Westcode Semiconductors Limited Pension Scheme Implementation Statement - September 2021

Background and Implementation Statement

Background

The Department for Work and Pensions (‘DWP’) is increasing regulation to improve disclosure of financially material risks. This regulatory change recognises Environmental, Social and Governance (ESG) factors as financially material and schemes need to consider how these factors are managed as part of their fiduciary duty. The regulatory changes require that schemes detail their policies in their Statement of Investment Principles (SIP) and demonstrate adherence to these policies in an implementation report.

Statement of Investment Principles (SIP)

The Scheme has updated its SIP in response to the DWP regulation to cover:

• policies for managing financially material considerations including ESG factors and climate change
• policies on the stewardship of the investments

The SIP can be found online at the web address https://www.littelfuse.com/legal/westcode-semiconductors-limited-pension-scheme-sip.aspx. Changes to the SIP are detailed on the following pages.

Implementation Statement

This Implementation Statement is to provide evidence that the Scheme continues to follow and act on the principles outlined in the SIP. This report details:

• actions the Trustees have taken to manage financially material risks and implement the key policies in its SIP
• the current policy and approach with regards to ESG and the actions taken with fund managers on managing ESG risks
• the extent to which the Trustees have followed policies on engagement, covering engagement actions with its fund managers and in turn the engagement activity of the fund managers with the companies they invest
• voting behaviour covering the reporting year for and on behalf of the Scheme including the most significant votes cast by the Scheme or on its behalf

Summary of key actions undertaken over the Scheme reporting year

No key actions were undertaken over the Scheme reporting year.

Implementation Statement

This report demonstrates that the Westcode Semiconductors Limited Pension Scheme has adhered to its investment principles and its policies for managing financially material considerations including ESG factors and climate change.

Managing risks and policy actions DB

Risk / Policy	Definition	Policy	Actions
Interest rates and inflation	The risk of mismatch between the value of the Scheme assets and present value of liabilities from changes in interest rates and inflation expectations.	To hedge at least the funding level of the Scheme using Liability Driven Investment funds.	No key actions.
Liquidity	Difficulties in raising sufficient cash when required without adversely impacting the fair market value of the investment.	To maintain a sufficient allocation to liquid assets so that there is a prudent buffer to pay members benefits as they fall due (including transfer values).	No key actions.
Market	Experiencing losses due to factors that affect the overall performance of the financial markets.	To remain appropriately diversified and hedge away unrewarded risks, where affordable and practicable.	No key actions.
Credit	Default on payments due as part of a financial security contract.	To diversify this risk by investing in a range of credit markets across different geographies and sectors.	No key actions.
Environmental, Social and Governance	Exposure to Environmental, Social and Governance factors, including but not limited to climate change, which can impact the performance of the Scheme’s investments.	To appoint managers who satisfy the following criteria, unless there is a good reason why the manager does not satisfy each criteria: Responsible Investment (‘RI’) Policy / Framework Implemented via Investment Process A track record of using engagement and any voting rights to manage ESG factors ESG specific reporting UN PRI Signatory The Trustees monitor the managers on an ongoing basis.	More details of the ESG policy and how it was implemented are presented later in this report.
Currency	The potential for adverse currency movements to have an impact on the Scheme’s investments.	Hedge currency risk, where appropriate to do so.	No key actions.
Non-financial	Any factor that is not expected to have a financial impact on the Scheme’s investments.	Non-financial matters are not taken into account in the selection, retention or realisation of investments.	No key actions.

