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Pendal

PRI reporting framework 2019

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (A) Implementation: Screening

(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]


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