Annual Report on the Corporate Governance and SRI Programmes 1 April 2016 - 31 March 2017

EXECUTIVE SUMMARY

Background

This report discusses the activities carried out by BAPIML to fulfil its Stewardship responsibilities and Trustee requirements on Corporate Governance (CG) and Socially Responsible Investment (SRI). BAPIML monitors policy changes and themes emerging over the year and suggests potential next steps to improve the programme. Corporate Governance reports accompany each Investment Committee (IC) meeting, providing stock by stock and issue by issue voting records. The individual annual reports on UK CG, International CG and SRI provide more details on specific engagement/company issues.

Purpose of Report

The purpose of this report is to: Report on the progress of the Corporate Governance and SRI programmes; 1.

Update to the Trustees on the implementation of the Annual Corporate2.

Governance and SRI Programmes.

Highlight developments in best practice, new initiatives and participation in3.

external forums.

The Private Equity, Alternatives and Property reports demonstrate a greater focus4.

in these asset classes on the importance of sustainability.

Outlook5.

▫ UK CG – We expect changes to the Financial Reporting Council’s CG Code, an

emphasis on remuneration and independence on Boards, gender and ethnic

diversity on Boards, workforce and corporate culture.

▫ International CG – We anticipate an increase of shareholder activity in North

America, specifically on proxy access and request for an independent Chair

and CEO. In Japan the on-going development of board structure changes and

independence of key committees in China. In Europe remuneration will

remain a focus and King IV CG Code changes in South Africa will tighten

regulations and disclosure.

▫ SRI – An increase in shareholder proposals on environmental and social issues

in North America, focus on disclosure of carbon emissions globally, and

Environmental, Social and Governance (ESG) policy integration and disclosure

issues in the UK following Brexit.

The detailed BAPIML Reports are provided in the appendices for noting. These 6.

form the basis of reporting to members and engaging with external parties when

received.

Recommendations for 2017/18

▫ BAPIML target to retain Tier Level 1 in the Financial Reporting Council’s

Stewardship Code.

▫ Continue to develop the ESG tool to achieve maximum engagement at Fund

Manager level.

▫ Establish a separate Sub-Committee to ensure there is an appropriate level of

focus applied to ESG issues and for future years that this group would report

back to the September meeting.

Action: For noting/decision

1. Overview

UK Equities The UK equity market saw some highly contentious shareholder resolutions in the 2016/17 fiscal year with levels of dissent and mainstream media attention comparable to the so-called ‘Shareholder Spring’ of 2012. The number of occasions where the Schemes voted against at least one proposal at investee companies’ Annual General Meetings rose year on year, reflecting this backdrop as well as BAPIML’s continued focus on the highest standards of corporate governance. Remuneration and the re-election of Directors remain the most common areas of concern to the Funds, and the UK Equity Team engages with investee companies when they fall short of best practice in all areas of corporate governance.

International Equities In international corporate governance the percentage of meetings voted against management by BAPIML declined by four per cent from the previous fiscal year. Director elections were, as expected, the highest area of dissent, totalling 20 per cent of the individual proposals voted contrary to management. Remuneration, the second most contentious proposal, accounted for 12 per cent of votes against. The Funds assessed the level of board independence when voting on Director candidates and looked for appropriate levels of remuneration aligned with appropriately challenging performance hurdles. North America had the largest percentage of meetings against management. BAPIML continues engagement activities across the regions.

Report on the Socially Responsible Investment Programme In the Report on the Socially Responsible Investment Programme Annual and Extraordinary General Meetings are examined for proposals containing environmental, social or ethical issues during the year and are reported back to the Trustees. In the UK portfolio this is expanded to monitor investee company participation in community and ethical indices, and the disclosure of key environmental data. BAPIML monitor Scheme member enquiries through the dedicated email folder, which are reported alongside any new global regulatory and policy changes.

