Futuregrowth is a fiduciary asset manager and we believe that Environmental, Social and Governance (ESG) issues are important sustainability issues that should be considered as part of a holistic investment and decision-making process.
With an increased prevalence of corporate governance failures, environmental non-compliance, corruption and fraud in the headlines, it has become apparent that non-financial issues, which include ESG, are increasingly affecting companies’ long-term sustainable performance. Here are some useful questions, collated from a combination of client interactions and the UNPRI investor tool-kit. These aim to assist Pension Funds when assessing the integration of ESG into their investment decision-making process. The questions will also assist Pension Funds in fulfilling their reporting requirements, as outlined in the Guidance Notice 1 of 2019 (PFA): Sustainability Reporting for Pension Funds.
1. Responsible investment policies
- Do you have a policy, or set of policies, that make specific reference to Responsible Investment (RI) practices and, in particular, ESG issues? If yes, provide an outline of the policy objective.
- Do you have a corporate governance and voting policy? If yes, provide an outline of the policy objective.
- Is ESG a board agenda item, or a subcommittee agenda item reported to the board?
- Is there a board member responsible for ESG?
- Do you have an exclusion list or policy that references specific exclusions, e.g. controversial weapons, human rights violations etc.? If yes, list the exclusions and rationale.
2. Integration of ESG and decision-making
- Have there been any changes to your ESG integration process over the reporting period (e.g. additional resources, information sources)? If so, why?
- What are some specific examples of how ESG factors are incorporated into your investment analysis and decision-making process? Outline which ESG factors were relevant to the investment company/sector and why?
- Provide some specific examples of major ESG risks that you identified in the portfolio over the reporting period, and what you have done to mitigate the risk/s?
- Do you assess the exposure to climate risk, of the investments in your portfolios? If yes, then provide a recent example.
3. Active ownership and voting
- What public disclosures are available on the voting policies and voting outcomes, and how frequently are the voting decisions reported and disclosed?
4. Bond holder and equity engagement
- Do you have an engagement policy or other document that outlines direct engagement with listed fixed income or listed equity issuers on ESG issues? If yes, then describe your approach to ESG engagement:
- How is the engagement defined?
- What is the objective?
- How is the engagement measured?
- How many fixed income or listed equity issuers in total have you engaged with on ESG issues during the last year, and outline the issues of engagement?
- What type of ESG reporting is available to clients? Are any of these reports available on your website? If so, please provide a link.
The replies to these questions will provide a useful, comprehensive view on the extent to which ESG consideration is integrated in the investment decision-making process – or alternatively, where gaps exist.
Please feel free to contact our client relationship team if you would like any further information.
Futuregrowth is a signatory to the UN Principles for Responsible Investment (PRI) and we endorse the Code for Responsible Investment in South Africa (CRISA).
Download PDF version of the article here.