definedbenefit overall investment policy falls into three

MMC UK Pension Fund

The Trustee of the MMC UK Pension Fund is MMC UK Pension Fund Trustee Ltd, whose registered office is

1 Tower Place West, Tower Place, London EC3R 5BU. Registered in England and Wales. Registered Number 589230

Bruce Rigby

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MMC UK Pension Fund(“the Fund”) – Defined Benefit(“DB”) SectionAnnual Implementation Statement –31 December 2020

1. Introduction

This statement, prepared by the Trustee of the Fund(“the Trustee”), sets out how, and the extent to which,the Statement of Investment Principles (“SIP”) hasbeen followed during the year to 31 December 2020(“the Fund year”). This statement covers the DB Sectionof the Fund and should be read in conjunction with theDB Section SIP1. A separate statement has beenprepared for the Defined Contribution section.

This statement also includes a summary of the votingactivity that was carried out on behalf of the Trusteeover the Fund year by the investment managers.

2. Statement of Investment Principles

2.1. Investment Objectives of the Fund

The objectives of the Fund included in the DB SectionSIP are as follows:

• Invest the assets in such a manner thatmembers’ benefit entitlements can be paid asthey fall due. To effect this, the Trustee is aimingto achieve and maintain a funding level of atleast 100% on a low risk measurement basis.

• The Trustee recognises the need for investmentreturn in order to deliver the above objective.Recognising the strength provided by theCompany’s covenant, the Trustee is thereforeprepared to accept some risk in pursuit of thisinvestment return in a controlled manner byinvesting, for example, in equities and otherreturn seeking asset classes, and by using activefund managers for certain asset classes. Overthe long term, the investment strategy is

1Available on the member website:https://pensions.uk.mmc.com/index.html

expected to provide a return above thatassumed in the low risk liability measurement.

2.2. Review of the SIP

During the year, the Trustee reviewed and amendedthe Fund’s SIP formally on two occasions, takingformal advice from the investment consultant(“Mercer”) on both occasions.

The most recent SIP updated to 31 December 2020included the following revisions:

• Changes to ‘de-risk’ the investment strategy forthe Mercer and Sedgwick Sections followingimprovements in funding level.

• Updates to provide increased clarity on the rolesand responsibilities of the Fund’s discretionaryinvestment manager, Mercer Global InvestmentsEurope Limited (“MGIE”).

• Updates to reflect the new requirements underThe Occupational Pension Scheme (Investmentand Disclosure) (Amendment) Regulations 2018relating to the Trustee’s policy in relation to theirarrangements with their investment managers,including:

─ The relevant matters which the investmentmanagers’ engagement policies are expectedto include

─ How the arrangements incentivise theinvestment managers to align theirinvestment strategies and decisions with theTrustee’s investment policies

─ How the arrangements incentivise theinvestment managers to make decisionsbased on assessments about medium to long-term financial and non-financial performanceof an issuer of debt or equity and to engagewith issuers of debt or equity in order toimprove their performance in the medium tolong-term

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─ How the method (and time horizon) of theevaluation of the investment managers’performance and the remuneration for assetmanagement services are in line with theTrustee’s investment policies

─ How the Trustee monitors “portfolio turnovercosts” incurred by the investment managers,and how they define and monitor targetedportfolio turnover or turnover range

─ The duration of the arrangement with theinvestment managers.

2.3. Assessment of how the policies in the SIPhave been followed for the year to 31December 2020

The information provided in the following sectionhighlights the work undertaken by the Trustee duringthe Fund year to 31 December 2020 and sets out howthis work followed the Trustee’s policies in the SIP.

In summary, it is the Trustee’s view that the policiesin the SIP have been followed during the Fund year to31 December 2020.

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Strategic Asset Allocation

Policy Location in SIP How the policy has been met over the year to 31 December 2020

1Kind of investments to beheld and the balancebetween different kinds ofinvestments

Section 2.2

No new investments were implemented during the course of the Fund year, and the Trustee continues tohold investments within the Fund that are consistent with the policies in the SIP.

