Statement of Investment Principles

INDUSTRY-WIDE COAL STAFF SUPERANNUATION SCHEME STATEMENT OF INVESTMENT PRINCIPLES 1

This is the Statement of Investment Principles made by the Trustee of the Industry Wide Coal Staff Superannuation Scheme (“the Scheme”) in accordance with the Pensions Act 1995 (as amended). It is subject to periodic review by the Trustee at least every three years and without delay after any significant change in investment policy.

In preparing this Statement, the Trustee has consulted with the employers who sponsor the various sub-funds of the Scheme and has taken and considered written advice from the Investment Practice of Hymans Robertson LLP and from the Scheme Actuary.

Scheme Objective

The primary purpose of the Scheme is to provide pension benefits for members as they fall due in retirement and/or benefits on death (before or after retirement) for their dependents, on a defined benefits basis.

The Trustee’s statutory funding objective is that the Scheme should have sufficient and appropriate assets to cover its technical provisions. Further details are provided in the Statement of Funding Principles.

The funding position is monitored regularly by the Trustee and formally reviewed at each triennial actuarial valuation or more frequently, as required by the Pensions Act 2004.

Investment Strategy

The Trustee has adopted a suitable strategic asset allocation benchmark for each sub-fund of the Scheme. All day to day investment decisions have been delegated to authorised investment managers. The strategic benchmark is reflected in the choice and mix of funds in which the Scheme invests. The benchmark for each sub-fund is consistent with the Trustee’s views on the appropriate balance between seeking an enhanced long-term return on investments and accepting greater short-term volatility and risk. The investment strategy for each sub-fund takes due account of the maturity profile (in terms of the relative proportions of liabilities in respect of pensioners and non-pensioners) together with the level of disclosed surplus or deficit (relative to the funding bases used) and the strength of the employer covenant. The Trustee monitors fund performance relative to the aggregate asset allocation benchmark. It is intended that investment strategy will be reviewed at least every three years following actuarial valuations of the Scheme and will normally be reviewed annually.

The Trustee may also make temporary changes to the asset allocation across sub-funds to reflect movements in investment markets from time to time; any such changes will typically be made within the Scheme’s normal rebalancing ranges although, on occasion, may also be made to take advantage of specific market opportunities.

The Trustee may also review any one or more sub-funds’ investment strategy at any time if it believes that the circumstances justify such a review, in particular when the covenant strength of any employer has changed.

Approved June 2015 INDUSTRY-WIDE COAL STAFF SUPERANNUATION SCHEME STATEMENT OF INVESTMENT PRINCIPLES 2 In reviewing strategy, the Trustee will seek written advice as required.

Choosing Investments

The Trustee will appoint one or more investment managers who are authorised under the Financial Services and Markets Act 2000 and regulated by the Financial Conduct Authority to undertake investment management.

The Trustee, after seeking appropriate investment advice, has given the managers specific directions as to the asset allocation. Subject to their respective benchmarks and guidelines, the managers are given full discretion over their choice of securities/investment and are expected to maintain diversified portfolios.

Kinds of investments to be held

The Scheme may invest in quoted and unquoted securities of UK and overseas markets, including equities and fixed interest and index linked bonds, cash, property and other alternative assets either directly or through pooled funds. The Scheme may also make use of derivatives and contracts for difference (either directly or in pooled funds investing in these products) for the purpose of efficient portfolio management or to hedge specific risks. The Trustee considers all of these classes of investment to be suitable in the circumstances of the Scheme.

An individual sub-fund may also hold a bespoke asset due to special circumstances surrounding the sub-fund’s employer.

Balance between different kinds of investments

The mix of investments is determined mainly by the choice of strategic asset allocation benchmark for each sub-fund as outlined above. Within each of the Scheme’s equity and bond holdings, the manager will maintain a diversified portfolio of stocks through direct investment or pooled vehicles.

A unitisation spreadsheet is used to keep the equity and bond holdings of each individual section close to its benchmark allocation for those asset classes. Allocations to property and alternatives are reviewed on a regular basis and as required.

The Scheme is exposed to a number of risks which pose a threat to meeting its objectives.

The Trustee monitors and manages these risks in a number of ways. The aggregate asset allocation benchmark has been determined with specific reference to the covenant strength and liabilities for each sub-fund and this is reviewed formally at least once every three years. The Trustee also places a tactical constraint on asset allocation in the form of the re-balancing ranges implemented by the managers, (where appropriate) and by the Trustee, otherwise, which serve to control the risk that the returns could deviate too far from the return on the chosen benchmark.

