Defined Benefit Pension Scheme

Statement of Investment Principles & Implementation Statement

Statement of investment principles

Introduction

This document constitutes the Statement of Investment Principles (‘the SIP’) required under Section 35 of the Pensions Act 1995 (as amended) for the Gardiner & Theobald Pension Scheme (“the Scheme”). It describes the investment policy being pursued by the Trustees of the Scheme and is in compliance with the Government’s voluntary code of conduct for Institutional Investment in the UK (’the Myners Principles’) and TPR’s Investment Guidance for defined benefit pension schemes. This SIP also reflects the requirements of Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018.

The Scheme Actuary is Robert Wallace of XPS Pensions Group (“XPS”), the Investment Adviser is River and Mercantile Solutions (collectively termed ‘the Advisers’).

The Trustees confirm that, before preparing this SIP, they have consulted with Gardiner & Theobald LLP ('the Sponsoring Employer') and the Scheme Actuary and have obtained and considered written advice from the Investment Adviser.

The Trustees are responsible for the investment of the Scheme’s assets and where they are required to make an investment decision, the Trustees always receive advice from the relevant Advisers first. They believe that this ensures that they are appropriately familiar with the issues concerned.

In accordance with the Financial Services & Markets Act 2000 (‘FSMA’), the Trustees set general investment policy, but have delegated day-to-day investment of the Scheme’s assets to be undertaken through the fiduciary management service of River and Mercantile Investments Limited (‘R&M Solutions’), hereafter referred to as the ‘Investment Manager’.

Scheme Governance

The Trustees are responsible for the governance and investment of the Scheme’s assets. The Trustees consider that the governance structure is appropriate for the Scheme as it allows the Trustees to make the important decisions on investment policy, while delegating the day-to-day aspects to the Investment Manager or the Advisers as appropriate.

The Trustees will review this SIP at least every three years, or following any changes to the investment strategy, and modify it with consultation from the Advisers and the Sponsoring Employer if deemed appropriate. There will be no obligation to change this SIP, the Investment Manager or Adviser as part of such a review.

Suitability

The Trustees have defined the investment objective and investment strategy with due regard to the Scheme’s liabilities.

The Trustees have taken advice from the Advisers to ensure that the proposed strategy, and the assets held by the Scheme through that strategy, are suitable given its liability profile, the Trustees’ objectives, legislative requirements, regulatory guidance and specifications in the trust deed and rules governing the Scheme (the Trust Deed).

Statutory Funding Requirement

The Trustees will obtain and consider proper advice on the question of whether the investments and investment strategy are satisfactory having regard to both the investment objectives and the requirement to meet any statutory funding requirements. The funding position is reviewed periodically by the Scheme Actuary, with a full actuarial valuation at least every three years.

The Trustees will consider with the Investment Adviser and the Scheme Actuary whether the results of these actuarial valuations suggest that any change to investment strategy is necessary to ensure continued compliance with the statutory funding requirement.

Investment Objectives

The overall objective of the Scheme is to meet the benefit payments promised as they fall due. The Trustees have set the following qualitative objectives:

The acquisition of suitable assets, having due regard to the risks set out in this Statement, which will generate income and capital growth to pay, together with contributions from members and the Sponsoring Employer, the benefits which the Scheme provides as they fall due.
To limit the risk of the assets being assessed as failing to meet the liabilities over the long term having regard to any statutory funding requirement.
To achieve a return on investments which is expected to at least meet the Scheme Actuary’s assumptions over the long term.

In quantitative terms, the Trustees invest in a blend of Growth assets that broadly targets 3% above cash and a liability hedge which aims to mitigate the change in the liabilities. The Trustees decide the blend of these funds to target the appropriate return for the Scheme; this is shown in the Quarterly Monitoring Report.

Implementation of investment strategy

The Trustees have delegated the investment of the Scheme assets to the Investment Manager, which has discretion to invest the Scheme assets in underlying securities and funds, either directly or through the use of other investment managers (hereafter referred to as the ‘Underlying Managers’) to run the portfolio on a day-to-day basis. The Trustees have acknowledged and considered with sufficient diligence the potential conflict that may arise from the Investment Manager and the Investment Adviser being the same organisation.

