Sustainable Returns Presentation

Transcription

1 Sustainable Returns Presentation Wanjiru Kirima April 2012 SUSTAINABLE RETURNS IN PARTNERSHIP WITH for pensions and society an industry-led initiative 1

2 Sustainable Returns Project for pensions and society The Project is an industry- led ini5a5ve to integrate environmental, social and corporate governance (ESG) considera5ons into the mainstream of re5rement industry investment prac5ces in Southern Africa Features a pioneering partnership between the Principal Officers Associa5on (POA) and IFC (Interna5onal Finance Corpora5on) to posi5on southern African prac55oners at the forefront of global best prac5ce Launched in December 2011, the Project will run un5l December 2013 The Project will provide a consistent framework and set of tools for re5rement funds to comply with Regula5on 28 of South Africa s Pension Funds Act and the Code for Responsible Inves5ng in South Africa (CRISA). For more informa5on, read the Project Press Release available online: htp://ifcext.ifc.org/ifcext/media.nsf/content/selectedpressrelease?open Docment&UNID=37B46A7E73BB249D C8657 2

3 Project Partners Supported by funding from the Norwegian Government Project was convened in 2011 by the Principal Officers Associa5on of South Africa (POA), IFC (Interna5onal Finance Corpora5on), the Government Employees Pension Fund (GEPF), and the Associa5on for Savings and Investment South Africa (ASISA). Led by a Steering CommiTee of high- level representa5ves from the Financial Services Board (FSB), Na5onal Treasury of South Africa, Banking Associa5on of South Africa (BASA), Botswana Public Officers Pension Fund, Congress of South African Trade Unions (COSATU), Debswana Pension Fund, Federa5on of Unions of South Africa (FEDUSA), Financial Planning Ins5tute (FPI), Government Ins5tu5ons Pension Fund Namibia (GIPF), Ins5tute of Directors (IoD), Ins5tute of Re5rement funds (IRF); Na5onal Council of Trade Unions (NACTU), Pension Lawyers Associa5on, South African Ins5tute of Chartered Accountants (SAICA), Southern Africa Venture Capital Associa5on (SAVCA), Telkom Pension Fund, and the UN- backed Principles for Responsible Investment (PRI). 3

4 POA The Principal Officers Associa5on (POA) is a non- profit organiza5on, and the only one of its kind in South Africa, that aims to promote the common interests of Principal Officers of re5rement funds in Southern Africa The POA s membership of 425 Principal Officers and associate members represent more than 6.2 million re5rement fund members in South Africa. The POA also has members in Southern Africa Development Community (SADC). The principles espoused by CRISA are endorsed by the POA. For more informa5on, visit 4

5 SA Regulatory Environment Regula5on 28, published in terms of S36 of the South African Pensions Fund Act imposed limits on the investments of re5rement funds. Intended to protect funds against making imprudent investments once the requirement to invest in prescribed assets had fallen away Date of implementa5on January 2012, sub- ordinate legisla5on Re5rement funds consider ESG issues in their investment policies and prac5ces and explain how they have done so. Add value to pension fund stakeholders and society/the environment at large Empower asset owners to be responsible investors Demonstrate leadership throughout the value chain 5

6 SA Regulatory Environment continued Integra5on of ESG considera5ons further reinforced by: the Na5onal Growth Path Plan the King Code of Governance Principles for South Africa (King III) the Code for Responsible Inves5ng in South Africa (CRISA) the United Na5ons- backed Principles for Responsible Investment (PRI) CRISA, which took effect on February 1, 2012, aims to promote sound governance by providing guidance to ins5tu5onal investors on responsible investment policies, prac5ces and engagement with investee companies. Non- mandatory Code (i.e. voluntary par5cipa5on) The Sustainable Returns project responds to a need for capacity building and tools to support principal officers and trustees of pension funds to implement this new requirement. To download the full Codes visit or 6

7 Project Objective Development of a consistent framework Create a set of tools Assist re5rement funds and their services providers comply with the new Regula5on 28 of South Africa s Pension Funds Act and the Code for Responsible Inves5ng in South Africa (CRISA) First comprehensive survey of pension fund prac5ces Expert- led review of interna5onal good prac5ce Broad and open consulta5on with industry Cujng- edge training and tools for prac55oners 7

8 Measures for Success The project seeks to achieve integra5on of ESG in mainstream investment prac5ces of the Southern African re5rement industry. As such, the measures of success will be the degree to which prac55oners have adopted new prac5ces and have generated financial, environmental and social value through new investment strategies. Indicators for success will include: Implementa5on of recommended policies and prac5ces En55es repor5ng improved investment performance through ESG integra5on En55es repor5ng improved compliance with REG 28 and CRISA Greenhouse gas emissions reduced due to climate- friendly investment prac5ces Baseline data will be drawn from the IFC commissioned report Sustainable Inves5ng in sub- Saharan Africa (released July 2011) and from the first comprehensive survey of pension fund prac5ces. 8

9 What is Responsible Investment? Integra5on of environmental, social and governance (ESG) issues into investment processes ESG issues can affect investments directly and indirectly Environment: climate change, water issues Social issues: black economic empowerment (BEE) Corporate governance: execu5ve pay, good risk management prac5ces Alignment with the expecta5ons of society, while exercising fiduciary obliga5ons 9

10 Global RI Trends UK, Denmark, South Africa pension funds required to consider ESG issues Stewardship codes UK, Netherlands, South Africa and the European Commission considering a code on stewardship (investor responsibility) OECD recommenda5on that all pension funds should integrate ESG Lis5ng rules for companies South Africa, Thailand Drive towards integra5ng ESG across asset classes 10

