizon for our customers, we can look beyond purportedly attractive short-term gains, the pursuit of which can be very damaging to our customers’ lifelong effort of building a sustainable retirement income.

As part of our vision for helping our customers achieve a happy retirement we take our responsibilities as an asset owner to heart. We recognise we have an important role to play in driving positive change through our customers’ ownership in some of the world’s largest companies.

Investment philosophy

PensionBee’s investment philosophy is carried across all its investment plans, to the extent compatible with the desired financial outcomes. PensionBee’s investment philosophy is that investments should be: diversified, low-cost, simple to understand and offer 100% FSCS protection.

In order to deliver these objectives, PensionBee plans are index-based investments via existing pooled funds. This means that our plans generally don’t carry the risks associated with active management and returns will keep in line with the benchmark or index they track.

Moreover, our asset managers, BlackRock, State Street Global Advisors and Legal & General Investment Management, as index portfolio managers, do not have discretion to edit securities outside of the relevant index.

As a result of index-based investing, our customers are the owners of thousands of companies around the world. At PensionBee we believe in the engagement with consequences approach. This means we want to work with all companies to help them become better corporate citizens and create an investment system that rewards positive impact to the planet and society. However, there will always be some companies that it is not possible to engage with. These companies engage in harmful business activities, such as the manufacture of weapons expressly intended for use against civilians, or continually break international norms in line with the United Nations Global Compact (UNGC).

To unify our investment philosophy with our responsibility as an asset owner and position as a corporate role model, our approach to ESG integration is asset-based screening complemented by investment stewardship.

Exclusionary screens

Baseline screens

We seek to apply baseline ESG exclusionary screens where both the asset class and the plan investment objectives allow it. This means firstly that screens can be applied to equities and fixed income but cannot yet as easily be applied to gilts, government bonds, cash or alternative investments such as commodities or REITs. Secondly, this means that another objective, such as values-based investing, will take precedence over any screens.

We have worked with our asset managers to introduce ESG screening for violators of the UNGC and controversial weapons companies.

The equity and fixed income portions of four plans are fully screened for violators of the UNGC and manufacturers of controversial weapons. These are: the Tailored Plan, Tracker Plan, Fossil Fuel Free Plan and Pre-Annuity Plan and they represent over 93% of the asset base.

Our remaining three plans have a specific objective which prevents ESG baseline screening. These objectives are: investing in line with Islamic values, the Shariah Plan; investing only in cash-like instruments, the Preserve Plan; or returning c.4% over a five-year period, the 4Plus Plan. Both the Preserve Plan and the 4Plus Plan also have an actively managed component that further prevents screens from being applied.

In addition to the baseline screens, we are reducing our overall exposure to tobacco and thermal coal over time. The Tailored Plan, our largest plan by customers and assets, is screened for tobacco, thermal coal, nuclear weapons and civilian firearms. Our asset managers use FTSE and MSCI definitions for their exclusions.

Breakdown of exclusions (by screenable plan) in 2022

Further exclusions

We have commitment from our managers to increase baseline screening over time, where there is the availability of building blocks and transaction costs can be kept to a minimum. Indeed, BlackRock, the manager of our most popular plan Tailored, has committed to increase ESG screening, as the building blocks become available.

We introduced our Fossil Fuel Free Plan in response to data from customer surveys that outlined a specific climate-related preference to fully exclude fossil fuel producers. The Fossil Fuel Free Plan screens out companies with proven or probable fossil fuel reserves and companies that provide services to the fossil fuel industry along with tobacco companies, controversial weapons companies and UNGC violators. The index it tracks tilts towards Paris-aligned companies using a Transition Pathway Initiative methodology. We introduced this plan to cater for our customers who no longer believe that engaging with oil companies is possible or desirable.

Our intention is to increase baseline screens in all our screenable plans over time, in line with the views of our customer base. We seek their views through annual surveys, which have a good response rate.

