BT Pension Scheme Voting Policy

Voting Policy

We aspire to vote all of our directly held equities and bonds and will support the recommendations of a company’s board unless we have a good reason not to do so.

We outsource our proxy voting to Hermes Equity Ownership Services (EOS) and, where appropriate, we delegatevoting to investment managers which can demonstrate strong capabilities.

ThisPolicy guides EOS and our investment managers to vote our proxiesin a way that is consistent with a range of best practice standards while also factoring in relevant regional differences in governance practice.

Global Approach

Our voting policy is guided by two main global governance standards. The first set of principles on which voting decisions are made are the OECD Principles of Corporate Governance (2004)[1]. These Principles cover six main areas, listed below.

OECD Principles of Corporate Governance

  1. Ensuring the basis for an effective corporate governance framework
  2. The rights of shareholders and key ownership functions
  3. The equitable treatment of shareholders
  4. The role of stakeholders in corporate governance
  5. Disclosure and transparency
  6. The responsibilities of the board

With regard to voting decisions, those Principles of most frequent relevance relate to: equitable treatment of shareholders, disclosure and transparency, and responsibilities of the board.

Voting decisions are also guided by the ICGN Global Corporate Governance Guidelines (2009)[2]. While based on the above-referenced OECD principles, the ICGN guidelines include more detail covering nine main areas, listed below.

ICGN Global Corporate Governance Guidelines

  1. Corporate objective
  2. Corporate boards
  3. Corporate culture
  4. Risk Management
  5. Remuneration
  6. Audit
  7. Disclosure and transparency
  8. Shareholder rights
  9. Shareholder responsibilities

The ICGN guidelines also offer greater guidance on two areas of remuneration, executive remuneration and non-executive director remuneration, via two additional guidance documents which are also followed when making voting decisions. Those ICGN guidelines of most frequent relevance to voting relate to: corporate boards, remuneration, audit, and shareholder rights.

Regional Differences

Because governance conventions differ across global markets, it is necessary to tailor our proxy voting to accepted local market conventions. Local market conventions are applied in 16 markets (listed below) around the world as a final overlay in the voting decision-making process.

EOS Regional Principles

  1. Australia
  2. Austria
  3. Brazil
  4. Canada
  5. France
  6. Germany
  7. Italy
  8. Japan
  9. Latin America
  10. Russia
  11. South Africa
  12. Singapore
  13. Spain
  14. Sweden
  15. Switzerland
  16. United Kingdom
  17. United States

Regional principles build onassociated local market standards for 14 of the 16 regional principles. These local market standards are listed below.

Associated Local Market Standards

  1. Austria: Austrian Corporate Governance Code[3]
  2. Australia:The ASX Corporate Governance Principles[4]
  3. Brazil:Instituto Brasileiro de Governança Corporativa’s “Code of Best Practice”[5]
  4. France:The Principles for the Corporate Governance of Listed Companies[6]
  5. Germany:The German Corporate Governance Code[7]
  6. Italy:The Italian Corporate Governance Code[8]
  7. Japan:The Asian Corporate Governance Association’s “White Paper on Corporate

Governance in Japan”[9]

  1. Latin America:The Latin American Roundtable’s “White Paper on Corporate Governance”[10]
  2. Russia:The Federal Commission for the Securities Markets’ “Code of Corporate

Conduct”, the OECD’s “White Paper on Corporate Governance in Russia”[11] and the new Russian corporate governance code[12]

  1. Singapore: Code of Corporate Governance[13]
  2. South Africa:King Code III[14]
  3. Spain:The Comisión Nacional del Mercado de Valores’ “Unified Good Governance

Code of Listed Companies”[15]

  1. Sweden:The Swedish Code of Corporate Governance[16]
  2. Switzerland:Swiss Code of Best Practice for Corporate Governance[17]
  3. United Kingdom:The UK Corporate Governance Code[18] and Stewardship Code[19]

Working with other Institutional Investors

Asappropriate, on the Scheme’s behalf,EOS will work with other major institutional shareholders and bondholders, through forums such as the PRI Clearinghouse,ahead of company engagement and voting decisions.

Conflicts

Where EOS identify or are made aware of any potential conflicts between the actions of EOS as an agent and the interests of BTPS, they must discuss this immediately with the relevant BTPSM personnel including Compliance. BTPSM will obtain from BT Group Plc a register of its board members directorships and their other interests and supply this register to EOS on a bi-annual basis. This should be used by EOS to monitor and manage any conflicts of interest when voting with permission on the Scheme’s behalf.

In the event that we are both shareholders and bondholders of the same distressed company, EOS will need to discuss this immediately with BTPSM so that the appropriate voting action can be agreed to maximise long-term value for the Scheme as a whole.

Implementation, oversight and reporting

Our votes are cast on an electronic voting platform currently provided by ISS.The Scheme’s voting activities are overseen by BTPSM. The Trustee Responsible Investment Oversight Committee monitors major voting decisions on a quarterly basisand details of the Scheme’s voting records are made available to Scheme members and other stakeholders on the BTPS website quarterly in arrears.

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[12]At the time of publication in April 2014, an English language version of the code was unavailable.

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