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Sharp Electronics (UK) Limited Pension Scheme Statement of Investment Principles

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1. Introduction

This Statement of Investment Principles ("SIP") sells out the policy of the Trustees of the Sharp Electronics (UK) Ltd Pension Scheme ("the Trustee") on various matters governing decisions about the investments of the Sharp Electronics (UK) Ltd Pension Scheme ("the Scheme"), a Defined Benefit ("DB") Scheme. This SIP replaces the previous SIP approved in March 2023.

The SIP is designed to meet the requirements of Section 35 (as amended) of the Persons Act 1995 ("the Act"), the Occupational Pension Schemes (Investment) Regulations 2005 (as amended) and the Pension Regulator's guidance for defined benefit pension schemes (March 2017). The SIP also addresses the requirements of the 2019 SIP regulations which implement the European Union Shareholder Rights Directive.

This SIP has been proposed after obtaining and considering written professional advice from LCP, the Scheme's investment adviser, whom the Trustees believe to be suitably qualified and experienced to provide such advice. The advice takes into account the suitability of investments including the need for diversification given the circumstances of the Scheme and the principles contained in this SIP. The Trustees have consulted with the relevant employer in producing this SIP.

The Trustees will review this SIP from time to time and, with the help of their advisers, will amend it as appropriate. These reviews will take place as soon as practicable after any significant change in investment policy and at least once every three years.

• Appendix 1 sets out details of the Scheme's Investment governance structure, including the key responsibilities of the Trustees, Investment advisers and Investment managers. It also contains a description of basis of remuneration of the investment adviser and the investment managers.
• Appendix 2 sets out the Trustees' policy towards risk appetite, capacity, measurement and management.

2. Investment Objectives

The Trustees' primary objective for the Scheme is to ensure that the Scheme should be able to meet benefit payments as they fall due. A secondary objective is that the Scheme should be fully funded (ie the asset value should be at least that of its liabilities). The Trustees are aware that there are various measures of funding, and have given due weight to those considered most relevant to the Scheme.

The Trustless' investment objective is to maximise the return on the Scheme's assets whilst managing and maintaining investment risk at an appropriate level, and taking into account the primary objective and the strength of the covenant of the sponsoring employers.

3. Investment Strategy

The Trustees, with the help of their advisers and in consultation with the employer, reviewed the investment strategy in November 2023, taking into account the objectives described in Section 2 above. The result of the most recent review for the Scheme was that the Trustees agreed that the investment strategy of the Scheme should be initially based on the allocation below.

Asset class	Strategic allocation
Corporate bonds / asset-backed securities	50%
Liability Driven Investment ("LDI") / Liquidity	50%
Total	100%

The target level of interest rate and inflation hedging is to be broadly in line with the estimated funding level, on a Technical Provisions basis.

Following the 31 March 2023 valuation, the Trustees decided to de-risk the Scheme's assets in order to reduce the risk that the funding position will deteriorate materially in the future and to increase portfolio liquidity. The Trustees are in the process of implementing the agreed strategy at the time of writing, and so allocations may differ from the table above until complete.

There is no formal rebalancing policy. The Trustees monitor the asset allocation from time to time. If material deviations from the strategic allocation occur, the Trustees will consider with their advisers whether it is appropriate to rebalance the assets, taking into account factors such as market conditions and anticipated future cash flows.

4. Considerations in setting the investment arrangements

When deciding how to invest the Scheme's assets, the Trustees consider a number of risks, including, but not limited to, those set out in Appendix 2. Some of these risks are more quantifiable than others, but the Trustees have tried to allow for the relative importance and magnitude of each risk.

In setting the strategy the Trustees took into account:

• the Scheme's investment objectives, including the target return required to meet the Trustees' investment objectives;
  • the Scheme's cash flow requirements in order to meet benefit payments in the near to medium term;
  • the best interests of all members and beneficiaries;
• the circumstances of the Scheme, including the profile of the benefit cash flows (and the ability to meet those in the near to medium term), the funding level, and the strength of the employer covenant.
• the risks, rewards and suitability of a number of possible asset classes and investment strategies and whether the return expected for taking any given investment risk is considered sufficient given the risk being taken; and
• the need for appropriate diversification between different asset classes to ensure that both the Scheme's overall level of investment risk and the balance of individual asset risks are appropriate.

