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What is responsible investment?

Responsible investment involves considering three main areas when making investment decisions: environmental, social and governance factors.

The background

The Trustee’s primary responsibility is to act in the best financial interests of the Scheme’s members. However, as a long-term investor, the Trustee has good reasons to be interested in environmental, social and governance (ESG) issues.

The Trustee believes that certain ESG factors can have an impact on financial performance and that these factors should be incorporated into investment decisions. This approach can help to reduce investment risk and should enhance long-term investment returns.

As part of its commitment to responsible (or sustainable) investing, the Trustee has produced the VGPS Responsible Investment Policy. Although assets for both the Vodafone Section and the Cable & Wireless Section are invested separately, the policy applies to both.

The Policy is based on the UN’s 17 Sustainable Development Goals (SDGs), which address the world’s most pressing sustainability issues. Large investors like VGPS play a significant role on the global capital markets (the Scheme’s investable assets were worth around £1.7bn as at 31 March 2023) and its investment returns depend on the continuing good health of the overall economy. The Trustee believes that investing in a way that encourages sustainable economies and markets can have positive effects on the Scheme’s long-term performance.

The VGPS Policy focuses on three of the UN’s SDGs – climate change, human rights and corporate governance – as the Trustee believes that these areas could have the biggest impact on risks and returns.

The Trustee works closely with its investment managers to consider how ESG factors can be reflected in the Trustee’s investment policy. It expects its investment managers to consider a range of sustainable investment factors when deciding where to invest the Scheme’s assets. The Trustee has reviewed its investment managers’ own sustainable investment policies and is satisfied that they meet with the Trustee’s own views in this area. It will review its key managers’ policies every year.

When selecting investment managers, the Trustee will check that they have the skill and expertise necessary to manage the Scheme’s investments competently. It will also consider whether the investment managers’ responsible-investment practices and consideration of ESG factors align with those of the Trustee.

The Investment and Funding Committee (a sub-committee of the Trustee Board) receives quarterly reports from investment managers, which are used to monitor investment performance from a responsible investment perspective. It also monitors investment-manager activities, raising questions about responsible investing where appropriate, and terminating or making new investment-manager arrangements if necessary.

Even when the Trustee doesn’t own funds directly, but indirectly through pooled funds, it will still expect the Scheme’s investment managers to carry out their responsibilities in accordance with best practice and the Policy.

The Trustee delegates responsibility for voting and engagement to its investment managers in line with the Trustee’s policy, as it believes they are best placed to undertake this activity given their knowledge of the companies. The Trustee monitors the investment managers’ activity and challenges them on it. Investment managers’ voting activity and voting patterns are summarised in the annual implementation statement.

The Trustee will review its Responsible Investment Policy every year.

Environmental factors

The Trustee considers environmental factors as part of its investment decision making, with a particular focus on how we can slow the pace of climate change.

What is the link between the Scheme and climate change?

Climate change poses a very real financial risk to all pension schemes. Physical risks of a rise in global temperatures include droughts, flooding, and rising sea levels, all of which can be catastrophic for financial markets and society as a whole. As your Trustee, we believe it is important that we avoid investing in assets that have a negative impact on our climate, so that the assets the Scheme holds are helping to build a better world for our members now and in the future. We also recognise that investing the Scheme’s money in assets that are helping to reduce climate change can present an opportunity for long-term investment growth.

What is the Trustee doing to reduce the Scheme’s impact on our climate?

The Trustee supports the Paris Agreement’s long-term temperature goal of keeping the mean rise in global temperatures to well below 2°C above pre-industrial levels. The Trustee therefore ensures that its investment managers integrate climate-related risks and opportunities in their decision making.

In addition, the Trustee has implemented several changes to its governance setup (how the Scheme is run) to ensure climate change considerations are built in. These include:

  • 1
    Adopting four metrics to measure the impact that the Scheme’s investments are having on specific aspects of climate change. The Trustee will monitor these quarterly.
  • 2
    Setting climate-related objectives, and measuring progress against them.
  • 3
    Reviewing and selecting investment managers based on their alignment with the Trustee’s Responsible Investment Policy.

The Scheme’s Investment and Funding Committee, the Vodafone In-House Pensions Team, and the Scheme’s external advisors, have specific roles and responsibilities for building climate change risks and opportunities into the day-to-day running of the Scheme.

Our net zero target

The Trustee of the Vodafone Group Pension Scheme (VGPS) has formally set a climate-related “net zero” target for both Sections of the Scheme.

  • This targets a 50% reduction in total carbon emissions by 2030
  • an overall target of achieving net zero emissions from its investments by 2050.

In setting this target the Trustee has considered whether to aspire to a target that is nearer to the Sponsors’ target to achieve net zero from its operations by 2040. The Trustee intends to bring this 2050 date closer, if possible, but does not yet believe the investment landscape has an investible toolkit to do so.

The ultimate target is in line with the United Nations Framework Convention on Climate Change (UNFCCC).

Social and governance factors

The Trustee also considers how its investment decisions impact the world around us in other ways. For example, it considers the treatment of people within the workforce such as working conditions, or the way in which companies run and govern themselves. It is essentially asking

What impact do our investments have on the world?

When the Trustee selects investment managers, consideration is given to the Manager’s Responsible Investment practices and ESG factors are taken into account. We are proud that over 95% of the Scheme’s assets are invested with investment managers who are signatories to the UN-backed Principles for Responsible Investment.

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