The Trustee de-risked the investment strategy for the Mercer and Sedgwick Sections. De-risking for bothSections was implemented via a reduction in the exposure to global equities.

2Risks, including the waysin which risks are to bemeasured and managed

Section 2.2

As detailed in the SIP, the Trustee considers both quantitative and qualitative measures for risks whendeciding investment policies, strategic asset allocation and the choice of fund managers / funds / assetclasses.

As part of their regular quarterly investment performance monitoring, the Trustee monitored changes inthese risks and the resulting impact on each Section. The Integrated Risk Management (‘IRM’) quarterlyreport monitors interest rate, inflation risk, equity risk, liquidity risk, longevity risk, covenant risk and creditrisk. These reviews were provided by the Fund’s investment advisor.

3 Expected Return onInvestments Section 2.3

As noted previously, the Trustee is aiming to achieve and maintain a funding level of at least 100% on alow risk measurement basis and will take investment risk in order to generate returns in pursuit of its long-term investment objective. The investment strategy set by the Trustee will determine the level ofinvestment returns that can be generated by the Fund’s assets.

In the quarterly IRM reports, the Trustee monitored the expected asset return for each Section’sinvestment strategy relative to the required return to meet all projected cashflows.

Investment Mandates


4Securing compliance withthe legal requirementsabout choosinginvestments

Section 1The Fund’s investment advisors attended all Trustee and Investment Committee meetings during the year.The investment advisors provided updates on fund performance and, where required, appropriateness ofthe funds used, as well as advice on asset allocation and investment risks.

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5 Realisation of Investments Section 3 and 4.1

The Trustee invests the assets of the Fund in a number of pooled and segregated portfolios. Theinvestment managers have discretion over the investment of the assets, subject to the restrictions set outin their respective investment management agreements (“IMA”) or pooled fund guidelines, which definethe funds’ liquidity requirements and dealing frequency. The Trustee has set a policy to address theexpected cashflow requirements of the Fund.

In line with the policy in place, disinvestments were made from the LGIM Global Equity and Insight LiabilityDriven Investment (“LDI”) portfolios throughout the year to meet cashflow requirements, includingpensioner payments.

From Q2 2020, Aberdeen Standard, Threadneedle and Mercer temporarily suspended dealing in theproperty funds, in which the Fund invests. This arose as valuation firms were unable to make reliablejudgments on the value of the underlying properties within the funds due to the increased market volatilitycaused by the COVID-19 pandemic. All suspended funds resumed dealing by the calendar year end. TheFund was not impacted by these dealing suspensions.

There were no other changes during the year to the liquidity of the funds used by the Fund.

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Financial and non-financialconsiderations and howthose considerations aretaken into account in theselection, retention andrealisation of investments

Section 2.2, 4.3,4.4 & 5.5

The Trustee’s policy with respect to the selection, retention and appointment of investment managers wasupdated during the year to reflect the new requirements outlined earlier in Section 2.2.

The Trustee utilises Mercer’s manager research ratings when making decisions around selection,retention and realisation of manager appointments. For all Sections of the Fund, the Trustee’s focus is onthe medium and long-term financial and non-financial performance, but will put a manager ‘on watch’ ifthere are sustained short-term performance concerns. As at 31 December 2020, the Trustee’s investmentadvisor had placed one manager on watch following changes in senior management.

Over the year, the Trustee agreed to terminate the appointment of Copper Rock for the management ofthe Global Small Cap Equity allocation due to sustained underperformance. The allocation was replacedwith the Mercer Global Small Cap fund for the Marsh and Mercer Sections.

For the Sedgwick Section, the small cap equity allocation was removed and the allocation to globaldeveloped world equity was increased as a way to reduce some investment risk in the broader assetallocation for the Section and to simplify the equity portfolio. It was also agreed to terminate the EmergingMarket Equity appointments with T Rowe Price and Ninety One on risk management grounds, rather thanmanager performance concerns, with the proceeds invested in LGIM passive global developed marketequity.

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A number of the key investment risks identified in the SIP were measured and managed as part ofreviewing investment performance at Trustee meetings. In particular, the Sections’ exposure to equity riskand to liability risks, such as interest rate and inflation.

