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Universities Superannuation Scheme - USS

PRI reporting framework 2018

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (C) Implementation: Integration of ESG issues

(C) Implementation: Integration of ESG issues

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate which ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues Proportion impacted by analysis
Environmental
Social
Corporate Governance

08.2. Additional information. [Optional]

The materiality of ESG factors varies between sectors.  USS aims to research all factors that could have a material impact on the performance of a company and share price.   This analysis is recorded on our RI Perspectives Report and is provided to the fund manager for discussion.  The RI team also analyses thematic issues in collaboration with colleagues in the equities team, and external organisations such as GIGN, ACGA and the Investor Forum.  

We take our stewardship responsibilities seriously and not all of the issues we analyse and spend time on are demonstrably material in financial terms over the short-term.  For example some of the issues we analyse and engage upon relate to reputational risk which is hard to quantify.   

This does not mean that they are not important: we will engage on long term issues even if they are not regarded as quantifiable at the time of the investment decisions.  See the LEA stewardship section for more details.  We believe that this multi-strategy approach to the management of ESG issues is in the best interest of our members.

 


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

          We discuss ESG issues with companies as appropriate.  Our ESG research provider affords companies an opportunity to correct factual errors in their reports.
        

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]

Note on LEI 9.4: The ESG ratings reviewed by portfolio managers are refreshed on a real time basis, via an automated data feed from our research provider to our Bloomberg terminals. When a score changes the Bloomberg terminal is updated the next day. 

A research note outlining the investment case is completed by a portfolio manager for every active position in the USS Equity Portfolio.  CG scores and the environmental and social scores are automatically embedded in the template of this document.   In addition the RI team completes a report (“RI Perspective”) outlining the material ESG risks and opportunities that are relevant to the company.  We are working through our active equity portfolio to ensure that every company in the portfolio has a corresponding RI perspective.

MSCI ESG ratings are formally reviewed annually however the governance scoring process which is fully dynamic and applied consistently to all companies is updated quarterly or more frequently.   If the Corporate Governance score changes significantly this will trigger an off-cycle analyst review and may result in the change in the ESG rating.   Major controversies may also trigger off cycle ratings reviews.  USS also has access to the MSCI controversy reports which are updated dynamically

 


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2b. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.4b. Describe the methods you have used to adjust the income forecast / valuation tool

We review our portfolio for material ESG issues and where such issues are identified as potentially financially material an adjustment is made to the portfolio manager’s valuation.  Each desk has its own investment process, so the integration method varies between desk, sector and company depending on the conviction underlying the investment case and any assumptions made. The approach to integration taken by a portfolio manager will also depend on the nature of ESG risk identified and the time horizon over which the risk is expected to crystallise.

10.5. Additional information.

The RI team sits alongside the investment teams at USS Investment Management, and as documented throughout our response to the PRI report, RI matters are routinely considered within investment processes. RI participates in internal investment meetings and external engagement meetings alongside the investment teams. RI notes on macro themes are shared with Portfolio Teams when appropriate. Portfolio managers have access to quantitative ESG scores via their Bloomberg Terminals and RI information is available through the company Tear Sheets and RI Perspective Reports.  We also consider portfolio and company level ESG risks through dedicated RI portfolio review meetings.


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