our approach to responsible investment - · pdf file2 topic 1. regulatory and policy context...
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Topic
1. Regulatory and policy context for ESG 2. GEPF’s approach to responsible & developmental
investment 3. Integrating ESG into investment decision-making
and ownership practices in South Africa 4. Portfolio performance/processes
RI in South Africa
King III Corporate Governance Code and the move towards integrated reporting
Regulation 28 of the Pension Funds Act requiring pension funds to consider ESG issues
The launch of the Code for Responsible Investing in South Africa (CRISA)
Local initiatives such as the PRI South Africa Network, ASISA’s RI Standing committee, AfricaSIF, JSE SRI Index, POA, IoD SA, EMDP SA Project, etc.
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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 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. The concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment.”
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CRISA
The Code for Responsible Investing in South Africa (CRISA) gives guidance on how the institutional investor should execute investment analysis and investment activities and exercise rights so as to promote sound governance.
Application of CRISA: Institutional investors as asset owners, for example, pension funds and insurance companies Service providers of institutional investors, for example, asset and fund managers and consultants Institutional investors and service providers should adopt the principles and practice recommendations in CRISA on an “apply or explain” basis. Where there is conflict between CRISA and applicable legislation, the legislation will prevail. The effective date for reporting on the application of CRISA is 1 February 2012.
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CRISA: The 5 Principles 1. An institutional investor should incorporate sustainability considerations, including
environmental, social and governance, into its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries.
2. An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities.
3. Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of CRISA and other codes and standards applicable to institutional investors.
4. An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should proactively manage these when they occur.
5. Institutional 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.
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PRI and CRISA are aligned
CRISA’s 5 Principles PRI’s 6 Principles
1. Incorporation of ESG 1. Incorporation of ESG
2. Active Ownership 2. Active Ownership
3. Disclosure
3. Collaboration
4. Promotion 5. Collaboration
4. Conflict of interest
5. Disclosure 6. Reporting
GEPF RI Policy
RI Policy adopted 2009 (publicly launched in March 2010)
RI Policy aligned to the UN-backed Principles for Responsible Investment (PRI) & now CRISA
GEPF RI Policy addresses issues such as: - Integration of ESG issues in investment decisions
- Demonstrating active ownership
- Devoting a portion of GEPF assets towards targeted investments
- Promoting research into investment-related ESG risks and opportunities
- Promoting accountability and transparency around the implementation of the GEPF RI Policy
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GEPF DI Policy DI Policy publicly launched in April 2011
DI Policy follows a two year consultative process with key stakeholders, including government and the private sector
DI Policy commits 5% of the GEPF asset portfolio (approx. R45bn)
Four pillars
Economic infrastructure
Social infrastructure
Sustainability
Enterprise development and BBBEE
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Why is developmental investment important to the GEPF?
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The GEPF is one of the largest investors in the South African economy (universal owner)
The fund is equivalent to 1/3 of the country’s GDP and has investments in all sectors of the economy
Any constraints on South Africa’s economic growth will have a similar impact on the GEPF
Economic infrastructure is the hard backbone of any economy
Once South Africa has a competitive economic infrastructure it will require a healthy, well secured and well equipped society to operate it optimally to maximize growth
Such growth will have a direct positive impact on the overall performance of the GEPF portfolio
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GEPF & PIC collaboration on ESG
GEPF RI implementation: Active ownership policy
GEPF-PIC ESG Working Committee established
PIC Corporate Governance Rating Matrix
Emerging Markets Disclosure Project – South Africa
Engagement approach
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