During the year, the Trustee also implemented some tactical equity and interest rate hedging to furtherreduce risk and improve funding level stability. Across all Sections, the process in place to remove thecurrency exposure of the global corporate bonds was made more efficient. This change was implementedfollowing volatile currency movements at the start of the COVID-19 pandemic.

Member views are not taken into account in the selection, retention or realisation of investments.

Monitoring the Investment Managers


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Incentivising investmentmanagers to align theirinvestment strategies anddecisions with theTrustees’ policies

Section 4.4

The Trustee’s policy on investment manager incentivisation was added during the year to reflect the newrequirements outlined earlier in Section 2.2.

If an investment manager is not meeting performance objectives or targets, or the investment objectivesfor a mandate have changed, the Trustee will review the fund appointment to ensure it remainsappropriate and consistent with the Trustee’s wider investment objectives. Manager appointments werereviewed over the Fund year. For further detail on the actions taken by the Trustee, please refer to policy5 above.

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How the arrangementincentivises the assetmanager to makedecisions based onassessments aboutmedium to long-termfinancial and non-financialperformance of an issuerof debt or equity and toengage with issuers ofdebt or equity in order toimprove their performancein the medium to long-term

Section 4.4

The Trustee’s policy on investment manager incentivisation was added during the year to reflect the newrequirements outlined earlier in Section 2.2.

The assessments of the medium to long-term financial and non-financial performance of an issuer aremade by the underlying third party asset managers appointed by MGIE and the asset managers heldexternally to MGIE. The Trustee’s view is that these managers are in a position to engage directly withsuch issuers in order to improve performance in the medium to long term.

Over the year, the Trustee monitored how each asset manager embeds ESG into their investmentprocess and how the managers’ responsible investment philosophy aligns with the Trustee’s ownresponsible investment policy via changes in the ESG ratings assigned by Mercer.

As part of this implementation statement process, the Trustees has also received and considered keyvoting and engagement information from the managers, which is summarised in the Voting andEngagement Activity section that follows.

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Evaluation of theinvestment manager’sperformance and theremuneration for assetmanagement services

Section 4.4

The Trustee’s policy on performance evaluation and investment manager remuneration was added duringthe year to reflect the new requirements outlined earlier in Section 2.2.

To evaluate performance in respect of the investment managers, the Trustee received and discussedinvestment performance reports on a quarterly basis. The reports presented performance information andcommentary in respect of the Fund’s funding level and investments. Such reports have informationcovering fund performance for the previous 3 months, 1 year and 3 years for the investment managersand at the total Section level. The Trustee’s Investment Committee reviewed the absolute performance,the relative performance against a suitable index used as the benchmark, and against the manager’sstated target performance (over the relevant time period) on a net of fees basis.

In addition, the Trustee monitored the investment and Environmental, Social and Governance (“ESG”)ratings assigned to each manager by Mercer on a quarterly basis.

The investment managers’ fees were outlined in the quarterly investment strategy reports prepared for theTrustee, excluding performance-related fees and other expenses involved in the Mercer Funds not directlyrelated with the management fee. No issues were identified.

During the year, the following fee savings were achieved:

• The LDI portfolio, managed by Insight Investment, was restructured to improve overall efficiency in theway the assets meet the investment objectives of the Trustee. This resulted in a reduction in theoverall annual management charge by the LDI manager.

• Renegotiation of the Buy and Maintain credit portfolio, managed by Janus Henderson, resulting in afee reduction, effective Q3 2020.

• The transition from Copper Rock to the Mercer Small Cap Equity fund (which was implemented due toperformance concerns – see policy 6 for further information) resulted in a reduction in annualmanagement charges.

• MGI was appointed as cash manager for the UK Cash Fund, resulting in a fee reduction relative to theprior arrangement.

• The fee for the passive equity mandate, managed by LGIM, was reduced to reflect the size of theassets under management with LGIM.