Monitoring

The Trustees will monitor the performance of the Investment Manager against the agreed performance objectives.

The Trustees, or any other suitably qualified Adviser on behalf of the Trustees, will regularly review the activities of the Investment Manager to satisfy themselves that the Investment Manager continues to carry out their work competently and have the appropriate knowledge and experience to manage the assets of the Scheme.

As part of this review, the Trustees will consider whether or not the Investment Manager:

Is carrying out their function competently.
Has regard to the need for diversification of investments
Has regard to the suitability of each investment and each category of investment.
Has been exercising their powers of investment with a view to giving effect to the principles contained in this SIP, so far as is reasonably practical.

If the Trustees are not satisfied with the Investment Manager they will ask the Investment Manager to take steps to rectify the situation. If the Investment Manager still does not meet the Trustees’ requirements, the Trustees will remove the Investment Manager and appoint another.

Corporate Governance and Stewardship

The Trustees and Investment Manager have agreed, and will maintain, formal agreements setting out the scope of the Investment Manager’s activities, charging basis and other relevant matters. The Investment Manager has been provided with a copy of this SIP and is required to exercise its powers with a view to giving effect to the principles contained herein and in accordance with subsection (2) of Section 36 of the Pensions Act 1995.

The Trustees have appointed the Investment Manager to implement the Scheme’s investment strategy. The Investment Manager manages assets directly on behalf of the Trustees as well as having delegated authority to appoint, monitor and change the Underlying Managers.

The Investment Manager is appointed to carry out its role on an ongoing basis. The Trustees periodically review the overall value-for-money of using R&M Solutions, and information in relation to costs associated with investing is included in the quarterly monitoring report. The Trustees are satisfied that these arrangements incentivise the Investment Manager:

to align its investment strategy and decisions with the Trustees’ investment policies, such as their return target and the restrictions detailed in the Investment Management Agreement, and
to assess and make decisions based on the medium- to long-term financial and non-financial performance of issuers of debt or equity, and to engage with such issuers to improve this medium- to long- term performance. The success of such engagement will contribute to the Scheme’s performance, which is measured relative to the Trustees’ long-term performance objectives.

The Scheme’s investments are generally made via pooled investment funds, in which the Scheme’s investments are pooled with those of other investors. As such, direct control of the process of engaging with the companies that issue these securities, whether for corporate governance purposes (such as capital structure) or other financially material considerations, is delegated to the Underlying Managers.

The Trustees have delegated responsibility for monitoring and voting on decisions relating to their Underlying Manager holdings to the Investment Manager. The Investment Manager has in place a voting policy which sets out how it will aim to vote at a general meeting of a pooled fund. For any special resolutions or extraordinary general meetings, the proposed votes of the Investment Manager are subject to additional sign-off by the appropriate representative of the Investment Manager.

The Investment Manager undertakes regular reviews of all Underlying Managers. These reviews incorporate benchmarking of performance and fees, with some managers on performance-related fees as well as performance reviews (including understanding key drivers of performance), investment due diligence meetings and operational due diligence reviews. The Investment Manager reviews the governance structures of Underlying Managers, as well as assessing whether their fees, expenses and any other charges are in line with industry peers at inception and from time to time whilst invested.

Where it can be determined, the Investment Manager assesses whether Underlying Manager remuneration arrangements are aligned with the Trustees’ objectives. The method and time horizon for evaluating and remunerating Underlying Managers is determined by criteria set by the Investment Manager, as detailed above.

The Trustees acknowledge the inherent potential for conflicts of interest which exist as part of ongoing Investment management business activities. As an FCA regulated firm, the Investment Manager is required to prevent or manage conflicts of interest. Where Underlying Managers are also regulated, they are likely to be subject to such requirements to manage conflicts of interest as are applicable in their jurisdiction of incorporation or operations. The Investment Manager directly monitors these as part of their regulatory filings (where available), the Investment Manager also monitors this as part of ongoing review. The Investment Manager’s Conflict of Interest policy is available publicly here: https://riverandmercantile.com/Asp/uploadedFiles/file/Corporate_Governance/RMG_Conflicts_of_Interest_Policy.pdf

The Investment Manager oversees the turnover costs incurred by Underlying Managers as part of its ongoing monitoring process and evaluates such costs to determine if they are in line with peer groups and the Investment Manager’s expectations. Where there are material deviations the Investment Manager engages with Underlying Managers to understand the rationale for such deviations and take appropriate action.

