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 quarterly basis and the Pendal RE Boards, Managed Investment Compliance Committee and the Audit and Risk Committee on a monthly basis. Pendal’s management of incidents in portfolio companies involves a detailed analysis by the analysts and portfolio manager team, drawing on public disclosures, internal resources, and our own direct engagement with the company. The 3 key steps in our analysis are identifying:
- What happened? (And what is the likely impact on the company’s performance? What are the likely implications for shareholders?)
- Should the company have known about it? (Is it a signal of larger oversight or accountability issues in the company or its supply chain?)
- What is the company doing to fix the situation? [Most companies will have an incident at some point. It is how management responds (accepts responsibility) and what they do about it (addressing internal and external, financial and non-financial issues or impacts and consideration of the potential for broader implications). This is the real test in terms of the quality of management and the overall sustainability of a company.]
In addition, our process also utilises Regnan’s Incident or “Red Flag” system to independently identify incidents with the potential to be material within our portfolio companies. Where such “Red Flags” are identified by Regnan, we will review the incident alongside our own research (as per above) and will adjust our exposure with consideration in a manner consistent with the materiality of the incident and the fund’s investment guidelines.
Examples of such incidents within our RI strategies may be:
• Companies that have committed significant or recurrent environmental offences within the last three years, or have been successfully prosecuted and required to provide remedies for such offences within the last year are excluded.
• Companies that have breached human rights, OH&S, anti-discrimination/equal opportunity or trade practices legislation within the last three years, or have been required to pay compensation or provide remedies for such breaches within the last year are flagged.