10 Monitoring portfolioturnover costs Section 6

The Trustee’s policy on monitoring portfolio turnover costs was added during the year to reflect the newrequirements outlined earlier in Section 2.2.

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At present, the Trustee does not formally monitor investment manager portfolio turnover costs but arelooking to incorporate this into its wider investment manager monitoring process.

As part of this implementation statement process, the Trustee has requested portfolio turnover costs frominvestment managers and will consider the analysis in 2021.

11The duration of thearrangement with theinvestment manager

Section 4.4

The Trustee’s policy on the duration of an investment manager’s appointment was added during the yearto reflect the new requirements outlined earlier in Section 2.2.

Investment managers are aware that their continued appointment is based on their success in deliveringthe mandate for which they have been appointed to manage. If the Investment Committee is dissatisfied,then they will look to replace the manager.

The Trustee is a long term investor. For open-ended funds, there is no set duration for the managerappointments.

The private equity and private debt mandates are in closed-ended funds and the Fund is invested in theseassets for the lifetime of each individual fund. At the time of appointment, the investment managersprovided an indication of the expected investment duration of their funds and have the discretion to extendthe lifetime of the fund in line with the contractual documentation. Several of the legacy private equityfunds, which are in the mature phase of their investment cycle, have extended the lifetime of the funds.

In the first quarter of 2020, the Trustee agreed not to make any further new commitments to private debtfor any of the Sections in order to help improve the longer-term liquidity of the overall assets.

ESG Stewardship and Climate Change


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Undertaking engagementactivities in respect of theinvestments (including themethods by which, and thecircumstances under which,trustee would monitor andengage with relevant personsabout relevant matters)

Section 5.3

There were no changes to the Trustee’s engagement policy during the Fund year.

In summary, the Trustee expects manager’s engagement policies to include all relevant matters, asdefined in the investment regulations. The Trustee reviews investment managers’ policies and voting andengagement activities (where applicable) on an annual basis.

The Trustee monitored the investment and ESG ratings assigned to each manager by Mercer on aquarterly basis via the investment reports and in Trustee meetings.

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In addition, Mercer informs the Trustee of any changes to the investment or ESG ratings for the Fund’smanagers as and when changes occur. Over the year, there were ESG rating changes to severalmanagers that the Fund invests in and these were noted by the Trustee.

The Trustee has an ESG Implementation Plan, which sets out a structured plan for the Trustee to coverESG, climate change and stewardship actions. Progress against this plan was reviewed at each quarterlyInvestment Committee meeting.

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Voting Disclosures


13The exercise of the rights(including voting rights)attaching to theinvestments

Section 5.3

In summary, the Trustee requires managers to vote on all actions, unless to do so would be detrimental tothe Fund, and to report any exceptions.

The Trustee has delegated their voting rights to the investment managers and also expect theirinvestment managers to engage with the investee companies on their behalf. There has been nosignificant change in this policy during the year and the policy reflects current practice. The Trustee hasrequested key voting activities from their managers during the Fund year. The information received issummarised in the Engagement and Voting Activity section that follows.

Responsible Investment Activity by the Trustee during the Fund year

Climate Scenario Analysis for the Mercer Section

Mercer (the investment consultant) evaluated the sensitivity of the asset portfolio for the MercerSection to various climate scenarios.

A summary of the analysis was presented to the Investment Committee at a meeting in November2020. For the stress scenarios under consideration, it was found that an adjustment to specific sectors(e.g. energy and utilities) had the potential to reduce expected carbon risks relative to the benchmark.The de-risking plan that is in place for the Section was found to reduce the sensitivity of the investmentportfolio to expected carbon risks, due to the lower exposure to growth assets.

As a result of this analysis, the Trustee agreed to:

− Include climate risk in the scheme’s risk register

− Consider the impact of climate-related risks over the short, medium and long term on theinvestment and funding strategy

− Conduct similar analysis for the other Sections of the Fund

Carbon footprint analysis

MGIE completed a review of the carbon intensity of the Fund’s equity holdings as at 31 August 2020.

