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Pendal

PRI reporting framework 2019

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Organisational Overview
Basic information [OO 01 - 09] Asset class implementation gateway indicators [OO 10 - 12] Peering questions [OO LE 01 - HF 01]
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] 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] (A) Implementation: Screening [LEI 04 - 06] (C) Implementation: Integration of ESG factors [LEI 08 - 10] Outputs and outcomes [LEI 12 - 13]
Direct - Listed Equity Active Ownership
Overview [LEA 01] Engagement [LEA 02 - 08] Outputs and outcomes [LEA 09 - 11] (Proxy) voting and shareholder resolutions [LEA 12 - 21]
Direct - Fixed Income
ESG incorporation in actively managed fixed income [FI 01 - 12] Implementation processes [FI 01 - 03] (A) Implementation: Screening [FI 04 - 06] (B) Implementation: Thematic [FI 07 - 09] (C) Implementation: Integration [FI 10 - 12] Fixed income - Engagement [FI 14 - 16] Outputs and outcomes [FI 17 - 18]
Confidence building measures
Confidence building measures [CM1 01 - 07]
Export Public Responses
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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities

ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
94 %
Percentage of active listed equity to which the strategy is applied
6 %
Total actively managed listed equities 112%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

Pendal's philosophy for all our funds, not just explicit Ethical or Sustainable mandates, is that where ESG factors are considered material to the risk and return outcomes of the investment, we incorporate them into the investment framework. More specifically, labour standards or environment, social and ethical considerations are taken into account when making investment decisions, to the extent that such issues may affect the financial performance of an investment. We incorporate ESG integration across all of our listed equity strategies.

For Pendal, ESG issues arise in the following contexts:

  • Our approach to responsible investment on behalf of our clients
  • Our ability to deliver sustainable returns to our shareholders
  • The actions we take as a corporate citizen that may impact upon the environment, the community or our other stakeholders.

As an investment manager, Pendal seeks to incorporate ESG principles as part of its core investment processes recognising that ESG factors can have a significant influence on the value placed on a company and its ability to drive shareholder returns on a sustainable basis.

We manage a variety of different RI strategies including:

  • ESG incorporation (bottom up, company specific incorporation of material ESG value drivers)
  • Ethical screens (negative and positive) have been developed to meet the needs of clients seeking to align their investments with the mission of their organisation and/or the values of their members:
    • Our exclusion screens are across a range of sectors and activities (fossil fuels, tobacco, alcohol, weapons, gambling, pornography, norms-based, uranium, Red Flag incident exclusions (covers analysis of contentious, emergent and topical issues). These screens are based on a material revenue range of 0% to 10% in the specified sectors, depending on the individual strategy (*except for "Controversial Weapons - such as cluster munitions, landmines, nuclear weapons and biochemical weapons" where a zero% revenue materiality tolerance applies).
    • Our positive screens includes industries with products and services that provides a direct benefit to social and/or environmental outcomes such as: environmental management or remediation environmental technologies, energy efficiency and renewable energy, low-impact products or products that reduce ecological footprint, sustainable buildings and property development, sustainable land use and food production, improved health and community well-being. It may also include companies we deem to demonstrate leading environmental and social practices, in assessing this we have regard to sustainability strategy, policy, management and performance in the following areas such as: environmental management including for example, climate change, greenhouse gas emissions, energy and water use, business ethics and conduct, including stakeholder relations, occupational health and safety management and performance, human capital management (HCM), including workplace relations, equal opportunity, consultation and participation in the workplace and employee conditions and benefits.
  • Best of Sector (Sustainability) screening: our universe of sustainability indicators typically includes ESG factor inputs from the above positive and negative universe as outlined in the Ethical strategies section, however, is assessed within a sector relative framework. This process is adopted to deliver a more active application of ESG factors within the stock selection framework while also ensuring a robust and diversified portfolio in line with the clients' broader risk/return objectives. We also incorporate active tilts within Ethical and Sustainable strategies towards renewable energy, energy efficiency, climate change, sustainable buildings and land use, improved health and community wellbeing. Some of this is based on a customised basis to align with specific client requirements.
  • Active Ownership practices with tailored ESG tilts regarding engagement and proxy voting criteria.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

We manage a variety of different RI strategies. ESG incorporation (bottom up, company specific incorporation of material ESG value drivers) is part of the stock selection process across all of our listed equity strategies. Within the equity offerings we have pooled and individually managed mandates that apply Ethical and Sustainable (Best of Sector) strategies.

