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Universities Superannuation Scheme - USS

PRI reporting framework 2018

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You are in Indirect – Manager Selection, Appointment and Monitoring » Monitoring

Monitoring

SAM 05. Monitoring processes (listed equity/fixed income)

05.1. When monitoring managers, indicate which of the following types of responsible investment information your organisation typically reviews and evaluates

ESG objectives linked to investment strategy (with examples)

Evidence on how the ESG incorporation strategy(ies) affected the investment decisions and financial / ESG performance of the portfolio/fund

Compliance with investment restrictions and any controversial investment decisions

ESG portfolio characteristics

How ESG materiality has been evaluated by the manager in the monitored period

Information on any ESG incidents

Metrics on the real economy influence of the investments

PRI Transparency Reports

PRI Assessment Reports

RI-promotion and engagement with the industry to enhance RI implementation

Other general RI considerations in investment management agreements; specify

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
ESG objectives linked to investment strategy
Evidence on how the ESG incorporation strategy(ies) affected the investment decisions and financial / ESG performance of the portfolio/fund
Compliance with investment restrictions and any controversial investment decisions
ESG portfolio characteristics
How ESG materiality has been evaluated by the manager in the monitored period
Information on any ESG incidents
Metrics on the real economy influence of the investments
PRI Transparency Reports
PRI Assessment Reports
RI-promotion and engagement with the industry to enhance RI implementation
Other general RI considerations in investment management agreements; specify
None of the above

If you select any 'Other' option(s), specify

USS has developed its own approach to the areas above for different asset classes. The RI team has leveraged experience gained from the implementation of the in-house RI strategy with an experienced RI team and Sustainability Manager in the Property team, to deliver oversight for external managers tailored to the scheme's specific needs. For example:

  • USS helped to establish the Global Real Estate Sustainability Index which supports the monitoring of our property fund managers and infrastructure. GRESB collects data on the sustainability performance of property companies and funds, including information on energy, greenhouse gas emissions, water and waste. USS uses GRESB surveys to highlight priority issues within the investments we hold and engage with managers of specific assets. 
  • USS also helps to develop industry standards to facilitate ESG integration, asset owner oversight and shareholder protection.  For example, USS is a founder signatory to CDP, the Enhanced Analytics Initiative, has fed into the development of Trucost's non-equity methodologies and contributed to the development of Stewardship Codes and industry reporting guidelines to improve transparency and market data.
  • The scheme's approach to monitoring private market GP's is due to be outlined in a pending report on PRI Private Equity Reporting and Monitoring Guidance.

05.2. When monitoring external managers, does your organisation set any of the following to measure compliance/progress

ESG score or assessment

ESG weight

ESG performance minimum threshold

Real world economy targets

Other RI considerations

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
ESG score
ESG weight
ESG performance minimum threshold
Real world economy targets
Other RI considerations
None of the above

If you select any 'Other' option(s), specify

USS matches RI monitoring to the mandate and asset class.

For example, we will confirm adherence to our ethical investment policy for the USS Investment Builder ethical investment funds in listed equities and fixed income.

For all listed equity fund managers we will review voting histories, voting and engagement case studies and ESG integration processes. On occasion, the USS RI team may direct voting.

For passive equity portfolios, whilst USS expects the fund manager to adhere to principles of good stewardship with an active approach to voting and engagement, we would expect ESG activities to focus more on risk management.

The monitoring of external asset managers for listed equity and fixed income overall, is led by the StratCo team. They request asset managers complete a quarterly exceptions questionnaire to flag changes. This includes the following questions on RI and helps the scheme identify where follow-up is required:

RI Public Equities Quarterly Questionnaire:

  • Changes to ESG policy, RI approach or staff have taken place. 
  • New ESG and/or reputation risks have arisen in the portfolio.
  • Public reporting and disclosure on RI (including Stewardship Codes, PRI obligations etc.) has been delayed or changed. 
  • Ethical and Sharia funds: The screening policy has been breached. 

05.3. Provide additional information relevant to your organisation's monitoring processes of external managers. [OPTIONAL]

          The RI team has developed an assessment process for monitoring RI implementation at external asset managers in public markets.

The process was developed in-house and built upon the experience of other asset owner peers in Europe and USS's expectations and experience of RI. The review process was designed to be replicable and help identify areas of strength and weakness. The review covers many of the matters outlined in the questions above and elsewhere in the PRI reporting framework, under the following categorisations: RI policy, Governance, Stewardship and Engagement, Communication and Transparency and where relevant Integration and Voting. A review of the managers' PRI reports is included as part of the assessment.

Two members of the RI team participated in each assessment (of an external fund manager), and an average score between 1 (low) and 5 (high) was assigned to each of the different categories of RI included in the assessment. The scores generated by the assessments then enable the construction of a spider web graphic to display comparative data visually. The process enables comparison between USS fund managers and across time.
The monitoring assessment process generally runs as follows.
1. Information sought by RI team - this may be desk top based or may include specific questions to the asset manager.
2. Manager is given a number of weeks to provide answers to the questions and return, with supporting documents to USS.
3. Two members of the RI team assessed the managers' responses based upon the information provided by the fund manager (supported by PRI assessment responses and publicly available information) against a consistent scoring framework.
4. Two members of the RI team meet with the fund manager representatives to provide feedback and enhance understanding.