Changes to the SIP

Policies added to the SIP
Date updated: July 2020
How the investment managers are incentivised to align their investment strategy and decisions with the Trustee’s policies.	As the Scheme is invested in pooled funds, there is not scope for these funds to tailor their strategy and decisions in line with the Trustees’ policies. However, the Trustees will invest in a portfolio of pooled funds that are aligned to the strategic objective.
How the investment managers are incentivised to make decisions based on assessments of medium to long-term financial and non-financial performance of an issuer of debt or equity and to engage with them to improve performance in the medium to long-term.	The Trustees will review the investment managers’ performance relative to medium and long-term objectives. The Trustees will monitor the investment managers’ engagement and voting activity on an annual basis as part of their ESG monitoring process. The Trustees will not incentivise the investment managers to make decisions based on non-financial performance.
How the method (and time horizon) of the evaluation of investment managers’ performance and the remuneration for their services are in line with the Trustee’s policies.	The Trustees will review the performance of all of the Scheme’s investments on a net of cost basis to ensure a true measurement of performance versus investment objectives. The Trustees will evaluate performance over the time period stated in the investment managers’ performance objective, which is typically 3 to 5 years. Investment manager fees are reviewed annually to make sure the correct amounts have been charged and that they remain competitive.
The method for monitoring portfolio turnover costs incurred by investment managers and how they define and monitor targeted portfolio turnover or turnover range.	The Trustees do not directly monitor turnover costs. However, the investment managers are incentivised to minimise costs as they are measured on a net of cost basis.
The duration of the Scheme’s arrangements with the investment managers	The duration of the arrangements is considered in the context of the type of fund the Scheme invests in. For open-ended funds, the holding periods are flexible and the Trustees will from time-to-time consider the appropriateness of these investments and whether they should continue to be held.

Implementing the current ESG policy and approach

ESG as a financially material risk

The SIP describes the Scheme’s policy in relation to ESG as a financially material risk. This page details how the Scheme’s ESG policy is implemented, while the following page outlines Isio’s assessment criteria as well as the ESG beliefs used in evaluating the Scheme’s managers’ ESG policies and procedures. The rest of this statement details our view of the managers, our actions for engagement and an evaluation of the stewardship activity.

The below table outlines the areas the Scheme’s investment managers are assessed on when evaluating their ESG policies and engagements. The Trustees intend to review the Scheme’s ESG policies and engagements periodically to ensure they remain fit for purpose.

Implementing the Current ESG Policy

Areas for engagement	Method for monitoring and engagement	Circumstances for additional monitoring and engagement
Environmental, Social, Corporate Governance factors and the exercising of rights and engagement activity	Through the manager selection process ESG considerations will form part of the evaluation criteria The Scheme’s investment advisor Isio will monitor managers’ ESG policies on an ongoing basis	The manager has not acted in accordance with their policies and frameworks.

Areas of assessment and ESG beliefs

Risk Management	ESG factors are important for risk management and can be financially material. Managing these risks forms part of the fiduciary duty of the Trustees. The Trustees believe that ESG integration leads to better risk adjusted outcomes and want a positive ESG tilt to the investment strategy.
Approach / Framework	The Trustees want to understand how asset managers integrate ESG within their investment process and in their stewardship activities. The Trustees believe that sectors aiming for positive social and environmental impacts may outperform as countries transition to more sustainable economies. Where possible the investment strategy will allocate to these sectors. The Trustees will consider the ESG values and priority areas of the stakeholders and sponsor and use these to set ESG targets.
Voting & Engagement	ESG factors are relevant to all asset classes and, whether equity or debt investments, managers have a responsibility to engage with companies on ESG factors. The Trustees believe that engaging with managers is more effective to initiate change than divesting and so will seek to communicate key ESG actions to the managers in the first instance. The Trustees want to understand the impact of voting & engagement activity within their investment mandates.
Reporting & Monitoring	ESG factors are dynamic and continually evolving, therefore the Trustees will receive training as required to develop their knowledge. The Trustees will seek to monitor key ESG metrics within their investment portfolio to understand the impact of their investments.
Collaboration	Asset managers should be actively engaging and collaborating with other market participants to raise ESG investment standards and facilitate best practices as well as sign up and comply with common codes such as UNPRI and TCFD. The Trustees should seek to sign up to a recognised ESG framework to collaborate with other investors on key issues.

ESG summary and engagement with the investment managers

The Scheme has not yet carried out an Impact Assessment.

Engagement

As the Scheme invests via fund managers, the managers provided details on their engagement actions including a summary of the engagements by category for the 12 months to 5 April 2021.