Realisation of Investments

The majority of assets are held in underlying pooled funds, most of which can be realised easily if the Trustees so require. The Investment Manager is permitted to hold up to 20% of on-risk assets into illiquid investments (as defined in the Investment Management Agreement), which the Trustees acknowledge can take additional time to realise. The Trustees have considered this risk against the possibility of needing to realise these assets and are comfortable it is a reasonable approach to take.

Derivatives

The Trustees may enter into contracts with counterparties, including investment banks, in order to execute derivative transactions. The Trustees have taken advice on the suitability of the contracts and have delegated responsibility to the Investment Manager to implement these instruments on its behalf. Derivative instruments are typically used for risk management purposes in the portfolio.

Additional Voluntary Contributions (AVCs)

Prior to benefit accrual ceasing under the Scheme, the Scheme provided a facility for members to pay AVCs to enhance their benefits at retirement. Members are offered a range of funds with Scottish Widows in which to invest their AVC payments. The Trustees’ objective is to provide a range of funds which will provide a suitable long term return for members, consistent with members' reasonable expectations.

Financially material investment considerations

These considerations which include the below “Risks” can affect the long-term financial performance of investments and can (but do not have to) include environmental, social and governance factors (otherwise known as “ESG”) where relevant. The Trustees delegate consideration of financially material factors to the Investment Manager who considers these when constructing the portfolio, including looking at Underlying Managers. All references to ESG relate to financial factors only. All references to ESG also include climate change.

ESG factors and stewardship are considered, in the context of long term performance, by the Investment Manager as part of the manager selection criteria. This review occurs before they are approved for investment in the portfolio. Once an Underlying Manager is appointed, the Investment Manager monitors the ESG implementation and ongoing compliance with other factors, such as stewardship, as a part of overall engagement.

Risks

The Trustees recognise a number of risks involved in the investment of the assets of the Scheme. These risks, and how they are measured and managed, include:

Funding and asset/liability mismatch risk – the risk that the funding level is adversely affected due to a mismatch between the assets and liabilities. This risk is managed in the following ways:
- The Scheme uses a proxy of the Technical Provisions liabilities (which the liability hedge is also based on) in order to measure the approximate changes in the liabilities(due to changes to the relevant gilt yields only). The Trustees monitor this change relative to the change in asset values on a quarterly basis. The proxy of the Technical Provisions liabilities is reviewed following each actuarial review, or when significant market or Scheme events (e.g. a significant change in inflation expectations) imply that an amendment may be appropriate.
- The Trustees also recognise the risk of a negative impact on the funding level due to changes in the actuarial assumptions used to calculate the liabilities and variation in experience. This is managed by aiming for a higher overall investment return than implied by the liability discount rate.
- When setting and reviewing investment strategy, the Trustees examine how the investment strategy impacts on downside risk.
- This risk is also monitored through regular actuarial and investment reviews including monthly portfolio updates.
Underperformance risk – the risk of underperforming the benchmarks and objectives set by the Trustees. This risk is
minimised using the following techniques:
- Appropriate diversification across asset classes, within sectors and between individual stocks to minimise the effect of a particular stock or sector performing badly.
- The use of instruments and strategies designed to control the extent of downside exposure.
- The selective use of active management when appropriate given market conditions, the asset class considered and
  where the benefits (risk and/or return) are expected to outweigh the additional costs/fees.
- Regular monitoring of the managers’ performance, processes and capabilities with respect to their mandate and by the diversification across multiple Underlying Managers by the Investment Manager.
Cash flow risk – addressed through the monitoring of the cash flow requirement of the Scheme to control the timing of any investment/disinvestment of assets.
Concentration risk – the risk of an adverse influence on investment values from the concentration of holdings is reduced by the diversification of the assets.
Counterparty risk – the risk of a counterparty to an agreement not carrying out his side of the deal. Where derivatives are used, the risk of counterparty default is reduced through the requirement in the relevant documentation that regular collateral or margin payments be made. It is also considered in the selection of counterparties and the incorporation of protection mechanisms in the documentation in the event of a downgrade in credit quality of an existing counterparty.
Country risk – the risk of an adverse influence on investment values from political intervention is reduced by diversification of the assets across many countries.
Currency risk – the risk that fluctuations in the value of overseas currencies affect the total return of the Scheme’s investments when compared to a Sterling benchmark. The Trustees mitigate this risk by electing to allow the Investment Manager to use currency hedging.
Default risk – the risk of income from assets not being paid when promised. This is addressed through restrictions for the Investment Manager and Underlying Managers, e.g. a minimum credit rating of the bonds they are allowed to buy and also a high proportion of the bonds held are government bonds which have little default risk.
ESG risk – the risk of adverse performance due to ESG related factors including climate change. This is addressed by the Investment Manager’s ESG assessment at the point of investment with Underlying Managers. A summary of the overall ESG characteristics in the portfolio in the quarterly governance report.
Mismanagement risk – the risk of unsuitable investment activity by the Investment Manager. This is addressed in the agreement with the Investment Manager, and in turn by the Investment Manager with the Underlying Managers, which contain restrictions on the proportion and type of asset classes that the Investment Manager or Underlying Managers may invest in.
Organisational risk – the risk of inadequate internal processes leading to problems for the Scheme. This is addressed through regular monitoring of the Investment Manager and Advisers by the Trustees, and of the Underlying Managers by the Investment Manager.
Sponsor risk – the risk of the Sponsoring Employer ceasing to exist which, for reasons of prudence, has been taken into account when setting the asset allocation strategy. The Trustees regularly review the covenant of the Sponsoring Employer.

