Railpen strives to incorporate sustainability considerations into the investments managed on behalf of the Scheme, and undertakes Sustainable Ownership (SO) activities in three core ways:

1. Environment, social, and governance integration

Railpen’s aim is to invest sustainably taking into consideration environmental, social and governance (ESG) factors, and it actively engages with as many companies as it can.

The ESG performance of Total Fund investments is analysed prior to making an investment decision and in post-investment monitoring and engagement. Where engagement is unsuccessful and ongoing ESG risks are understood to be financially detrimental, investments may be excluded from the portfolio.

Railpen’s approach to sustainable investment reflects the Trustee’s investment belief that ESG factors materially impact long-term investment returns and must be taken into account.

 2. Active ownership

Thoughtful voting alongside constructive engagement with portfolio companies supports Railpen’s objectives of enhancing long-term investment returns for beneficiaries.

Over the quarter, it also held 10 meetings with companies covering a broad range of governance and sustainability topics, including strategy and leadership, remuneration consultations, and company activity on climate change. How companies have treated their workforces, suppliers and customers in the wake of coronavirus has also been a key focus of Railpen’s 2020 engagements.

This year, Railpen has continued to take a leadership role in a number of cross-industry initiatives, including Climate Action 100+ and the 30% Club’s work to boost gender diversity at UK companies.

3. Longer term risks and opportunities

Railpen monitors risks and opportunities from a long-term perspective.

A key priority for 2019/2020 has been to assess how climate change could impact the Scheme. In 2019, an exercise was undertaken with Ortec Finance, a technology solutions provider, to analyse the exposure of the Scheme’s total assets to climate change under different global warming scenarios.  In July 2020, a Climate Working Group was established to co-ordinate Railpen’s climate work and ensure the Investment Business is effectively managing climate change risk across the asset classes.

Railpen continues to explore low-carbon investment opportunities and in 2019 purchased Tralorg Wind Farm in South Ayrshire, southwest Scotland, from global renewable energy developer, Bay Ware. The farm, consisting of eight 2.35-megawatt turbines, is scheduled to be operational this year.

In terms of longer-term societal issues, Railpen published a white paper jointly with NEST on cyber and data security. You can view this report under publications at rpmirailpen.co.uk/active-ownership.

Earlier this year Railpen published its Sustainable Ownership Report for 2019. The report explores our approach to incorporating environmental, social and governance (ESG) considerations into the investment decisions we make on behalf of our members.

Railpen recognises that the policy framework is an important driver of market norms on responsible investment issues. In 2019/20, Railpen has had discussions with the Department for Work and Pensions (DWP) on ESG regulatory changes and worked with industry bodies on policy guidance, such as the Pensions and Lifetime Savings Association’s (PLSA’s) 2020 Stewardship Guidance and Voting Guidelines.