Railpen lays out 2023 voting policies; mental health a priority

Next year, Railpen, investment manager for the £35 billion UK railways pension schemes, will focus engagement and AGM voting on affecting corporate change around cyber security, climate transition, biodiversity, workplace treatment and mental health. The asset manager will also enhance its voting and engagement positions on dual class share structures (which give company founders more votes per share) fair pay, the treatment of gig economy workers and modern slavery.

Railpen’s decision to integrate mental health into its voting policy follows research which found that only 13 per cent of UK listed companies’ annual reports discussed mental wellbeing in relation to health and safety or risk assessment, despite the clear materiality of mental health to a company’s ability to attract and retain employees.

An engaged, motivated, and supported workforce is vital for sustainable financial performance, and Railpen expects portfolio companies to engage meaningfully with their workforce and demonstrate a healthy corporate culture, said the asset manager in a statement.

Rather than outsourcing stewardship, engagement at Railpen is in the hands of its own internal team to better align stewardship with its ESG objectives, particularly its ambitious net zero targets. It’s a level of control that is particularly important when it comes to timing engagement and knowing when to escalate.

“This year we have explicitly flagged our expectation that portfolio companies look after their entire workforce, including both directly and indirectly employed workers, and effectively communicate to shareholders the steps they are taking to do so,” says Caroline Escott, senior investment manager at Railpen.

“Our previous research with the CIPD, PLSA and High Pay Centre found that many of even the largest UK companies fail to appropriately discuss their support for indirectly employed workers. This is an issue for many firms, but especially for those in the ‘gig economy’ where it is particularly important for investors to be able to gauge the rights granted and level of support provided to workers.”

The latest voting policy reflects Railpen’s ongoing corporate governance themes of board composition and effectiveness, remuneration and alignment of incentives and shareholder rights, and risk and disclosure.


In another step, Railpen will consider pre-declaring voting intentions on specific resolutions. The idea being to send an important signal to the company and the market. “Railpen values open dialogue with companies and therefore will continue to notify companies of voting intentions in advance to support effective engagement, where they are priority holdings,” it said.

A key 2023 priority is ensuring that net zero pledges are turned into real action. Next year’s voting policy also sets out Railpen’s belief that a good transition plan should set out a company’s decisions on decarbonisation and adaptation in a comparable way with clear quantification of interim targets and milestones.

Corporate transition plans should also focus on material actions, activities and accountability mechanisms, account for biodiversity loss, natural capital impact and social impact as key externalities, clearly link targets, financial planning, and capital allocation and, where offsets are used, adhere to best practice principles.

Railpen will also urge portfolio companies to consider how they can better appraise and account for nature-related risk and redirect capital allocation decisions towards nature-positive outcomes. They will consider voting in support of resolutions which encourage companies to address drivers of biodiversity loss.

Although mindful of the ongoing challenges in accessing the best possible data, reporting and analysis of these types of risk is evolving and to support its assessment of companies’ transition plans, Railpen will use its proprietary framework and the UK Transition Plan Taskforce (TPT) best practice guidance.


Railpen will also urge companies to do more to counter rising cybersecurity risk. Building on its longstanding engagement with at-risk companies on cybersecurity (both directly and as part of the UK Cybersecurity Coalition) in 2023 Railpen will ask companies to explicitly disclose the governance and oversight structures in place to identify and manage cyber risks, as well as provide timely reporting of any breaches and the measures taken in response.

Where these risks are not deemed to be appropriately managed, the pension fund will vote against audit and other committees, and consider voting against reports.

“The world is constantly adapting, and we need to ensure that we are ahead of major sustainability and governance challenges so we can effectively engage with portfolio companies on behalf of the members of the railways pension schemes. Laying out a clear, defined voting policy allows us to highlight our expectations of performance on key ESG risks in a way that is accessible to our portfolio companies, our external managers, and our beneficiaries,” said Michael Marshall, Raiplen’s head of sustainable ownership.

“In the 2023 AGM season, we will continue to exercise our votes on those resolutions where we believe our vote will have the most impact. We take our role in enhancing the long-term investment returns of our beneficiaries extremely seriously, and doing so in a way that benefits the world around us and the needs of our members now and in the future,” he concludes.



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