The Trustees will keep these risks and how they are measured and managed under regular review.

Non-financial matters

The Trustees do not at present take into account non-financial matters when making investment decisions as there is no likely common view on any ethical matters which members are likely to hold. At this time the Trustees have no plans to seek the views of the membership on ethical considerations.

Implementation statement

Introduction

The Trustees are required to make publicly available online a statement (“the Implementation Statement”) covering the Gardiner & Theobald Pension Scheme (the “Scheme”) in relation to the Scheme’s Statement of Investment Principles (the “SIP”).

The SIP was amended once during the year ending 31 March 2021, and the changes made were predominantly for regulatory changes relating to Environmental, Social and Governance (“ESG”) factors, corporate governance and voting. This SIP came into force from 8 September 2020.

A copy of the current SIP signed and dated 8 September 2020 can be found here https://www.gardiner.com/pension-scheme.

This first Implementation Statement covers the Scheme year from 1 April 2020 to 31 March 2021 (the “Scheme Year”). It sets out:

How the Trustees’ policies on exercising voting rights and engagement have been followed over the Scheme Year.
The voting by or on behalf of the Trustees during the Scheme Year, including the most significant votes cast and any use of a proxy voter during the Scheme Year.

How the Trustees’ policies on exercising voting rights and engagements have been followed over the Scheme Year

The Scheme’s SIP sets out the Trustees’ policies in relation to stewardship, corporate governance and ESG factors.

The Trustees are ultimately responsible for the investment of the Scheme assets. Where they are required to make an investment decision, the Trustees always receive advice from the relevant advisers first, and they believe that this ensures that they are appropriately familiar with the issues concerned. The Trustees also set the investment strategy and general investment policy but have delegated the day-to-day investment of the Scheme’s assets, within pre-defined constraints to professional investment managers.

The Trustees have appointed River and Mercantile Investments Limited ("R&M") as their Investment Manager using their Fiduciary Management service (and R&M is referred to as the "Fiduciary Manager" in the Implementation Statement). R&M can appoint other investment managers in respect of underlying investments (referred to as “Underlying Investment Managers”).

The Scheme invests in assets with voting rights attached. However, these investments are generally made via pooled investment funds with the Underlying Investment Managers where the Scheme’s investments are pooled with other investors. Therefore, direct control of the process of engaging with the companies that issue the underlying securities, whether for corporate governance purposes or other financially material considerations, is delegated to those Underlying Investment Managers. The Fiduciary Manager appoints those Underlying Investment Managers. A copy of the SIP has been provided to the Fiduciary Manager and the Fiduciary Manager is expected to adopt that approach to corporate governance and to other financially material considerations when providing Fiduciary Management services and/or in selecting Underlying Investment Managers.

