Adrian Bertrand Principles for Responsible Investment Responsible Investment
An investor initiative in partnership with Responsible Investment 31 August 2016 - R E S P O N S I B L E I N V E S T M E N T -
ESG ISSUES & SHAREHOLDER VALUE
INVESTMENT VALUE CHAIN & RI Reporting requirements Stock exchange standards Stewardship codes Fiduciary duty Risk management and due diligence Informed asset allocation Impact on financial markets Increased attention and engagement Demand for ESGthemed products Ethical motivations Focus on solid, longterm returns Demand for ESG-themed products Recognition of responsible investment as best practice Competitive advantage* Ethical motivations Reputational risks and opportunities Enhanced staff satisfaction Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
RESPONSIBLE INVESTMENT IN SA REGULATORY CHANGES IN SOUTH AFRICA REG. 28 Pension Funds Act 1956. 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 adoption 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 liabilities. Prudent investing should give appropriate consideration 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. This concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment. Reg. 28 Principles: 2)(c) A fund and its board must at all times apply the following principles:- 2)(c)(iii) in contracting services to the fund or its board, consider the need to promote broad-based black economic empowerment of those providing services; 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 Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
RESPONSIBLE INVESTMENT IN SA REGULATORY CHANGES IN SOUTH AFRICA PF 130 Section 14.8 of PF130 deals with Responsible Investment, and suggests that:.funds should consider socially responsible investments. Boards of funds should consider how shareholder activism can be applied to promote good governance and citizenship in companies in which their funds are already invested. Such activities may actually enhance the performance of the companies and therefore the returns of the fund. It is recommended that [Boards] of funds apply their minds to formulating a suitable policy regarding such investments as well as incorporating shareholder activism into their investment mandates. Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
RESPONSIBLE INVESTMENT IN SA REGULATORY CHANGES IN SOUTH AFRICA CRISA Guidance on how institutional investors in SA should: execute investment analysis and investment activities; exercise rights so as to promote sound governance; Based on 5 Principles; Listed equities focus; Public reporting obligations i.e. proxy voting CRISA s 5 Principles PRI s 6 Principles 1. Incorporation of ESG 1. Incorporation of ESG 2. Active Ownership 2. Active Ownership 3. Collaboration 4. Conflict of interest 3. Disclosure 4. Promotion 5. Collaboration 5. Disclosure 6. Reporting Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
THE PRI AND THE SIX PRINCIPLES The PRI works with its international network of signatories to put the six Principles for Responsible Investment into practice. Its goals are to understand the investment implications of environmental, social and governance issues and to support signatories in integrating these issues into investment and ownership decisions. The six Principles were developed by investors and are supported by the UN. They have more than 1,500 signatories from over 50 countries representing more than US$60 trillion of assets. 2 1544 The six Principles for Responsible Investment: >60 Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
PRI IS INVESTOR-LED MANAGE RISKS, ENHANCE RETURNS, BETTER FULFIL FIDUCIARY DUTY PERFORMANCE NOT PHILANTHROPY The high-sustainability companies dramatically outperformed the lowsustainability ones in terms of both stock market and accounting measures. RISK MANAGEMENT RETURNS NOT SACRIFICE There are statistically significant positive abnormal returns associated with going long good corporate governance firms and shorting those with poor governance. Yale School of Management Harvard Business School DIVERSE APPROACHES NOT JUST EXCLUDING UNETHICAL INVESTMENTS We believe that ESG analysis should be built into the investment processes of every serious investor and into the corporate strategy of every company that cares about shareholder value. Deutsche Bank NOT BREACH OF FIDUCIARY DUTY The links between ESG factors and financial performance are increasingly being recognised. On that basis, integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and is arguably required in all jurisdictions. Freshfields Bruckhaus Deringer Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
SUGGESTED RI APPROACH SUGGESTED ACTIONS PER REG. 28, CRISA, PF 130 AND PRI Integration of ESG Investment Policy Statement / Statement of Investment Beliefs etc. RI Policy RI implementation approach fund manager and service provider mandates RI monitoring & evaluation Active ownership RI Policy / Active ownership policy / Proxy voting policy etc. Active ownership approach fund manager and service provider mandates Engagement with investee companies and other stakeholders as necessary Active ownership monitoring & evaluation Accountability Annual reporting on integration of ESG and active ownership activities; i.e. proxy voting disclosure Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
FURTHER DRIVERS FOR RI IN SA RECENT DEVELOPMENTS Integrated Reporting King IV & King IV Retirement Funds Sector Supplement Retirement Reform initiatives by National Treasury Professionalization of Principal Executive Officers of pension funds Professionalization of pension fund trustees Increasing awareness of ESG issues by pension members and beneficiaries Role of social media in raising fund member grievances publicly Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
SOME TAKE-AWAYS WHAT CAN YOU DO TO SUPPORT UPTAKE OF RI IN SA? Facilitate pro-active meaningful engagement between companies and their shareholders; Facilitate pro-active meaningful engagement between companies and their stakeholders; Report on material ESG issues via an annual integrated report, sustainability report, &/or report on sustainability data points publicly using appropriate standards & methodology Ask your corporate pension fund / plan sponsor how the fund is addressing ESG issues as part of its investment decision making? Engage your principal executive officer / trustee representative / HR executive to advise on how the fund applies Reg. 28, PF 130, CRISA and PRI principles For any retail investment products that you might have ask your financial advisor how ESG issues are taken into account with regards your own private investment portfolio / product? Sign up for the PRI Academy online courses in RI! More info: http://priacademy.org/ Executive summary The PRI at a glance Why responsible investment? Value Proposition PRI services Your dedicated PRI team
Adrian Bertrand (e) adrian.bertrand@unpri.org (c) +27(0)845006474 www.unpri.org