Where appropriate, USS will feed back to the fund manager on areas where we would like to see further clarification, enhanced reporting and/ or improvements to policy or approach.

As RI implementation differs between asset classes and investment style, the questions sent to the fund managers and scoring areas are amended accordingly. For example, only five categories are implemented for fixed income mandates and passive equity mandates. 

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Sharing and developing best practice

The scheme has also worked to ensure it is not a lone voice amongst clients and has put considerable effort into sharing the monitoring practices developed at USS to empower fellow asset owners.

For example, our monitoring process documents are disclosed on our website and in our PRI Transparency Report. The Co-Heads of RI and other members of the RI team regularly present or sit on panels at investment events to share USS's approach with investors and standard-makers in the UK and internationally. 

The scheme has also contributed to many publications and consultations to develop best practice and asset owner/ LP oversight guidance.

Examples of activities across the different asset classes in 2017 include:
•	Private Equity Engagement: Post-Investment Monitoring Is Critical https://www.blackrock.com/corporate/literature/publication/blk-ceres-engagementguide2015.pdf  
•	LP Perspectives USS as an RI 
https://www.privateequityinternational.com/product/value-creation-responsible-investment/  
•	The Asian Venture Capital Journal’s (AVCJ) 30th anniversary Conference on Fund reporting: Setting new standards for transparency
•	Presentation at the AVCJ’s Specialist RI conference on LP-GP reporting and dialogue on ESG: Where are we now?
•	USS contributed via the Investment Property Forum Sustainability Interest Group towards the government’s Minimum Energy Efficiency Standards consultation.  This ultimately will benefit the membership of the property industry (and the IPF members) regarding what will be implemented.
•	A Practical Guide to Active Ownership in Listed Equity - USS contributed to the report and is profiled.
•	The Council of Institutional Investors conference on the challenges of undertaking active and global stewardship and engagement. 
•	A session on The Dark Side of Doing Good: The Unintentional Consequences of Having the Right Intentions at Rights & Responsibilities in Institutional Investment, Amsterdam
•	The Asian of Corporate Governance Association’s annual conference in Tokyo on the benefits and challenges of the ‘comply or explain’ corporate governance regime.
•	The PEI RI forum in Berlin on Considering the evolution of the LP/GP relationship: Are we drowning in data?
•	UK Pension Funds Roundtable - Shareholder ID Disclosures for Listed Equities Voting & Custody Arrangements
        

SAM 06. Monitoring on active ownership (listed equity/fixed income)

06.1. When monitoring managers, indicate which of the following active ownership information your organisation typically reviews and evaluates from the investment manager in meetings/calls

Engagement

Report on engagements undertaken (summary with metrics, themes, issues, sectors or similar)

Report on engagement ESG impacts (outcomes, progress made against objectives and examples)

Information on any escalation strategy taken after initial unsuccessful dialogue

Alignment with any eventual engagement programme done internally

Information on the engagement activities’ impact on investment decisions

Other RI considerations relating to engagement in investment management agreements; specify

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Report on engagements undertaken (summary with metrics, themes, issues, sectors or similar)
Report on engagement ESG impacts (outcomes, progress made against objectives and examples)
Information on any escalation strategy taken after initial unsuccessful dialogue
Alignment with any eventual engagement programme done internally
Information on the engagement activities’ impact on investment decisions
Other RI considerations relating to engagement in investment management agreements; specify
None of the above

If you select any 'Other' option(s), specify

Please see our response in SAM 5.3 above where we outline our approach to monitoring, including ESG integration, voting, communications and transparency and RI governance which are not covered in the above list.

(Proxy) voting

Report on voting undertaken (with outcomes and examples)

Report on rationale of voting decisions taken

Adherence with the agreed upon voting policy

Other RI considerations relating to (proxy) voting in investment management agreements; specify

None of the above

LE
Report on voting undertaken (with outcomes and examples)
Report on voting decisions taken
Adherence with the agreed upon voting policy
Other RI considerations relating to (proxy) voting in investment management agreements; specify
None of the above

If you select any 'Other' option(s), specify

Please see our response in SAM 5.3 above where we outline our approach to monitoring, including ESG integration, voting, communications and transparency and RI governance which are not covered in the above list.


SAM 07. Percentage of (proxy) votes

07.1. For the listed equities for which you have given your external managers a (proxy) voting mandate, indicate the approximate percentage (+/- 5%) of votes that were cast during the reporting year.

07.2. For the listed equities for which you have given your external managers a mandate to engage on your behalf, indicate the approximate percentage (+/- 5%) of companies that were engaged with during the reporting year.

100 Number of companies engaged
100 Proportion (to the nearest 5%)

07.3. Additional information [OPTIONAL]

          Whilst some of our managers report such data, we do not tend to lend much weight to it and do not collect this information (hence reporting 100 in the two boxes above). We prefer to review specific voting and engagement case studies, rather than the above statistical data. For example, we met with one of our global equity manager's to discuss the lack of consistency of their voting on shareholder proposals relating to climate change in different global markets. At another manager we discussed collaborative engagements with ACGA and how they prioritise their voting and the input of local expertise for a global portfolio.
        

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