5. Implementation of the investment arrangements

Before Investing in any manner, the Trustees obtain and consider proper written advice from their investment adviser on the question of whether the investment is satisfactory, having regard to the need for suitable and appropriately diversified investments.

The Trustees have signed agreements with the investment managers selling out in detail the terms on which the portfolio are to be managed. The investment managers' primary role is the day-to-day Investment management of the Scheme's investments. The managers are authorised under the Financial Services and Markets Act 2000 (as amended) to carry out such activities.

The Trustees and investment managers to whom discretion has been delegated exercise their powers to giving effect to the principles in this Statement of Investment Principles, so far as is reasonably practicable.

The Trustees have limited influence over managers' investment practices because all the Scheme's assets are held in pooled funds, but they encourage their managers to improve their practices where appropriate.

The Trustees' view is that the fans paid to the investment managers, and the possibility of their mandate being terminated, ensure they are incentivised to provide a high quality service that meets the stated objectives, guidelines and restrictions of the fund. However, in practice managers cannot fully align their strategy and decisions to the (potentially conflicting) policies of all their pooled fund investors in relation to strategy, long term performance of debt/equity issuers, engagement and portfolio turnover.

It is the Trustees' responsibility to ensure that the managers' investment approaches are consistent with their policies before any new appointment, and to monitor and to consider terminating any existing arrangements that appear to be involving contrary to those policies. The Trustees expect investment managers, where appropriate, to make occasions based on assessments of the longer term financial and non-financial performance of debt/equity issuers, and to engage with issuers to improve their performance. They assess this when selecting and monitoring managers.

The Trustees evaluate investment manager performance by considering performance over both shorter and longer-term periods as available. Except in any closed-ended funds where the duration of the investment is determined by the fund's terms, the duration of a manager's appointment will depend on strategic considerations and the outlook for future performance. Generally, the Trustees would be unlikely to terminate a mandate on short-term performance grounds acne.

The Trustees' policy is to evaluate each of their investment managers by reference to the manager's individual performance as well as the role it plays in helping the Scheme meet its overall long-term objectives, taking account of risk, the need for diversification and liquidity. Each manager's remuneration, and the value for money it provides, is assessed in light of these considerations.

The Trustees recognise that portfolio turnover and associated transaction costs are a necessary part of investment management and that the impact of portfolio turnover costs is reflected in performance figures provided by the investment managers. The Trustees expect their investment consultant to incorporate portfolio turnover and resulting transaction costs as appropriate in its advice on the Scheme's investment mandates.

6. Realisation of investments

The investment managers have discretion over the timing of realisation of investments of the Scheme within the portfolios that they manage, and in considerations relating to the liquidity of investments.

When appropriate, the Trustees, on the administrators' recommendation, decide on the amount of cash required for benefit payments and other outgolngs and inform the investment managers of any liquidity requirements. The Trustees' preference is for investments that are readily realisable, but recognise that achieving a well-diversified portfolio may mean holding some investments that are less liquid (eg property). In general, the Trustees' policy is to use cash flows to rebalance the Scheme's assets towards the strategic asset allocation.

7. Consideration of financially material and non-financial matters

The Trustees have considered how environmental, social, governance ("ESG") and ethical factors should be taken into account in the selection, retention and realisation of investments, given the time horizon of the Scheme and its members.

The Trustees have limited influence over managers' investment practices where assets are held in pooled funds but expect their investment managers to take account of financially material considerations (including climate change and other ESG considerations) as the managers consider appropriate, and will from time to time review how their managers are taking account of these issues in practice.

The Trustees consider climate change to be a financially material systemic issue that presents risks and opportunities for the Scheme over the short, medium and long term. The Trustees' ambition is to align their assets with not zero greenhouse gas emissions by 2050 through selecting managers, and investing in funds, with credible not zero targets. The Trustees have set the net zero ambition to help the Scheme better manage the financial impact of the transition risks and physical risks of climate change. The Trustees do not take into account any non-financial matters (e meters relating to the ethical and other views of members and beneficiaries, rather than considerations of financial risk and return) in the sevotion, retention and realisation of investments.