2. Developments in Corporate Governance The UK Corporate Governance Code is celebrating its 25th anniversary this year and has been instrumental in spreading best boardroom practice since its inception in 1992. The Financial Reporting Council (FRC) announced a fundamental review of the UK Corporate Governance Code in early 2017. The review took into account the FRC work on corporate culture and succession planning, from the Business, Energy and Industrial Strategy (BEIS)

Select Committee inquiry and issues raised in the Government’s Green Paper on Corporate Governance1. The FRC will hold a formal consultation on changes to the UK Corporate Governance Code and supporting Guidance later in the year. The Financial Reporting Council’s (FRC) ‘Annual Review of Developments in Corporate Governance and Stewardship for 2016’2 was published in January 2017. The standard of compliance with the UK Corporate Governance Code (Code) remains high, with 90 per cent of FTSE 350 companies reporting compliance with all or all but one or two of its 54 provisions. Full compliance has risen from 57 to 62 per cent this year. In the FTSE 350 companies have provisions to recover or withhold variable pay, of those companies 91 per cent have some form of malus and or claw back provisions on the annual bonus and 78 per cent on long-term incentive plans. The most significant area of non-compliance was independence of the board. 26 companies did not meet Code provisions however this was still considerably lower than the 42 non-compliant boards last year. The report also revealed investor concern over the lack of transparency about the link between executive pay and performance. The FRC are encouraging companies to improve their reporting on viability statements following a challenging first year of disclosure. A viability statement should reflect the longer term view of a company’s prospects, and should consider how solvency, liquidity or other risks may impact the long-term viability of the business. Analysing the first full year of reporting on viability the FRC found a small number of comprehensive reports, with a third of sample companies only providing basic information. The Investment Association released ‘Guidelines on Viability Statements’3, which sets out the expectations of institutional investors, to assist companies with disclosures going forward. Since December 2010 all UK Asset Managers have been required to produce a statement of commitment to the FRC’s Stewardship Code (Code) or explain why it is not appropriate to their business model. In 2016 the FRC assessed signatories to the Stewardship Code based on the quality of their Code statements. This work was undertaken to improve the quality of reporting against the Code, encourage greater transparency in the market and maintain the credibility of the Code. Asset owner and service provider signatories were categorised in two tiers and asset managers in three tiers. BAPIML were ranked Tier 1 within the category of providing a good quality and transparent description of the approach to stewardship and explanations of an alternative approach where necessary. The FRC will continue to assess the quality of participant statements and will work with signatories to improve their reporting.

1 https://www.gov.uk/government/consultations/corporate-governance-reform#history 2 https://www.frc.org.uk/Developments-in-Corporate-Governance-and-Stewardship-2016 3 https://www.ivis.co.uk/media/12490/Guidance-viability-statements-final2.pdf

In 2016 the Government appointed Sir Philip Hampton, Chairman of GlaxoSmithKline to chair the Women’s Business Council and undertake an independent review on increasing the number of female executives at FTSE 350 companies alongside Deputy Chair Dame Helen Alexander, Chairman of UBM. The Hampton - Alexander Review4 is a continuation of the work from the Davies Review ‘Women on boards: 5 year Summary’5 published in 2016. The Hampton – Alexander Review FTSE Women Leaders report aims to increase the number of women on FTSE Boards and improve the representation of women in leadership positions of FTSE 350 companies. The focus of the Review’s first report is on the executive pipeline, but also reports on the progress on Women on Boards of the FTSE 350 as at 1st October 2016. Overall the pace of increase of women on boards has slowed in the last 12 months, particularly in the FTSE 100. The FTSE 350 overall is up to 23% from 21.9% on last year. The FTSE 250 is at 21.1%, up from 19.6% with the FTSE 100 only marginally up at 26.6%. There were five key recommendations highlighted in the Hampton – Alexander Review report. Firstly, a call to action for FTSE CEOs to improve the under-representation of women on the Executive Committee and in the layer directly below, which also included a target for FTSE 100 companies. The second asked the Government to improve the disclosure requirements on listed companies. There were two supporting recommendations for investors and executive search firms and a fifth re-iterated the 33% representation target for women on the Executive Committee and in the Direct Reports to the Executive Committee for FTSE 100 companies by 2020. Whilst there has been an improved focus on gender diversity in recent years, the attention given to ethnic diversity has been minimal. In November 2016 Sir John Parker published a report into the ethnic diversity of UK boards. ‘A Report into the Ethnic Diversity of UK Boards: Beyond One by 21’6 report revealed that out of 1,087 director positions in the FTSE 100, only 8% of positions were held by directors of colour, of which 1.5% were UK citizens, despite the fact that 14% of the total UK population is from a non-white ethnic group. Seven companies account for over one-third of directors of colour in the FTSE 100, whilst 53 of the FTSE 100 do not have any directors of colour at all. The report made a series of recommendations to increase the ethnic diversity of UK Boards, to develop board capable candidates for the pipeline and plan for succession within their organisation. Companies have been asked to describe the Boards policy on diversity in their annual report by a given date, in order to enhance transparency and disclosure.