11 Why is RI growing Globally? Greater client demand Protec5on and enhancement of investment returns Climate change and environmental pressure Regulatory pressure Stakeholder demands Industry peer pressure 11

12 RI in South Africa King III Corporate Governance Code and the move towards integrated repor5ng Regula5on 28 of the Pension Funds Act requiring pension funds to consider ESG issues The launch of the Code for Responsible Inves5ng in South Africa (CRISA) Local ini5a5ves such as the PRI South Africa Network, ASISA s RI Standing commitee, JSE SRI Index, AfricaSIF, Sustainable Returns project 12

13 How can RI create Investment Value? RI helps iden5fy ESG- related risks and opportuni5es Lengthening the investment horizon can enhance long- term value Ac5ve ownership protects and strengthens investments RI can align with ins5tu5onal or corporate missions RI policies are consistent with good governance 13

14 Amended Regulation 28 Preamble to Reg. 28: A fund has a fiduciary duty to act in the best interest of its members whose benefits depend on the responsible management of fund assets. This duty supports the adop=on of a responsible investment approach to deploying capital into markets that will earn adequate risk adjusted returns suitable for the fund s specific member profile, liquidity needs and liabili=es. Prudent inves,ng should give appropriate considera,on to any factor which may materially affect the sustainable long- term performance of a fund s assets, including factors of an environmental, social and governance character. The concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment. 14

15 Amended Regulation 28 continued A fund and its board must at all 5mes apply the following principles: - Principle 2 (c) (ix) before making an investment in and while invested in an asset consider any factor which may materially affect the sustainable long term performance of the asset including, but not limited to those of an environmental, social and governance character. Date for Reg. 28 compliance: 31 December

16 Principles for Responsible Investment (PRI) As ins5tu5onal investors, we have a duty to act in the best long- term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment pornolios (to varying degrees across companies, sectors, regions, asset classes and through 5me). We also recognise that applying these Principles may beter align investors with broader objec5ves of society. 16

17 PRI: The 6 Principles 1. We will incorporate ESG issues into investment analysis and decision- making processes. 2. We will be ac<ve owners and incorporate ESG issues into our ownership policies and prac5ces. 3. We will seek appropriate disclosure on ESG issues by the en55es in which we invest. 4. We will promote acceptance and implementa5on of the Principles within the investment industry. 5. We will work together to enhance our effec5veness in implemen5ng the Principles. 6. We will each report on our ac5vi5es and progress towards implemen5ng the Principles. 17

18 CRISA The Code for Responsible Inves5ng in South Africa (CRISA) gives guidance on how the ins5tu5onal investor should execute investment analysis and investment ac5vi5es and exercise rights so as to promote sound governance. Applica5on of CRISA: Ins5tu5onal investors as asset owners, for example, pension funds and insurance companies Service providers of ins5tu5onal investors, for example, asset and fund managers and consultants Ins5tu5onal investors and service providers should adopt the principles and prac5ce recommenda5ons in CRISA on an apply or explain basis. Where there is conflict between CRISA and applicable legisla5on, the legisla5on will prevail. The effec5ve date for repor5ng on the applica5on of CRISA is 1 February

19 CRISA: The 5 Principles 1. An ins5tu5onal investor should incorporate sustainability considera<ons, including environmental, social and governance, into its investment analysis and investment ac5vi5es as part of the delivery of superior risk- adjusted returns to the ul5mate beneficiaries. 2. An ins5tu5onal investor should demonstrate its acceptance of ownership responsibili<es in its investment arrangements and investment ac5vi5es. 3. Where appropriate, ins5tu5onal investors should consider a collabora<ve approach to promote acceptance and implementa5on of the principles of CRISA and other codes and standards applicable to ins5tu5onal investors. 4. An ins5tu5onal investor should recognise the circumstances and rela5onships that hold a poten5al for conflicts of interest and should proac5vely manage these when they occur. 5. Ins5tu5onal investors should be transparent about the content of their policies, how the policies are implemented and how CRISA is applied to enable stakeholders to make informed assessments. 19

20 CRISA and PRI are Aligned CRISA s 5 Principles PRI s 6 Principles 1. Incorpora5on of ESG 1. Incorpora5on of ESG 2. Ac5ve Ownership 2. Ac5ve Ownership 3. Disclosure 4. Promo5on 3. Collabora5on 5. Collabora5on 4. Conflict of interest 5. Disclosure 6. Repor5ng 20

21 Recommendations 1. Review and update the following policy statements for alignment with Reg.28 and CRISA (& UN- backed PRI?): a) Considera5on of ESG b) Ac5ve Ownership c) Conflicts of interest 2. Drive implementa5on of the above policies and establish processes to monitor compliance with the policies (revision of service provider mandates?) 3. Ensure that the above policies are public documents (website?) to allow stakeholders to be able to make informed assessments 21

22 Recommendations continued 5. Public disclosure (minimum: once per annum) outlining to what extent CRISA has been applied ( apply or explain ) 6. Collabora,on and mutual learning par5cipate in industry bodies such as POA, IRF, ICGN, PRI SA Network, ASISA 7. Build on work already done (policy documents) PRI, ICGN, Hermes (UK), F&C (UK), GEPF (SA), PIC (SA), Element (SA), Investec (SA) 22

23 Questions? SUSTAINABLE RETURNS IN PARTNERSHIP WITH for pensions and society an industry-led initiative 23

24 Thank You SUSTAINABLE RETURNS IN PARTNERSHIP WITH for pensions and society an industry-led initiative 24