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8. Stewardship

The Trustees recognize their responsibilities as owners of capital, and believe that good stewardship practices including monitoring and engaging with investors companies, and exercising voting rights attaching to investments, protect and enhance the long term value of investments. The Trustees have delegated to their investment managers the exercise of rights attaching to investments, including voting rights, and engagement with issuers of debt and equity and other relevant persons about relevant matters such as performance, strategy, risks and ESG considerations.

The Trustees on not monitor or engage directly with issuers or other holders of debt or equity. They expect the investment managers to exercise ownership rights and undertake monitoring and engagement in line with the managers' general policies on stewardship, as provided to the Trustees from time to time, taking into account the long-term financial interests of the beneficiaries. The Trustees seeks to appoint managers that have strong stewardship policies and processes, reflecting where relevant the recommendations of the UK Stewardship Code issued by the Financial Reporting Council, and from time to time the Trustees review how these are implemented in practice.

The Trustees have selected some priority ESG themes to provide a focus for their monitoring of the Scheme's Investment managers' voting and engagement activities. The Trustees review the themes regularly and update them if appropriate. The Trustees communicate these stewardship priorities to the Scheme's managers.

If the monitoring identifies areas of concern, the Trustees will engage with the relevant manager to encourage improvements.

Approved by the Trustees of the Sharp Electronics (UK) Ltd Pension Scheme on 29 February 2024.

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Appendix One

Investment governance, responsibilities, decision-making and fees

The Trustees have decided on the following division of responsibilities and decision making for the Scheme. This division is based upon the Trustees' understanding of the various legal requirements placed upon them, and their view that the division of responsibility allows for efficient operation and governance of the Scheme overall, with access to an appropriate level of expert advice and service. The Trustees' investment powers are set out within the Scheme's governing documentation.

1. Trustees

In broad terms, the Trustees are responsible in respect of investment matters for:

• developing a mutual understanding of investment and risk issues with the employer.
- setting the investment strategy, in consultation with the employer;
• formulating a policy in relation to financially material considerations, such as those relating to ESG considerations (including but not limited to climate change);
- setting the policy for rebalancing between asset classes;
- setting a policy on the exercise of rights (including voting rights) and undertaking engagement activities in respect of the investments;
- appointing (and, when necessary, dismissing) investment managers, investment advisers, actuary and other service providers;
• monitoring the exercise of the investment powers that they have delegated to the investment managers and monitoring compliance with Section 36 of the Act;
- communicating with members as appropriate on investment matters;
• reviewing the investment policy as part of any review of the investment strategy;
• reviewing the content of this SIP from time to time and modifying it if deemed appropriate; and
• consulting with the employer when reviewing the SIP.

2. Investment managers

In broad terms, the investment managers will be responsible for:

• managing the portfolios of assets according to their stated objectives, and within the guidelines and restrictions set out in their respective investment manager agreements and/or other relevant governing documentation;
• taking account of financially material considerations as appropriate when managing the portfolios of assets (including climate change, net zero alignment and other Environmental, Social and Governance ("ESG") considerations) as appropriate in managing the assets;
  • exercising rights (including voting rights) attaching to investments and undertaking engagement activities in respect of investments;
  • providing the Trustees with regular information concerning the management and performance of their respective portfolios including information on voting and engagement undertaken and progress on not zero alignment over time; and
  • having regard to the provisions of Section 36 of the Act insofar as it is necessary to do so.

The custodians of the portfolios (whether there is a direct relationship between the custodian and the Trustees or not) are responsible for safe keeping of the assets and facilitating all transactions within the portfolios.