4 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/613085/ftse-women-leaders-hampton-alexander-review.pdf 5 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/482059/BIS-15-585-women-on-boards-davies-review-5-year-summary-october-2015.pdf 6http://www.ey.com/Publication/vwLUAssets/A_Report_into_the_Ethnic_Diversity_of_UK_Boards/$FILE/Beyond%20One%20by%2021%20PDF%20Report.pdf

The EU is expected to amend its Shareholder Rights Directive and Directive on Consolidated Financial Statements in 2017. The amendments will introduce a Europe wide say on pay framework for executive and non-executive remuneration. Shareholders will be able to vote on both a prospective and a retrospective remuneration report on a triennial and annual basis respectively. Companies should base pay on a shareholder-approved policy and companies must address failed remuneration report votes, however there is no mention of making this binding. Remuneration policies will need to address maximum remuneration, the proportion of variable to fixed pay, the ratio of executive pay to average employee pay, performance criteria, vesting and deferral schedules, and claw back provisions. In addition, shareholders would get a vote on related party transactions exceeding 5 per cent of a company’s assets or transactions. On 7 December, 2016, an updated version of the Dutch Corporate Governance Code (the code) was published. The code includes a new provision which recommends companies to start reporting on the pay gap between executives and staff. Several other amendments are related to the supervisory board; board term maximized at two periods of four years, (previously three periods), board members need to take into account long term value creation, board members cannot be paid in shares, despite requests from stakeholders to change this provision, the board needs to report more regarding diversity targets and implementation, and the supervisory board will start playing a role in the appointment of the internal auditor. Other amendments are related to the aspect of culture in board decisions, and the quality of the internal risk management function. Dutch listed companies are required to report in 2018 on compliance with the revised code in the 2017 financial year once enshrined in Dutch law by the cabinet. In 2016 the Corporate Governance Code Commission consulted on proposed amendments

to the German Corporate Governance Code. The consultation period has ended and the

Commission has now published the revised Corporate Governance Code. Amendments to

the Code’s preambles re-iterates that good governance requires more than adherence to

the law, it requires ethical behaviour from business entities. It also stresses what is

expected from institutional investors exercising their rights actively and responsibly, and

respecting the concept of sustainability.

In Canada an update on a bill amending the Canada Business Corporations Act, the Canada

Cooperatives Act and the Canada Not-for-profit Corporations Act7 when enacted, will make

changes to the corporate governance framework. Among the changes proposed are those

relating to the election of directors (including annual elections and votes for individual

directors) and the disclosure of information regarding board diversity and shareholder

communication.

7http://www.parl.ca/LegisInfo/BillDetails.aspx?billId=8433563&Language=E&Mode=1&View=7

The King Committee published the King IV Report on Corporate Governance for South Africa 2016 (King IV) on 1 November 2016. King IV is effective in respect of financial years commencing on or after 1 April 2017 and replaces King III in its entirety. The ‘apply and explain’ King IV code focuses on transparency and disclosure, with remuneration receiving far greater prominence. The Johannesburg Securities Exchange (JSE) has amended its listing rules to make the King IV Corporate Governance Code, mandatory for companies. Under the rules, listed firms will have to include a board racial diversity policy, separate Chairman and CEO positions and appoint a social and ethics committee in accordance with the King IV code. The Monetary Authority of Singapore has formed a council to review the Code of Corporate

Governance; the Code was last reviewed in 2012. The council's members have been asked

to consider how to make the 'comply or explain' framework more effective (including the

quality of companies' disclosures) and how best to monitor companies' progress in

implementing governance best practices.