A recent example of customer survey data in action was our July 2021 survey of Fossil Fuel Free Plan customers, which got a 19% response rate. Respondents told us they wanted to expand the exclusion criteria of the plan, to remove companies that provide services to the fossil fuel industry. We approached Legal & General, the manager of the plan, who made a commitment to both removing these companies but also continuing to evolve the plan in the future, in line with the views of investors.

We will continue to take a customer-led approach to future screening in 2022 and beyond.

Engagement and active ownership

Pensions have the collective power and potential to change the world for the better. Trillions of pounds are invested in companies that can improve or harm the planet and society through their business models. At PensionBee we believe that companies that focus on their contribution to society and the planet have a better long term chance of being financially sustainable and bring stronger returns for our members.

Whilst exclusions work for some types of companies, we believe in the engagement and active ownership approach. We think our role at PensionBee is to be a responsible and vigilant asset owner, to help challenge bad corporate behaviour and seek to take our money away from companies that will not engage or propose timelines for appropriate change.

At this stage in our development we invest via pooled funds and this means we are not given individual voting rights for the underlying customer assets. Our managers use direct engagement before votes to advance material sustainability insights to enhance long-term risk adjusted return and then block vote across all the assets.

Therefore our approach to active ownership is to engage regularly with the investment stewardship teams of our managers to articulate our views and expectations. We do this with the purpose of driving up levels of transparency and accountability around their direct engagement activities, applying scrutiny to their voting record and demonstrating our commitment to active ownership. We also seek to drive good corporate behaviour. Where their voting record is not consistent with the interests of our customers or with long-term returns, we seek a full and satisfactory rationale.

We believe that there are acute financial risks associated with investing in companies that damage our customers’ physical and mental health. We also know from studies that diverse leadership teams lead to more innovation and improved financial performance. Being a responsible asset owner means we must campaign for better social inclusion of all people in the UK and in all the companies our customers own.

PensionBee has a number of key areas of focus when it comes to active ownership of customer assets. We use surveys to get a deeper understanding of the areas of most importance to our customers. Data from our 2021 survey of customers in the Tailored Plan shows that the areas of most importance benefit both our customers as investors but also participants in society, the labour force and on this planet.

These are:

• Climate change, carbon emissions and holding companies that harm the environment through their business activities to account
• Gender diversity on boards / senior management teams and gender pay gap reporting
• Ethnic diversity on boards / senior management teams and producing data on ethnicity pay gaps
• Paying the Living Wage and the London Living Wage

Proxy voting services

We know it is not feasible for our managers to vote on thousands of resolutions at tens of thousands of global AGMs each year. Indeed in the future we may ourselves use proxy voting services to assist with routine standard voting on non-controversial issues. However, we expect our managers to closely monitor their proxy voting services globally and demand full transparency of their activities. As the asset steward for our customers’ pension funds we must ensure that every link in the chain of intermediaries is held to account.

Working with others

We recognise that collectively as asset owners we have the power to change the investment system to address most social and environmental issues facing the planet. To do that not only must we work together but we must also try to open up debate and raise awareness with new audiences. This was our intention behind becoming the Make My Money Matter campaign’s first pension pledge partner. It is also why we engage with a number of initiatives as an asset owner that will allow us to act collectively with other investors where appropriate.

We are active participants of ShareAction’s Good Work Coalition, where we regularly co-sign letters with other large institutional investors to demand listed companies pay their staff the Living Wage.

From 2021 onwards PensionBee became an investor signatory and disclosing survey participant of the Workforce Disclosure Initiative (WDI). The WDI aims to improve corporate transparency and accountability on workforce issues, provide companies and investors with comprehensive and comparable data and help increase the provision of good jobs worldwide.

Your views

Everything we do at PensionBee is shaped by the views of our stakeholders. We welcome your thoughts and suggestions on this policy and on our evolving approach to ESG by emailing us on [email protected]