The findings were discussed with the Investment Committee at the September meeting. It was foundthat the carbon intensity of the passive LGIM Global Equity fund was in line with the benchmark,whereas the emerging market and small cap holdings had lower carbon intensities relative to thebenchmark.

The Investment Committee agreed to carry out carbon foot-printing analysis on the Fund’s corporatebond portfolios, when there was sufficient data available.

Trustee training

In November 2020, Mercer conducted training session for the Trustee, which considered theanticipated requirements for the governance and reporting of climate related risks.

This training included a review of the Trustee’s ESG Implementation Plan against the TCFD reportingframework. Any gaps identified were used to amend the Plan. Actions added to the Plan include:

− Update the Roles and Responsibilities’ document to cover the climate change delegations inmore detail

− Consider appropriate climate-related targets for the Fund Sections once details are published inthe Pension Schemes bill

Voting and Engagement Activity

Legal & General Global Equity – Top 5 Engagement PrioritiesLegal & General Global Equity, managed by Legal & General Investment Management (‘LGIM’), is the Fund’s largest investment holdingthat has voting rights attached to the underlying assets.

Engagementinpractice:sustainablefoodforthought

Without urgently tackling andreversing deforestation associatedwith food production, meeting thenet zero challenge will beimpossible. LGIM have thereforeengaged both governments andbusinesses on this vital issue.At the national level, followingsteps by the Brazilian governmentto loosen environmentalprotections, in mid-2020 LGIMjoined an investor coalition toengage senior Braziliangovernment officials directly.LGIM expressed their concerns,warning of potential divestment

from local food companies and evengovernment bonds.They have also engaged companieslike consumer goods giants Procter& Gamble and Nestlé on this topic.In the former, LGIM supported ashareholder proposal on theelimination of deforestation from itssupply chain and encouraged thecompany to increase the percentageof sustainably certified pulp it used.With Nestlé, they engaged thecompany in 2020 on sustainabilityissues including water scarcity,packaging, recycling and its supplychain.

Engagementinpractice:bigtech,humanrights&extremecontent

LGIM have recommended thathuman-rights considerations areintegrated into tech giants’ businessstrategies, policies and planning. Aswell as developing a set of investorexpectations for global techcompanies on human rights incollaboration with others, we joined aglobal investor alliance to encourageFacebook, **Alphabet and **Twitterto strengthen controls to prevent thelivestreaming and dissemination ofobjectionable content.

Today, tech companies are integral toglobal society. The internet, mobilephones and social media are part ofthe fabric of our everyday lives. Theirplatforms are used by billions ofpeople each day and have broughtgenuine benefits by improving accessto information and transparency.However, they also bring newchallenges linked to complex issuessuch as the gathering, use andcommercialisation of personal data,content moderation, extremism andterrorism, electoral manipulation andsevere impacts on vulnerable and at-risk groups.

For further information, please visit https://www.lgim.com/uk/en/capabilities/investment-stewardship/active-ownership/

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Fund’s Fixed Income Managers – Engagement in practice

Henderson&JBStacklehumanrights&modern

slaveryrisksHenderson engagedwith JBS on a numberof ESG issues,including supply chainmanagement andtraceability. Efforts toimprove thetraceability of indirectsuppliers werediscussed, coveringthe roll-out of thecompany’s new“green platform” thatwill be used for themapping and analysisof suppliers. JBS aimsto have all of its directsuppliers included inthe platform by 2025.The growth andevolution of thestructure of

the sustainability teamat JBS was discussed,with the companycontinuing to add to theresource within thebusiness. Thecompany’s actions toreduce Modern Slaveryrisks were also a topicof conversation.Although the companyremains exposed tosector level risks, theengagement increasedthe level of comfort thatJBS is taking significantaction to mitigate theserisk where possible.

PGIMaddressemployeediversityissues

PGIM met with theCEO of a verticallyintegrated electriccompany to discusskey environmentaland social concernsincluding reducing itsgreenhouse gasemissions andemployee diversity.At the meeting, thecompany stated theyfeel women areunder-represented intheir employee baseand expect to addressthis issue as turnoverof older employeesoccurs, given asizable portion willbecome

retirement eligible in thenext few years. Theynoted that the pool ofengineering graduates ismuch more diverse nowthan it was whenretirement eligibleemployees were hiredwhich should helpincrease the number ofwomen in its workforce.PGIM viewed thecompany’s employeediversity initiatives areencouraging and webelieve the company istaking the appropriatesteps to address ourissues.