In South Korea the Act on Corporate Governance for Financial Institutions (Act) came into

effect in August 2016. The Act was introduced to enhance transparency and improve

corporate governance of financial institutions. The new Act places significance on the

qualifications of directors and executives as well as the nomination process. The Act also

introduces new requirements on board composition, codes of corporate governance, risk

management and qualifications of the largest shareholder.

3. Surveys, participation and engagement BAPIML participates in surveys and consultations where practical, as they provide us with an insight into upcoming trends, policy and regulatory changes. This allows us to focus on areas for potential improvement. BAPIML responded to seven surveys in the year under review and took part in two consultations, the workforce in corporate reporting and corporate culture. The Pensions and Lifetime Savings Association, the Financial Reporting Council, the Institute of Chartered Secretaries and Administrators (ICSA) and the Investment Association worked in conjunction on the 2016 Stewardship Survey to improve consistency and to avoid duplication across the organisations. However, as a result of this the survey was detailed and took longer for signatories to respond. BAPIML completed the Stewardship Survey before the November 2016 deadline; the findings of the survey are yet to be released. BAPIML completed six other surveys; two ESG questionnaires for a broker, a survey on ESG practice for an investor relations consultant, one global policy survey for Institutional Shareholder Services (ISS) and two surveys for our proxy facilitation service, on operational performance.

BAPIML continue to engage with investee companies where practical, over contentious proposals at annual meetings, or in response to Trustee or Member enquiries. Where a vote against a proposal is warranted, an explanation of our stance is communicated to the investee company. This can be by letter, email, telephone call to the company, verbally during a meeting with management or through the company broker. A letter explaining the Fund Manager’s decision was sent to 34 investee companies in the year under review. The most common engagement themes were on issues with remuneration reports, remuneration policies and independence of directors. As a result of this communication BAPIML received nine responses and organised two meetings, attended by the Fund Manager and SRI Specialist. We use our judgement on whether it is appropriate to publish engagement in advance of meetings, as some issues may be sensitive. BAPIML are open to collaborative initiatives with organisations and likeminded institutions, During 2017, BAPIML took part in a collaborative initiative with the Investment Association regarding a conflict of interest matter on the reappointment of an auditor to an investee company. BAPIML believed this dialogue was important to remind auditors that investors are ultimately their end client. Representatives of BAPIML periodically attend corporate governance roundtable events, where collaborative opportunities are discussed and acted upon, when appropriate for the Fund, this includes workshops and consultations. The CG & SRI Specialist is a member of the PLSA Stewardship Advisory Group. We continue to receive research and engagement initiatives on specific ESG topics through organisations. Our external proxy research provider ISS engages with companies during the proxy voting research development process and we maintain the use of specialist news feeds, external ESG tools and research services from providers in the public domain.

4. The next steps – improvements to the programme

In addition to participating in surveys, we are constantly looking for ways to improve: 1. BAPIML maintains its level of reporting to Trustees by providing links to relevant reports

of organisations, responding to Trustee enquiries on ESG issues, through Trustee

Training, disclosure of voting activity and key developments in the investment update,

which accompanies every investment Committee (IC) meeting.

2. BAPIML adheres to the Stewardship Code in line with Trustee requirements and aims to

retain Tier Level 1, achieved in 2017. BAPIML reviewed the Statement of Compliance

with the Stewardship Code in the year under review, and has made no material changes.

The statement will be reviewed annually and can be found on the FRC and the Schemes’

member website.

3. BAPIML reviews memberships to organisations to compliment the CG & SRI Programme.

BAPIML’s CG & SRI Programme closely mirrors the United Nations Principles for

Responsible Investment (UNPRI) and BAPIML has explored the possibility of joining the

organisation. BAPIML carefully considered the cost implications of joining the UNPRI in

addition to commitments and time needed to adequately meet reporting and

collaboration requirements. Therefore BAPIML has no plans to join the UNPRI at

present.

