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Universities Superannuation Scheme - USS

PRI reporting framework 2018

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Organisational Overview
Basic information [OO 01 - 09] Asset class implementation gateway indicators [OO 10 - 12] Peering questions [OO LE 01 - INF 03]
Strategy and Governance
Investment policy [SG 01 - 04] Objectives and strategies [SG 05 - 06] Governance and human resources [SG 07 - 08] Promoting responsible investment [SG 09 - 11] Outsourcing to fiduciary managers and investment consultants [SG 12] ESG issues in asset allocation [SG 13 - 15] Asset class implementation not reported in other modules [SG 16 - 17] Innovation [SG 18] Communication [SG 19]
Indirect – Manager Selection, Appointment and Monitoring
Listed Equity and Fixed Income Strategies [SAM 01] Selection [SAM 02 - 03] Appointment [SAM 04] Monitoring [SAM 05 - 07] Outputs and outcomes [SAM 08 - 09]
Direct - Listed Equity Incorporation
ESG incorporation in actively managed listed equities [LEI 01 - 10] Implementation processes [LEI 01 - 10] (B) Implementation: Thematic [LEI 07] (C) Implementation: Integration of ESG issues [LEI 08 - 10] Outputs and outcomes [LEI 12 - 14]
Direct - Listed Equity Active Ownership
Engagement [LEA 01 - 14] Overview [LEA 01 - 02] Process [LEA 03 - 10] Process for engagements run internally [LEA 03 - 04] Process for engagements conducted via collaborations [LEA 05 - 06] Process for engagements conducted with/on your behalf by service providers [LEA 07 - 08] General processes for all three groups of engagers [LEA 09 - 10] Outputs and outcomes [LEA 11 - 14] (Proxy) voting and shareholder resolutions [LEA 15 - 24] Overview [LEA 15] Process [LEA 16 - 20] Outputs and outcomes [LEA 21 - 24]
Direct - Fixed Income
ESG incorporation in actively managed fixed income [FI 01 - 13] Implementation processes [FI 01 - 03] (C) Implementation: Integration [FI 11 - 13] ESG incorporation in passively managed fixed income [FI 14] Fixed income - Engagement [FI 15 - 17] Outputs and outcomes [FI 18 - 19]
Direct – Private Equity
Overview [PE 01 - 02] Pre-investment (selection) [PE 05 - 08] Post-investment (monitoring) [PE 09 - 13] Outputs and outcomes [PE 14 - 15]
Direct - Property
Overview [PR 01] Pre-investment (selection) [PR 04 - 06] Selection, appointment and monitoring third-party property managers [PR 07] Post-investment (monitoring and active ownership) [PR 08 - 14] Overview [PR 08] Property monitoring and management [PR 09 - 10] Property developments and major renovations [PR 11] Occupier engagement [PR 12 - 13] Community engagement [PR 14] Outputs and outcomes [PR 15 - 16]
Direct - Infrastructure
Overview [INF 01 - 02] Pre-investment (selection) [INF 05 - 09] Selection, appointment and monitoring of third-party operators [INF 10] Post-investment (monitoring and active ownership) [INF 11 - 16] Overview [INF 11] Infrastructure monitoring and operations [INF 12 - 14] Infrastructure maintenance [INF 15] Stakeholder engagement [INF 16] Outputs and outcomes [INF 17 - 18]
Assurance
Assurance [CM1 01.1 - 01.7]
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You are in Strategy and Governance » Objectives and strategies

Objectives and strategies

SG 05. RI goals and objectives

05.1. Indicate if and how frequently your organisation sets and reviews objectives for its responsible investment activities.

05.2. Additional information. [Optional]

The Responsible Investment team has objectives set at the beginning of the year. The objectives can be updated during the year to take account of a changing investment environment and respond if particular issues arise.   Performance against these objectives is assessed on a biannual basis.  The objectives are aligned to the USS investment strategy. Strategic objectives form part of the appraisal process and reporting to the scheme's investment committee and board. The strategic objectives for USS Investment Management as a whole have in recent years included specific ESG KPIs which the fund is measured against: failure to achieve these KPIs impacts the performance of USS Investment Management as a whole, as well as the RI team.  

The broad objectives and RI strategy are disclosed on our web-site at: https://www.uss.co.uk/how-uss-invests/responsible-investment/approach

The RI strategy has been in place for a number of years and covers all asset classes, in all markets in which the scheme invests, whether those assets are internally or externally managed by the scheme. The following are the scheme's core areas of RI activity:

  • Integration: we seek to include material environmental, ethical social and corporate governance (ESG) considerations within the investment decision making processes, where there is a financial bearing.
  • Engagement, voting and stewardship: fulfilling our obligations as an active owner and using our influence as a major institutional investor to promote good ESG practices.
  • Market transformation activities: including engagement with policy makers and regulators in markets in which we invest, to articulate the concerns of asset owners and long-term investors.

SG 06. Main goals/objectives this year

06.1. List the main responsible investment objectives that your organisation set for the reporting year.

Responsible investment processes

Key performance indicator 

          Improved trustee directors' understanding on the scheme's approach to ESG integration

Progress achieved

The RI team carried out a specific RI training for the trustee board on RI issues during the year.