M&GengagewithGSKBoard

M&G held a dedicated engagementwith senior individuals at GSK acrossthe environment, anti-microbial andsupply chain teams. The followingissues were covered: boardresponsibility for meeting climatetargets; technical expertise relating toclimate change; progress on theIndustry Roadmap For Progress onCombating Antimicrobial Resistance(IFPMA); manufacturing and supplychains; current framework formanaging antibiotic discharge frommanufacturing; and supply chain andsupply chain mapping to identify risksand key areas exposed to extremeweather events.

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Votes “for / againstmanagement” assess howactive managers are in votingagainst management and seeksto obtain the rationale behindvoting activities, particularly incases where split votes mayoccur.

Some proposals were unvoted– reasons include conflicts ofinterest, power of attorneymarkets (voting can only becarried out by an individualactually attending the meeting)and share blocking markets(regulatory barriers to voting).

“Other” includes mixed voteswhere managers may havevoted differently acrossaccounts.

Voting Activity during the Fund year

A summary of the voting activity for the Fund’s equity investments is set out below. Over the prior 12 months, the Trustee has not actively challenged the delegatedinvestment manager or the investment manager of each externally managed fund on their voting activity. The Trustee does not use the direct services of a proxyvoter.

1. Both L&G and the company management team voted against the proposal, therefore no rationale is provided.2. Alphabet Inc. (3/6/20), Amazon.com Inc. (27/5/20), American Express Co. (5/5/20), Bank of America Corp. (22/4/20), Facebook Inc. (27/5/20), Intel Corp. (15/4/20), JPMorgan Chase & Co.

L&G /managementvoted forproposal

L&G /managementvoted againstproposal

Sample of signficant votes

There is no official definition of what constitutes a significant vote; managers have adopted a variety of interpretations such as:

• There is a particular interest in a specific vote relating to an issue,

• The potential impact on the financial outcome,

• Size of the holding in the fund / mandate, and

• Whether the vote was high-profile or controversial.

The sample of significant votes highlighted below represent shareholder proposals for the Legal & General Global Equity Fund, whilst taking into account the top 10holdings across the fund. The ‘Vote by Management’ and the ‘Vote by L&G’ highlights whether the company management team and Legal & General voted for () oragainst () the sample proposals shown below. Where Legal & General voted differently to the company management team, a rationale for their decision isprovided.

Issuer Date Vote Category Proposal Vote by L&G Vote by management Rationale

JP Morgan 7/5/20 Environmental

Greenhouse gas(‘GHG’) reductionswith the ParisAgreement

A vote in favour was applied as LGIM expects the company tobe undertaking such analysis and reporting on its transition toa carbon constrained future.

Royal DutchShell Plc 7/5/20 Environmental

Request to set andpublish targets forgreenhouse gasemissions

n/a1

ChevronCorp 19/5/20 Environmental Formation of climate

change committee

A vote in favour was applied as LGIM expects companies toprovide sufficient disclosure on lobbying in relation to climatechange.

Facebook,Alphabet Inc 22/5/20 Social

Board oversight ofCivil & Human RightsRisk

A vote for this proposal is warranted as a board member withspecific expertise would aid the company in its managementof human rights issues.

Alphabet Inc 26/5/20 GovernanceLinking Executive Payto Sustainability &Diversity

A vote for this proposal is warranted because Alphabet'scompensation program lacks performance-based payelements, and the adoption of this proposal may promote amore strongly performance-based pay program for executives.

Severalcompanies2 Various* Governance

Median Gender &Racial Pay EquityReport

A vote in favour is applied as LGIM expects companies todisclose meaningful information on its gender pay gap and theinitiatives it is applying to close any stated gap.

definedbenefit overall investment policy falls into three

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