4. BAPIML continues to monitor the dedicated ESG members’ enquiries email folder. Any

activity is reported in the annual review under the Report on the Socially Responsible

Investment Programme. BAPIML amended the process on responding to Scheme

members, including directing members to the Scheme website.

5. BAPIML monitors the stock lending programme between the Custodian, BAPSL and

BAPIML to ensure the smooth operation of the voting programme and settlement of

trades. If an issue arises it is reported to the Trustees in the Investment Committee

papers. A review to lift a ban on a number of UK holding restrictions was made in the

year.

6. The ESG portfolio monitoring tool, designed to assist the Fund Manager’s consideration

of key ESG risks in the investment decision process has now been rolled out to Fund

Managers. The ESG tool screens investee companies across key ESG fields and ranks

them against their peers. Fund Managers are provided with a snapshot of their

companies’ ESG performance using key criteria, sorted by sectors. The ESG team has

received positive feedback and we look forward to developing the project further.

Corporate Governance and SRI Specialist 16 August 2017

Private Equity and Alternatives 1st April 2016 - 31st March 2017 Private Equity In December 2016 the Private Equity Reporting Group (the Group) issued their 9th annual

report on monitoring conformity by private equity firms and portfolio companies with the

‘Guidelines for Disclosure and Transparency in Private Equity’ (the ‘Guidelines’). These

Guidelines were introduced following an independent review of the adequacy of disclosure

and transparency in private equity by Sir David Walker in November 2007. A total of 60

portfolio companies were covered by the Guidelines in 2016 (2015: 62), with the number of

private equity firms that are covered increasing by one to 66.

Highlights of the 2016 review; 57%of the sample reviewed in 2016 achieved a good or

excellent/’best in class’ level of compliance, whereas 95% of the sample achieved this level

in 2015. This decrease in standards is primarily due to a higher proportion (nearly half) of

the sample being new to the process and continued improvements in corporate reporting

by the FTSE 350, the benchmark for judging compliance. The number of portfolio

companies required to comply with the Guidelines decreased by two to 60, which was a

result of 13 exits and 11 new deals. The Group is committed to working with private equity

firms, ‘private equity-like’ firms and portfolio companies to improve their disclosures and

strongly encourages standards above the minimum requirements within the Guidelines,

being those observed in the FTSE 350.

For Private Equity the major component of due diligence for any manager or fund is

completed prior to investing, as once invested the documents do not allow the investor to

modify the terms or influence the investment policy of the fund. However, for a number of

portfolio investments BAPIML serves as an active member of the fund’s advisory committee.

These committees provide guidance to the underlying managers on important issues such as

conflicts of interests and proposed changes to the terms of the funds. During the year

BAPIML also remained an active member of both the European Venture Capital Association

and the British Venture Capital Association. In addition BAPIML became an active member

of the Institutional Limited Partners Association (‘ILPA’) in 2017.

ILPA has developed the ‘Private Equity Principles’ in order to establish benchmark standards

in relation to alignment of interests, governance and transparency for private equity funds.

BAPIML has been active in encouraging its underlying managers to observe best practices in

their terms and standards of reporting, utilising the ILPA Private Equity Principles as a

benchmark.

Alternatives

As with Private Equity, the major component of due diligence on any manager or fund is

completed prior to investing. Whether the investment is housed in an open ended or a

closed ended vehicle, once invested the documents allow little flexibility to amend terms or

influence the investment policy. Therefore considerable care is taken prior to investment

with regard to governance, disclosure and transparency issues. The key elements focused on

during the due diligence process include the strongest possible commercial terms, reporting

and transparency levels. BAPIML often utilises an external adviser to conduct operational

due diligence on potential investments. This adviser conducts a detailed evaluation of the

prospective investee fund, covering such areas as governance, compliance, custody,

valuation, accounting, IT capabilities, disaster recovery and disclosure. This adviser has also

been a pioneer of a new transparency initiative, called Open Protocol, which provides

standardised risk reporting for different funds and enables the aggregation of data across

portfolios. BAPIML has been active in encouraging the managers employed within the

portfolio to embrace this reporting initiative.