The training covered issues such as the RI strategy, climate change, and fiduciary duty. Specific examples or case studies of RI stewardship, voting and ESG integration across asset classes were discussed.

Key performance indicator 

          Improved trustee directors' understanding on the scheme's approach to engagement

Progress achieved

Please see above text on ESG integration.

Key performance indicator 

          "Views from USS" commenced publication, with regular contributions on RI matters to be included.

Progress achieved

The Co-Heads of RI contributed to the development of a series of articles entitled "Views from USS" for an internal and external audience. The posts provide insights and commentary on current and emerging pension topics, written by staff at USS and USS Investment Management Ltd.

"USS's approach to responsible investment" was published in January 2018 and communicated to staff within USS.

See https://www.uss.co.uk/how-uss-is-run/views-from-uss.

 
          To implement new voting policy on UK remuneration and board appointments

Key performance indicator 

          Voting policy published, communicated to companies and actioned

Progress achieved

  • New UK voting policy proposed and signed off by the board Q4 2016.
  • Key changes to UK Vote Policy on approach to remuneration votes, capital authorities, environmental and social matters.
  • Commentary on above issues added to engagement letters in 2016 to prepare portfolio companies ahead of the formal vote policy change.
  • Formal policy change communicated to Chairman and Company Secretary's at UK portfolio companies in Q1 2017, following board approval.
  • Voting policy implemented for 2017 proxy season.
  • USS's Co-Head of RI commented in FT regarding USS's 'more robust' approach to voting on executive pay proposals in article "UK pension funds threaten revolt over executive pay". See https://www.ft.com/content/b2c7b948-d737-11e6-944b-e7eb37a6aa8e.

 

 

other description (2) 

          To identify engagement priorities for listed equities more effectively and to track impact against objectives

Key performance indicator 

          Ability to prioritise engagement and monitor engagement progress

Progress achieved

The prioritisation framework for engagement was enhanced.

A spreadsheet was developed to identify portfolio companies where the scheme's active portfolio holding triggered any of the following criteria:

  • USS a top 20 shareholder
  • USS ownership above 3% issued share capital
  • Company on external collaborative engagement focus lists e.g. Climate Action 100+, Workforce Disclosure Initiative or a human rights watch list
  • Company is a focus of internal engagement with the portfolio managers
  • Company is a significant portfolio over-weight

 

 

other description (3) 

          To roll out the environmental / social (E/S) proactive voting template and process to additional markets including USA and Canada.

Key performance indicator 

          E/S voting undertaken for agreed markets

Progress achieved

E/S voting process rolled out to three new markets - USA, Canada and Ireland. See LEA 18.2 for more details.

Financial performance of investments

Key performance indicator 

          Improve the Energy Performance Certificate (EPC) ratings across the direct Property portfolio.

Progress achieved

We now have fewer poorly rated EPCs across the portfolio.  Furthermore this is part of an ongoing programme to improve the quality of the EPC grades which in turn on disposal will make the asset more attractive and increase its saleability.

other description (1) 

          To respond promptly / efficiently to requests for advice and analysis from Portfolio Managers prior to investments being made – utilising variety of service providers as appropriate.

Key performance indicator 

          PMs provided with appropriate ESG data and RI Perspectives to integrate into their investment analysis and decision making processes.

Progress achieved

Internal systems developed to ensure that corporate governance, environmental / social issues and in-house RI team perspectives are conveyed to portfolio managers in a coordinated manner.  

Positive feedback from portfolio managers on the data received.  

ESG characteristics of investments

Other description (1) 

          To work with Quant Team to assess the possibility of tilting the Low Volatility Factor Fund away from high carbon assets

Key performance indicator 

          Lower carbon footprint for Low Vol fund.

Progress achieved

Worked with internal Quant Team and our carbon data provider on back-testing to assess the potential financial performance implications of tilting the fund away from higher carbon assets. 

Backtesting completed and process for change agreed, with full implementation planned for 2018.  

Other description (2) 

          Monitor DC external managers to ensure compliance with USS RI expectations

Key performance indicator 

          Process for monitoring DC asset managers developed and implemented.

Progress achieved

USS external public markets manager assessment process adapted to enable roll-out to a higher number of managers.  

Assessment of DC managers commenced with continued roll-out in 2018.  

 

 

Other activities

other description (1) 

          Develop a process to enhance the ESG standards of existing direct assets by working with internal Private Markets Group to enhance their asset management framework

Key performance indicator 

          Process for assessing ESG management at direct assets developed and agreed with PMG, and then implemented

Progress achieved

The Private Markets Group and RI teams worked together to develop a new process to more systematically review ESG management of the scheme's direct assets.

For corporate governance the IFC corporate governance framework has been adapted for internal use. On environmental and social matters, the scheme adopted the GRESB infrastructure process to help monitor and benchmark environmental and social performance indicators. The results of face to face monitoring meetings on ESG matters are also fed into an assessment.

The process enables the assessment and comparability of the current status of ESG management of USS' assets, and working with PMG, the RI team makes recommendations for improvements to the managers of the assets.

The review process was undertaken at one asset in 2017 with further reviews planned for 2018. The process will continue to be enhanced to reflect experience, feedback and the lessons learned from within the USS and asset-based teams involved such reviews.

 

06.2. Additional information.

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