Approved June 2015 INDUSTRY-WIDE COAL STAFF SUPERANNUATION SCHEME STATEMENT OF INVESTMENT PRINCIPLES 3 The Trustee also manages the operational risks associated with the Scheme investments through efficient governance arrangements, supported by the Scheme Secretary, Scheme Actuary, investment adviser and auditor. Further detail on the principal risks affecting the Scheme (and underlying sections), and ways in which it is monitored and managed are provided below:

Funding risks:

 Financial mismatch – 1. The risk that individual section assets fail to grow in line with the developing cost of meeting Scheme liabilities for each section. 2. The risk that unexpected inflation increases the pension and benefit payments and Scheme assets do not grow fast enough to meet the increased cost.

 Changing demographics –The risk that longevity improves and other demographic factors change increasing the cost of Scheme and individual section benefits.

 Systemic risk - The possibility of an interlinked and simultaneous failure of several asset classes and/or investment managers, possibly compounded by financial ‘contagion’, resulting in an increase in the cost of meeting Scheme and individual section liabilities.

The Trustee measures and manages financial mismatch in two ways. As indicated above, it has set strategic asset allocation benchmarks for individual sections within the Scheme. It assesses risk relative to that benchmark by monitoring the individual section asset allocations and investment returns relative to the benchmark.

The Trustee keeps under review mortality and other demographic assumptions which could influence the cost of the benefits. These assumptions are considered formally at the triennial valuation. The Trustee seeks to mitigate systemic risk through a diversified portfolio but it is not possible to make specific provision for all possible eventualities that may arise under this heading.

Asset risks

 Concentration - The risk that significant allocation to any single asset category or investment manager, and its underperformance relative to expectation would result in difficulties in achieving funding objectives.

 Illiquidity - The risk that the Scheme or any individual section cannot meet its immediate liabilities because it has insufficient liquid assets.

 Currency risk – The risk that the currency of the Scheme’s or individual section’s assets underperforms relative to Sterling (i.e. the currency of the liabilities).

 Manager underperformance - The failure by the fund managers to achieve the rate of investment return assumed in setting their mandates.

The Trustee measures and manages asset risks as follows:

Approved June 2015 INDUSTRY-WIDE COAL STAFF SUPERANNUATION SCHEME STATEMENT OF INVESTMENT PRINCIPLES 4 It provides a practical constraint on Scheme investments deviating greatly from the intended approach by setting diversification guidelines and by investing in a range of investment mandates each of which has a defined objective and performance benchmark which, taken in aggregate, constrain risk within the Trustee’s expected parameters.

The Trustee manages currency risk by investing a proportion of the Scheme’s assets exposed to foreign currency risk in Sterling-hedged funds.

By investing across a range of assets, the Trustee has recognised the need for some access to liquidity in the short term. In appointing several investment managers, the Trustee has considered the risk of underperformance of any single investment manager.

Other provider risk

 Transition risk - The risk of incurring unexpected costs in relation to the transition of assets among managers. When carrying out significant transitions, the Trustee takes professional advice and considers the appointment of specialist transition managers.

 Custody risk - The risk of losing economic rights to Scheme assets, when held in custody or when being traded.

 Credit default - The possibility of default of a counterparty in meeting its obligations.

The Trustee monitors and manages risks in these areas through a process of regular scrutiny of their providers, or have delegated such monitoring and management of risk to the appointed investment managers as appropriate (e.g. custody risk in relation to pooled funds).

Expected return on investments

Over the long term, the overall level of investment returns is expected to exceed the rate of return assumed by the Actuary in funding the Scheme.

Realisation of investments

The majority of the Scheme’s investments may be realised quickly if required. However, the Trustee recognises that certain assets (e.g. property, alternatives) may be more difficult to realise quickly in certain circumstances and given their respective dealing requirements.

Social, environmental and ethical considerations

Whilst it is the Trustee’s preference that all companies be run in a socially responsible way, it takes the view that its primary responsibility is to act in the best financial interests of the members of the Scheme. Therefore, the Trustee's policy is that social, environmental or ethical considerations are taken into account by the active investment managers in the exercise of their delegated duties. The Trustee has reviewed and has accepted the investment managers’ policies on this issue and will monitor them on a regular basis.

Approved June 2015 INDUSTRY-WIDE COAL STAFF SUPERANNUATION SCHEME STATEMENT OF INVESTMENT PRINCIPLES 5 Exercise of voting rights

The Trustee has delegated the exercise of voting rights to the investment managers on the basis that voting power will be exercised by them with the objective of preserving and enhancing long term shareholder value. Accordingly, the manager has produced written guidelines of their process and practice in this regard. The managers are encouraged to vote in line with their guidelines in respect of all resolutions at annual and extraordinary general meetings of companies and to abide by the Institutional Shareholders’ Committee Code. The Trustee expects to receive regular reports from the investment managers summarising their voting activity.

Additional Voluntary Contributions

The Trustee gives members the opportunity to invest in a range of vehicles at each member’s discretion. The Additional Voluntary Contributions arrangements are reviewed regularly by the Trustee.

Signed for and on behalf of the Trustee of the Industry-Wide Coal Staff Superannuation Scheme

J M Storer Date Secretary to the Trustee

Approved June 2015