The Trustees require that the Fiduciary Manager considers stewardship activity including voting and engagement, and ESG factors, including climate change, when choosing new or monitoring existing Underlying Investment Managers. The Trustees believe it is appropriate to delegate such decisions in order to achieve an integrated and joined up approach to ESG factors, voting and engagement. The Trustees have therefore not sought to influence voting behaviours and do not intend to change its position at this time.

Over the Scheme Year, the Fiduciary Manager provided the Trustees with monitoring of the ESG characteristics of the portfolio and stewardship activity carried out by the Fiduciary Manager on a quarterly basis. The Trustees are satisfied with the Fiduciary Manager’s activity in this area.

On behalf of the Trustees, monitoring of voting and engagement policy by Underlying Investment Managers in relation to the Scheme's investments, was carried out by the Fiduciary Manager through regular investment and operational due diligence meetings with the Underlying Investment Managers. In addition, the Trustees, with the help of the Fiduciary Manager, monitor the performance of the Underlying Investment Managers against the agreed performance objectives at quarterly Trustee meetings held during the Scheme Year.

Following activity during the Scheme Year and by preparing this Implementation Statement, the Trustees believe that they have acted in accordance with the Statement of Investment Principles over the Scheme Year.

Voting and Engagement Summary

The exercise of voting rights is delegated to the Fiduciary Manager and the Fiduciary Manager has in place a voting policy which sets out how it will aim to vote at a general meeting of a pooled fund. As part of the annual review of investment objectives in December 2020, the Trustees were provided with details of the Fiduciary Manager’s voting and engagement policies to review. The Trustees made no changes to the voting and engagement policies contained in the SIP following this review, but this will be kept under review in future years.

River and Mercantile Group, of which the Fiduciary Manager is a division, are a PRI signatory and were rated A+ by PRI in 2019 for their Strategy and Governance.

References to “ISS” relate to Institutional Shareholder Services, a proxy voting company used by the Underlying Investment Manager, BNY Mellon (“BNYM”).

The Trustees have considered the voting behaviour (provided in the Appendix), along with engagement activity that took place on their behalf during the Scheme Year within the growth asset portfolio and the liability hedging portfolio, and consider that the Fiduciary Manager and the Underlying Investment Managers have demonstrated appropriate levels of voting activity, challenges to management and active engagement on a range of relevant topics.

Specifically, the Trustees noted that:

Each relevant manager demonstrated very high levels of voting rights being acted on.
Challenge to management was demonstrated through votes by the Underlying Investment Managers against management.
The general themes of engagement activity were in relation to environmental issues (climate strategy in particular), executive pay, board diversity and improving social outcomes.
Within the BNYM Global Equity Fund, which makes up the majority of the Scheme’s investments in return-seeking assets, the Trustees noted that BNYM prioritised engagement with each of their underlying holdings in the following areas: governance practices, executive compensation, sustainability including climate change, human capital management, and diversity and inclusion. For example, in their engagement with an S&P500 Real Estate Company, BNYM discussed the company’s diversity and inclusion efforts, as well as its ongoing compensation policy enhancements. In addition, they outlined the areas where they would like to see improvements going forward.
For the largest mandate within the return-seeking credit assets, their engagement on improving social outcomes was noted. The manager engaged with a leading manufacturer and distributor of blood testing equipment. They worked with senior management to encourage the company to develop social targets in addition to its existing environmental focus and to increase product distribution to at risk/at-need populations globally through donations of refurbished equipment. The manager also worked with the company to understand what impact the COVID-19 crisis would have on its long-term business strategy. They viewed the company’s ability to deliver these solutions and products globally as a positive for society, that would also boost the company’s credit profile.
In relation to the liability hedging and structured equity mandates, the Trustees noted that the choice of counterparty (both in terms of the counterparties chosen to be part of the available roster and the choice of which counterparty of these to use when entering into derivative transactions) is driven by a number of factors, including credit ratings which take into account ESG factors. ESG scores for counterparties are regularly monitored.
The Trustees are satisfied that the voting and engagement activity undertaken by the Fiduciary Manager and Underlying Investment Managers are in line with the Trustees’ policies contained in the SIP and that no changes are required to these policies at this time. The Trustees will keep the position under review.