3. Investment adviser

In broad terms, the investment adviser will be responsible, in respect of investment matters, as requested by the Trustees, for:

• advising on how material changes within the Scheme's benefits, membership, and funding position may affect the manner in which the assets should be invested and the asset allocation policy;
• advising on the selection, and review, of the investment managers incorporating its assessment of the nature and effectiveness of the managers' approaches to 'financially material considerations (including climate change and other ESG considerations);
• participating with the Trustees in reviews of this SIP; and
  • supporting the Trustees in achieving the Scheme's net zero ambition, including through manager selection, monitoring and engagement.

4. Fee structures

The Trustees recognise that the provision of investment management and advisory services to the Scheme results in a range of charges to be met, directly or indirectly, by deduction from the Scheme's assets.

The Trustees have agreed Terms of Business with the Scheme's actuarial and investment advisers, under which work undertaken is charged for by an agreed fixed fee or on a "time-cost" basis.

The Investment managers receive fees calculated by reference to the market value of assets under management. The fee rates are believed to be consistent with the managers' general terms for institutional clients and are considered by the Trustees to be reasonable when compared with those of other similar providers.

The Trustees have appointed a custodian in respect of the Scheme's assets managed by Insight Investment Management (Global): Limited. The Trustees have entered into an agreement with the custodian whereby the fees in relation to the ongoing custodial management of the Scheme's assets will be met by Insight Investment Management (Global): Limited.

The fee structure used in each case has been selected with regard to existing custom and practice, and the Trustees' view as to the most appropriate arrangements for the Scheme. However, the Trustees will consider revising any given structure if and when it is considered appropriate to do so.

5. Performance assessment

The Trustees are satisfied, taking into account the external expertise available, that there are sufficient resources to support their investment responsibilities. The Trustees believe that they have sufficient expertise and appropriate training to carry out their role effectively.

It is the Trustees' policy to assess the performance of the Scheme's investments, investment providers and professional advisers from time to time. The Trustees will also carry out periodically an assessment of their own effectiveness as a decision-making body and will decide how this may then be reported to members.

APPENDIX 2

Policy towards risk

1. Risk appetite and risk capacity

Risk appetite is a measure of how much risk the Trustees are willing to bear within the Scheme in order to meet their investment objectives. Taking more risk is expected to mean that those objectives can be achieved more quickly, but it also means that there is a greater likelihood that the objectives are missed, in the absence of remedial action. Risk capacity is a measure of the extent to which the Trustees can tolerate deviation from their long-term objectives before attainment of those objectives is seriously impaired. The Trustee's aim is to strike the rights balance between risk appetite and risk capacity.

When assessing the risk appetite and risk capacity, the Trustees considered a range of qualitative and quantitative factors, including

• the strength of the employer's covenant and how this may change in the near/medium future;
• the agreed journey plan and employer contributions;
• the Scheme's long-term and shorter-term funding targets;
  the Scheme's liability profile, its interest rate and inflation sensitivities, and the extent to which these are hedged;
• the Scheme's cash flow and target return requirements; and
  • the level of expected return and expected level of risk (as measured by Value at Risk ("VaR")), now and as the strategy evolves.

2. Approach to managing and monitoring investment risks

The Trustees consider that there are a number of different types of investment risk that are important to manage and monitor. These include, but are not limited to:

2.1. Risk of inadequate returns

A key objective of the Trustees is that, over the long-term, the Scheme should generate its largest return so that it has adequate assets to meet its liabilities as they fail due. The Trustees therefore invest the assets of the Scheme to produce a sufficient long term return in excess of the liabilities. There is also a risk that the performance of the Scheme's assets and liabilities diverges in certain financial and economic conditions in the short term. This risk has been taken into account in setting the investment strategy and is monitored by the Trustees on a regular basis.

2.2. Risk from lack of diversification

This is the risk that failure of a particular investment, or the general poor performance of a given investment type, could materially adversely affect the Scheme's assets. The Trustees believe that the Scheme's assets are adequately diversified between different asset classes and within each asset class. This was a key consideration when determining the Scheme's Investment arrangements and is monitored by the Trustees on a regular basis.

2.3. Investment Manager Risk

This is the risk that an investment manager fails to meet its investment objectives. Prior to appointing an investment manager, the Trustees receive written advice from a suitably qualified individual and will typically undertake an investment manager selection exercise. The Trustees monitor the investment managers on a regular basis to ensure they remain appropriate for their selected mandates.