BAPIML is a member of the Investor Chapter of the Hedge Fund Standards Board (‘HFSB’) for

hedge fund vehicles. The HFSB is a standard setting body for the hedge fund industry,

comprised of managers, investors, regulators and consultants. It establishes and monitors

around 28 Hedge Fund Standards which are minimum, best practise standards for hedge

funds in the areas of governance, disclosure, valuation, operational and portfolio risk

management. BAPIML is also a member of the Alternative Investment Managers Association

(‘AIMA’), where the CEO of BAPIML chairs the Investor Steering Committee. Founded in

1990, AIMA is the global representative of the hedge fund industry. The organisation

represents all practitioners in the industry, with a focus on education, regulation, policy

development and sound practices. During 2017 the Head of Alternative Assets participated

in an AIMA panel discussion to provide the investor’s perspective on how to improve the

alignment of interests, fees and transparency provided by alternative investment fund

managers to their investors.

For some of the closed ended managers employed in the Alternatives portfolio, the

Institutional Limited Partners Association (‘ILPA’) is also a relevant standards setting body.

BAPIML has been active in encouraging the closed ended funds employed in the portfolio to

endorse the ILPA principles, or to provide an explanation of how their processes differ and

why. The majority of closed ended managers employed in the portfolio have terms that are

broadly aligned with the ILPA principles, and in cases where differences have been

highlighted, these have not been material.

Head of Alternative Assets and Private Equity 26th July 2017

Property Corporate Governance Annual Statement 2017

1st April 2016 - 31st March 2017

Maintaining high environmental, social and ethical standards is key to driving performance with our agenda communicated to property level through our managing agents, Savills, who ensure the property complies with all relevant legislation and that they take a responsible approach to employment of staff at site.

Environmental Standards and Performance UK Environmental Legislation is driven by the European Union and the outcome of BREXIT is not yet known hence business as usual continues with regard to monitoring and management of Environmental performance. Annual environmental audits are performed on each multi-let property within the portfolio to assess the standard of environmental compliance and performance with a focus on waste management and F Gas regulations. Pollution control and management planning is also considered. We have continued disclosure under the CRC Energy Efficiency Scheme with identification of any opportunities to reduce carbon dioxide emissions. The Energy Savings Opportunity Scheme (ESOS) comes into force in 2019 and work is on-going to plan ahead to identify any properties which may benefit from ESOS auditing. The Minimum Energy Efficiently Standards (MEES) are scheduled to come into effect from April 2018 and so continual review of all Energy Performance Certificates in order to flag and treat any F or G rated units remains high priority. As a part of our strategy to drive best practice, a trial for certification under the ISO14001Environmental management standard has commenced with properties which may be suitable for accreditation being considered. Savills also monitor and track participation in corporate social responsibility initiatives throughout the portfolio, providing central guidance and assistance to site teams to ensure that where possible and viable we take opportunities to further benefit the surrounding communities and environments in close proximity of the assets under management.

Employment The National Living Wage became effective from 1st April 2016 with contracts for employment on site being amended to adhere to the legislation. Where possible Savills requires that contractors used in the course of managing the portfolio must demonstrate that they are pro-active in offering local businesses the opportunity to compete for work

and giving local employees the opportunity to apply for jobs, as well as encouraging engagement with their local communities. Training and skills development is a vital part of the managing agents role to ensure the employees based on site at properties within the portfolio have the necessary skills and expertise to perform their role, the property remains statutorily compliant and the individual has the opportunity to develop. In addition to mandatory competence training, specific working at heights training was identified and delivered across the portfolio. Additionally, in line with corporate social responsibility initiatives, Savills have partnered with The Samaritans to offer support and guidance to any employees who may experience emotional difficulties either at work or in their personal lives. Property Fund Manager 17th August 2017