Appendix – Voting statistics

Voting in relation to underlying pooled funds, on behalf of the Trustees

Most of the rights and voting relating to the Scheme’s investments relate to underlying securities investment through pooled funds managed by underlying investment managers – this is covered in part 2 below. However, the pooled funds themselves often confer certain rights around voting or policies. These rights are exercised by the Fiduciary Manager on behalf of the Trustees and we cover these here.

Over the year to 31 March 2021, The Fiduciary Manager voted on 206 resolutions across 52 meetings. The Fiduciary Manager voted against management on 10 resolutions which was 5% of total resolutions and abstained on 8 resolutions (4% of the total resolutions).

The R&M Investment Research team engaged with investment managers regarding their clients’ pooled fund investment on approximately 800 occasions during the 12 months period. The engagement topics covered a range of areas including executive board composition, investment management processes, auditor tenure and fund costs.

Underlying Managers’ voting on securities, on behalf of the Trustees

There are c. 30 Underlying Managers used by the Fiduciary Manager. Set out below are the voting statistics for the most material equity holdings during the period that held voting rights, namely BNY Mellon Global Equity. Within other asset classes there are no voting rights, however, engagement activity is very important and so examples of engagement activity for the managers that represent 2.5% or more of the portfolio have also been reviewed by the Trustees.

Summary of voting activity – BNYM Global Equity Fund

	BNYM (River and Mercantile) Global Equity Fund
Total meetings eligible to vote	1124
Total resolutions eligible to vote	14052
	_
% of resolutions did you vote on for which you were eligible?	98%
% did vote with management?	89%
% vote against management?	9%
% abstained	1%
% of resolutions, on which you did vote, did you vote contrary to the recommendation of your proxy adviser? (if applicable)	2%

BNYM uses ISS for proxy voting services.
The voting statistics provided may slightly differ depending on the exact composition the Scheme holds.

Most significant votes carried out by the Underlying Managers

BNYM Global Equity Fund

WALMART, INC.

BNYM voted for a shareholder proposal requesting that Walmart publish a report on the impact of single-use plastic bags. In terms of phasing out plastic bags, in BNYM’s view Walmart does not lag its peers in the retail industry, but it lags its peers in the grocery sector. BNYM hold companies to a high environmental standard and believe this proposal will result in Walmart acknowledging the positive impact it can have through the elimination or reduction of single-use plastic bags.

THE PROCTER & GAMBLE COMPANY

BNYM believe that Procter & Gamble lags its peers in terms of deforestation commitments and policies that monitor supplier actions. The company has been accused of contributing to the destruction of forests that have high wildlife and climate change value. The lack of information presents potential competitive and reputational risks to the company. As a result, BNYM voted for a shareholder proposal requesting the company report on efforts to eliminate deforestation. BNYM will continue to engage with the company to ensure that the lack of reporting is adequately addressed.

RIO TINTO LIMITED

In May 2020, BNYM voted for a proposal approving emission targets for Rio Tinto. BNYM believe this resolution will provide shareholders with increased transparency, allowing them to understand how the company is addressing climate change and mitigating these risks.

KELLOGG COMPANY

In an effort to promote accountability, BNYM voted for a shareholder proposal in April 2020 to declassify Kellogg’s board of directors. BNYM believe it is beneficial for directors to be elected each year. BNYM maintain that a board that is refreshed annually is often best equipped with fresh viewpoints and counsel.

VISA, INC.

BNYM voted against the election of a director to Visa’s board as the individual was serving on five boards. Generally, if an individual serves on more than five boards, BNYM vote against electing them to an additional board. BNYM expect the board members they elect to focus on their current board memberships, which BNYM believe is difficult to accomplish beyond our threshold of five boards.

ORACLE CORPORATION

BNYM withheld their vote for a director because the nominee owns a large stake in the company and pledged what BNYM believe is a disproportionate number of shares against that stake. Stock pledging can have a negative impact on the company. Should market conditions deteriorate, sudden forced selling could create an inordinate amount of technical pressure on a company’s stock.