Fund name	Engagement summary	Commentary
BlackRock Dynamic Diversified Growth Fund	Total Engagements: 938 Environmental: 584 Social: 411 Governance: 822 Engagements include multiple company meetings during the year with the same company. Most engagement conversations cover multiple topics.	BlackRock advise that their Investment Stewardship team engages with companies to provide feedback on their practices and inform their voting including, focusing on ESG considerations where there may be a long-term impact for these companies. While BlackRock consider ESG in their engagements and make use of key performance indicators (KPIs) there is no evidence of how these are quantified.
M&G Total Return Credit Fund	Total Engagements: 11 Environmental: 6 Governance: 6	M&G’s activities are consistent with their ESG policies and they have a systematic approach around engagements in which specific objectives are outlined in advance and measured based on the outcomes from the engagements. Analysts are expected to have a more granular awareness of key ESG risks that impact the individual issues they monitor. Where engagement is deemed to be necessary, analysts engage with issuers supported by M&G’s CF&S Team, allowing them to leverage their expertise in sustainability themes. M&G monitor the success of engagement by assessing whether they have met their objective and log this on a central system. Example of significant engagement: BP PLC – M&G engaged with BP PLC seeking enhanced carbon data and emissions disclosure. BP stated its aim to be recognised as an industry leader in the transparency of its reporting. BP believe they had made good progress in this space and, after listening to investor feedback, confirmed it plans to respond to M&G regarding the requested data.
Schroders Diversified Growth Fund	Total Engagements: 885 Environmental: 471 Social: 259 Governance: 747	Voting and engagement is managed centrally by the Sustainable Investment Team. Schroders are able to evidence a number of voting and engagement examples within underlying funds that are consistent with their overarching policy. Outcomes for portfolio companies of underlying funds are set at the beginning of each engagement and are measured and monitored over time.
LGIM LDI Funds	N/A LGIM have not yet been able to provide this level of reporting for their LDI Fund range. We are working with LGIM to enable them to provide this in the future.	LGIM regularly monitor companies and, where engagements are unsuccessful, the team will assess where problems arose and new approaches to be employed. LGIM engage with regulators, governments and other industry participants to address long-term structural issues. LGIM believe in an active ownership approach. Therefore they aim to leverage the wider capabilities of the global firm, to actively engage with companies, to create positive change and value. LGIM analyse ESG-related criteria in the assessment of counterparties through LGIM’s updated proprietary ESG tools and dialogue between ESG specialists and active investment teams.

Voting (for equity/multi asset funds only)

As the Scheme invests via fund managers, the managers provided details on their voting actions including a summary of the activity covering the reporting year up to 5 April 2021. The managers also provided examples of any significant votes.

Fund name	Voting summary	Examples of significant votes	Commentary
BlackRock Dynamic Diversified Growth Fund	Meetings eligible to vote at: 977 Resolutions eligible to vote for: 12,398 Resolutions voted on: 96.6% Resolutions voted with management: 90.1% Resolutions voted against management: 5.7% Resolutions abstained from: 0.9%	No examples of significant votes were given. However, BlackRock provided a record of all votes cast over the period.	BlackRock use Institutional Shareholder Services’ (ISS) electronic platform to execute vote instructions. BlackRock advised that they work with and closely review ISS’ work however, aside from an annual due diligence and weekly review meetings, it is not evident how BlackRock monitor these processes.
Schroders Diversified Growth Fund	Meetings eligible to vote at: 1,711 Resolutions eligible to vote for: 20,478 Resolutions voted on: 99.6% Resolutions voted with management: 91.9% Resolutions voted against management: 7.7% Resolutions abstained from: 0.3%	No examples of significant votes were given. However, Schroders provided a record of all votes cast over the period.	Voting and engagement is managed centrally by the Sustainable Investment Team. Schroders are able to evidence a number of voting and engagement examples within underlying funds that are consistent with their overarching policy. Outcomes for portfolio companies of underlying funds are set at the beginning of each engagement and are measured and monitored over time.

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This report has been prepared for the sole benefit of the Trustees of the Westcode Semiconductors Limited Pension Scheme and based on their specific facts and circumstances and pursuant to the terms of Isio Group Limited’s services contract. It should not be relied upon by any other person. Any person who chooses to rely on this report does so at their own risk. To the fullest extent permitted by law, Isio Group Limited accepts no responsibility or liability to that party in connection with the Services.

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