All of our sustainable strategies have an ethical overlay with variations of exclusions across fossil fuels, tobacco, alcohol, weapons, gambling, pornography, norms-based, uranium, Red Flag incident exclusions (covers analysis of contentious, emergent and topical issues). These screens are based on a material revenue range of 0% to 10% in the specified sectors, depending on the individual strategy (*except for "Controversial Weapons - such as cluster munitions, landmines, nuclear weapons and biochemical weapons" where a zero% revenue materiality tolerance applies).

Within some of our Ethical and Sustainable strategies we have active thematic tilts towards renewable energy, energy efficiency, climate change, sustainable buildings and land use, improved health and community wellbeing. 

The above strategies are used in various forms for our clients. The structure of which is customised in order to deliver investment solutions that align with the value and values objectives of our clients.

LEI 02. Type of ESG information used in investment decision (Private)

LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

Active ownership is a natural extension of our active management investment process to manage risk, affect change and protect value over the long term. We undertake engagement on a direct basis as part of our bottom-up security selection process for all our asset classes (equities, fixed income and property).

Information derived from ESG engagement and proxy voting activities is collated in the equity team’s database  and is systematically communicated where relevant during regular team investment meetings as part of the broader coverage of information material to the team’s investments.

We share Regnan's Annual Engagement Report on our website (https://www.pendalgroup.com/education-and-resources/regnan-releases-its-annual-esg-engagement-and-advocacy-report/)

 

 

(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

Explicit ESG exclusions are undertaken for our range of Ethical and Sustainability strategies, as well as for some of our individually managed institutional accounts.

Our negative screens include:

  • Fossil Fuels (ranging from thermal coal to oil & gas and metallurgical coal and oil sands).
  • Tobacco
  • Weapons*
  • Alcohol
  • Gambling
  • Pornography
  • Uranium
  • Red Flag Incidents (analysis of contentious, emergent and topical issues includes inputs from Regnan)
  • Customised (to individual client requirements, e.g. specific religious or member based values)

The above screens are based on a material revenue range of 0% to 10% in the specified sectors, depending on the individual strategy (*except for "Controversial Weapons - such as cluster munitions, landmines, nuclear weapons and biochemical weapons" where a zero% revenue materiality tolerance applies).

 

 

Screened by

Description

Our universe of positive screens (applied in various combinations across different strategies) may include:

Industries with products and services that provides a direct benefit to social and/or environmental outcomes such as:

  • environmental management or remediation
  • environmental technologies
  • energy efficiency and renewable energy
  • low-impact products or products that reduce ecological footprint
  • sustainable buildings and property development
  • sustainable land use and food production
  • improved health and community well-being

Companies we deem to demonstrate leading environmental and social practices, in assessing this we have regard to sustainability strategy, policy, management and performance in the following areas such as:

  • Environmental management including for example, climate change, greenhouse gas emissions, energy and water use
  • Business ethics and conduct, including stakeholder relations
  • Occupational health and safety management and performance
  • Human Capital Management (HCM), including workplace relations, equal opportunity, consultation and participation in the workplace and employee conditions and benefits
  • Improving community health and well being

Screened by

Description

Our norms-based screens are incorporated within our ethical overlay strategies and include issues such as human rights, labour standards, environmental and anti-corruption business practices based on international initiatives and guidelines (as noted above). Our Ethical Australian Shares fund includes explicit consideration of the Norms-based principles across issues such as:  

  • Environment: companies that have committed significant or recurrent breaches of environmental  regulation
  • Workplace and business ethics: companies that have committed significant or recurrent breaches of workplace health and safety, anti-discrimination, equal opportunity,  trade practices, or industrial relations legislation

 

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

The above screening criteria is based on extensive engagement with clients and other industry bodies as well as an indepth analysis of portfolio impacts related to each screen category.

