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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 » Appointment

Appointment

SAM 04. Appointment processes (listed equity/fixed income)

04.1. Indicate if in the majority of cases and where the structure of the product allows, your organisation does any of the following as part of the manager appointment and/or commitment process

04.2. Provide an example per asset class of your benchmarks, objectives, incentives/controls and reporting requirements that would typically be included in your managers’ appointment.

Asset class

Benchmark

          DJ Islamic Market Titans 100 Index for The USS Sharia Fund portfolio
        

ESG Objectives

          USS's Ethical Policy governs the scheme's ethical DC equity offering.
        
          USS's Ethical Policy governs the scheme's ethical DC equity offering.
        
          We review the ESG data providers being used by fund managers' and consider the evidence provided on ESG integration.
        
          We review engagement case studies. We ensure that the case studies relate to companies held within USS mandates.
        
          We ensure all the scheme's equity assets are voted. We review voting reports provided by the fund management firms. We have met separately with certain of our managers to discuss the consistency of voting on shareholder proposals. In one instance we have established a mechanism to direct the voting of the externally managed portfolio and in several instances we retain the option to engage with the manager, or direct their voting for our holding. This is in order to lend weight to supporting the internally managed shareholding's voting position and ensure USS does not vote against itself.
        
          We consider the manager's participation in the UN PRI and other collaborative fora. We also note their participation at industry events and review the lobbying positions and public policy work. Where this looks to be inconsistent with their stance on responsible investment, we will (and have) discuss it with the manager.
        
          We review our fund managers' contributions to market consultations and the development of market standards. Where we have queries or concerns regarding the alignment of views with USS's interests, we will query or challenge the manager. We may also encourage our managers to lend their perspectives to debates on emerging issues/ standards.
        

Incentives and controls

Reporting requirements

Benchmark

          Various including FTA Government UK Index Linked Total Return Index; JP Morgan EMBI GD; GBI EM GD; FTSE Gilts All Stocks;
        

ESG Objectives

          We expect engagement with sovereign states to be consistent with responsible investment position statements.
        
          We review our fund managers' contributions to market consultations and the development of market standards. Where we have queries or concerns regarding the alignment of views with USS's interests, we will query or challenge the manager. We may also encourage our managers to lend their perspectives to debates on emerging issues/ standards.
        
          We encourage managers to participate in the PRI.
        

Incentives and controls

Reporting requirements

Benchmark

          Barclays Global Aggregate; iBoxx £ Corporate All Maturities; BofA Merrill Lynch Non-Financial Developed Markets High Yield Constrained Index; iBoxx £ Non-Gilt
        

ESG Objectives

          We review how ESG risk ratings are considered in investment decision making.
        
          USS's Investment Builder's Ethical Policy is applied to the scheme's ESG Bonds mandate
        
          We review the management of ESG risks and the provision of ESG data.
        
          We consider company engagement to be appropriate for credit and equity holders.
        
          We expect bond managers to exercise holders' voting rights where they arise.
        
          We review our fund managers' contributions to market consultations and the development of market standards. Where we have queries or concerns regarding the alignment of views with USS's interests, we will query or challenge the manager. We may also encourage our managers to lend their perspectives to debates on emerging issues/ standards.
        
          We encourage managers to participate in the PRI.
        

Incentives and controls

Reporting requirements

Benchmark

          As above as we do not have separate financial/ non-financial mandates i.e. Barclays Global Aggregate; iBoxx £ Corporate All Maturities; BofA Merrill Lynch Non-Financial Developed Markets High Yield Constrained Index; iBoxx £ Non-Gilt
        

ESG Objectives

          We review how ESG risk ratings are considered in investment decision making.
        
          USS's Investment Builder's Ethical Policy is applied to the scheme's ESG Bonds mandate
        
          We review the management of ESG risks and the provision of ESG data.
        
          We consider company engagement to be appropriate for credit and equity holders.
        
          We expect bond managers to exercise holders' voting rights where they arise.
        
          We review our fund managers' contributions to market consultations and the development of market standards. Where we have queries or concerns regarding the alignment of views with USS's interests, we will query or challenge the manager. We may also encourage our managers to lend their perspectives to debates on emerging issues/ standards.
        
          We encourage managers to participate in the PRI.
        

Incentives and controls

Reporting requirements

Benchmark

          Benchmarks will be set at the time of investment depending on factors such as fund strategy, sector, geography.
        

ESG Objectives

          We review GP's approach to engagement with portfolio companies.
        
          We consider governance and the use of voting rights by GP's.
        
          We review our GP's contributions to market consultations and the development of market standards and membership of the PRI. We sit on platforms together with them and will respond to their comments and contributions on RI. Where we have queries or concerns regarding the alignment of views with USS's interests, we will query or challenge the manager. We encourage GP's to participate in events and publications and the development of emerging issues/ standards; and note and welcome those who take such actions.
        
          We make notes on specific areas for improvement e.g. on the governance of RI, policy or ESG reporting. We encourage GPs to consider carbon reporting to assist the scheme deliver on its own reporting requirements.
        
          We ask GP's about their membership of PRI and participation in RI initiatives.
        

Incentives and controls

Reporting requirements

Benchmark

          IPD Large Life and Pension Fund Index and IPD Inflation Linked 10 year Plus; IPD UK All Balanced
        

ESG Objectives

          We ask external managers to complete the GRESB benchmarking survey
        
          Management & compliance with regulations around water, waste, energy, health and safety reviewed. Flood risk, contaminated land due diligence ahead of property purchases.
        
          The GRESB survey asks about stakeholder engagement
        
          We review manager's participation in PRI, industry events and the GRESB benchmark.
        
          We encourage managers to set environmental performance targets and to benchmark themselves against GRESB.
        
          Completion of GRESB, participation in property collaborations
        

Incentives and controls

Reporting requirements

04.4. Indicate which of these actions your organisation might take if any of the requirements are not met

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

          With regard to the setting of controls linked to ESG objectives, the scheme asks the external managers for DC funds, to respond to RI questions within the quarterly questionnaire. With regard to adhering to ESG Guidelines, the ethical fund options are required to adhere to the USS Investment Builder Ethical Policy.

USS uses its specialist in house teams to undertake due diligence in the selection and appointment of external managers, but also in the monitoring of activities post appointment. Further details of the monitoring processes are provided in the following sections.
        

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