2.4. Climate-related risks

Climate change is a source of risk, which could be financially material over both the short and longer term. This risk relates to the transition to a low carbon economy, and the physical risks associated with climate change (eg extreme weather). The Trustees seek to appoint investment managers who will manage this risk appropriately, and then monitor how this risk is being managed in practice. The Trustees encourage their managers (where practical) to sell credible net zero targets for the funds in which they invest and to align their investments with net zero green-use gas emissions by 2050 to help drive real world emissions reduction and reduce systemic risks relating to climate change. The Trustees monitor and engage with their managers on their progress towards net zero alignment.

2.5. Other environmental, social and governance (ESG) risks

ESG factors are sources of risk, which could be financially material over both the short and longer term. These include risks relating to unsustainable or socially harmful business practices, and unsound corporate governance. The Trustees seek to appoint investment managers who will manage these risks appropriately and monitor how these risks are being managed in practice.

2.6. Liquidity/marketability risk

This is the risk that the Scheme is unable to realise assets to meet benefit cash flows as they fall due, or that the Scheme will become a forced seller of assets in order to meet benefit payments. The Trustees are aware of the Scheme's cash flow requirements and believe that this risk is managed by maintaining an appropriate degree of liquidity across the Scheme's investments.

2.7. Collateral adequacy risk

The Scheme is invested in leveraged Liability Driven Investment ("LDI") arrangements to provide protection ("hedging") against adverse changes in interest rates and inflation expectations. The LDI manager may from time to time call for additional cash to be paid to the LDI portfolio in order to support a given level of leverage. Collateral adequacy risk is the risk that the Trustee when requested to do so will not be able to post additional cash to the LDI fund within the required timeframe. A potential consequence of this risk is that the Scheme's interest rate and inflation hoogling could be reduced, and that the Scheme's funding level could suffer subsequently as a result. In order to manage this risk, the Trustee ensure that the Scheme has sufficient allocation to cash and other highly liquid assets which can be readily realised, so that cash can be posted to the LDI manager at short notice.

2.8 Credit Risk

The Scheme is subject to credit risk because it invests in bonds via pooled funds. This risk is managed by only investing in pooled funds that have a diversified exposure to different credit issuers, and primarily invest in bonds that are classified as 'investment grade'.

2.9. Interest rate and inflation risk

The Scheme's assets are subject to interest rate and inflation risk because some of the Scheme's assets are held in bonds or interest /inflation rate swaps via pooled funds. However, the interest rate and inflation risk to which the Scheme's assets are exposed serves to hedge part of the interest rate and inflation risk associated with the Scheme's liabilities. The net effect will be due to the volatility of the funding level, and so the Trustees believe that it is appropriate to have exposures to those risks in this manner.

2.10. Counterparty risk

This is the risk that one party to a contract (such as a derivative instrument; causes a financial loss to the other party by failing to discharge a contractus obligation. This risk applies in particular for those contracts that are traded directly between parties, rather than traded on a central exchange.

In particular, Insight makes use within its fund of derivative and git repos contracts and this fund is used to match efficiently a portion of the Scheme's liabilities. Counterparty risk is managed within the fund through careful initial section and ongoing monitoring of trading counterparties, counterparty diversification and a robust process of daily collateralisation of each contract, to ensure that counterparty risk is limited, as far as possible, to one day's market movements.

2.11. Other non-investment risks

The Trustees recognise that there are other, non-investment, risks faced by the Scheme, and takes these into consideration as far as practical in setting the Scheme's investment arrangements.

Examples include:

- longevity risk (the risk that members live, on average, longer than expected); and

• sponsor covenant risk (the risk that, for whatever reason, the sponsoring employer is unable to support the Scheme as anticipated).

Together, the investment and non-investment risks give rise generally to funding risk. This is the risk that the Scheme's funding position falls below what is considered an appropriate level. By understanding and considering the key risks that contribute to funding risk, the Trustees believe that they have appropriately addressed and are positioned to manage this general risk.