Our screen selection and application by product is based on consideration of factors such as:

  • investment objectives of the portfolio
  • alignment with client values
  • investment time horizon

Our exclusionary screening approach screens companies based on material business involvement. Materiality is typically in the range of 0-10% of revenue.

Our Best in Class / Sustainability process is based on a Best of Sector Approach. Higher ratings will typically be favoured to those with lower scores and lower ranked issuers will generally be excluded.

The criteria is reviewed typically on a monthly basis or if significant events occur that require more immediate consideration.  Some clients will be notified or any changes as part of their reporting arrangements whilst others will be notified during our regular presentations to them.

LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

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

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

Pendal has an effective incident management process in place to ensure prompt notification, escalation and rectification of any incidents or potential incidents. The process requires all employees to identify, report and escalate any known or suspected incidents. The Risk & Compliance and Legal functions are stakeholders in the incident management process to assist with assessing the incident, the actions required to contain and rectify the incident and the reporting implications. All incidents involving non - compliance with regulatory requirements, licence conditions or internal policies and procedures, or a breakdown of key controls are assessed by Risk & Compliance to ascertain their significance and regulatory reporting requirements. Significant breaches are reported to ASIC as required by the Corporations Act.

Incidents are governed by the Pendal Incident Management Policy, which is owned by Risk & Compliance. All incidents are reported to the Executive Committee Risk Forum on a monthly basis and the Pendal RE Boards, Managed Investment Compliance Committee and the Audit and Risk Committee on a monthly basis.

An example of the process used to ensure fund criteria is not breached is provided below:

  • Regnan data that sets the companies and issuers to be excluded from the portfolio is delivered directly to the Portfolio Management team as well as the Investment Risk team (data management, monitoring and reporting) within our Investment Operations group. This ensures the excluded securities are hard-coded into our trading systems to ensure compliance on a pre- and post-trade basis. 
  • The Investment Risk team perform the post-trade monitoring on daily basis. In addition, there are hard-coded rules in system that restrict pre-trade activity. This will stop the portfolio from purchasing excluded securities. Any changes in ethical or sustainable ratings will be picked up by the post trade monitoring. 
  • In case of a breach, e..g a security is no longer classified as sustainable as per monitoring rule mentioned above, the alert notification is immediately sent to the Portfolio Manager of the fund to inform the status of the security. The Investment Risk team works with the Portfolio Manager in managing the resolution of the breach.
  • Depending on the nature of the security (liquidity) and financial consideration the security is sold out in feasible timely manner. All Portfolio guidelines breaches are reported to Executive Committee Risk Forum as part of Investment Risk’s monthly reporting, where such items are discussed and noted.

06.3. Additional information.[Optional]

(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates (Not Applicable)

(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the 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

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

Pendal's philosophy for all our funds, not just explicit RI mandates, is that where ESG factors are considered material to the risk (financial and non-financial) and return outcomes of the investment, we do take them into consideration. More specifically, labour standards or environment, social and ethical considerations are taken into account when making investment decisions, to the extent that such issues may affect the financial performance of an investment.

 

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.

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

09.6. Additional information.[Optional]

Use of ESG Information:

Both our internal and externally sourced ESG data is used as inputs (both formal and informal) in the analysis of companies.  In addition, for some strategies it is explicitly utilised for portfolio construction and management purposes formally and informally.

  • Analysis of company strategy and quality of management - this is undertaken by analysts on a systematic basis as part of their stock research.
  • Idea generation examples - environmental factors providing investment opportunities in areas such as the gas industry. Social factors are providing investment opportunities in the health care sector.
  • Portfolio construction - some of our strategies systematically look at the impact that ESG factors are having at the overall portfolio level whilst for our mainstream strategies the Portfolio Manager will on occasion look at the composition of the portfolio from an ESG perspective.

LEI 10. Aspects of analysis ESG information is integrated into (Private)

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