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Pendal

PRI reporting framework 2019

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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]

Responsible investing is a core component of  Pendal Australia's strategic vision. A key objective of our  five-year plan is to be a leading provider of ethical, sustainable and impact solutions for our clients as well as to embed ESG as part of our investment process in our existing investment boutiques. This stems from a commitment from the Board and our Global CEO. Pendal has a RI Philosophy and Approach document that was launched in December 2017 and is available to the public on our website. We believe there are important responsible investment principles that can be applied across all of our investment boutiques, providing guidance to our investment teams. The document has been approved by the Pendal Australian Management Team and is reviewed annually or more frequently if required.

As part of our annual employee and business review process, key stakeholders driving our RI activities set key objectives in consultation with the CEO and senior management. Our Board also conducts an annual Strategy Review discussion. 

In addition, we also have a Responsible Investments Working Group to facilitate knowledge sharing and provide input into RI guidelines, strategy and solutions. The group consists of senior members of the investments (all asset classes) and corporate teams (Risk & Compliance, Legal, Sales and Marketing) and its responsibilities are set out in the Responsible Investments Governance Structure. The objective of the group is to oversee the development and application of Pendal's Responsible Investment (RI) process across offerings and communications to ensure alignment with Pendal's RI philosophy as well as client expectations and needs. The group does not replace prior risk management and compliance processes, rather it serves to enhance the existing controls already in place. Our RI Working Group meets quarterly. The group sets high level annual RI objectives as well as quarterly RI objectives. Specific objectives range from the development and maintenance of Pendal’s RI process and products as well as considerations of broader industry trends, standards and practices - with a particular focus on the RI needs of our clients.

 


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

          RI/ESG education seminars internally and externally (clients, industry)
        

Progress achieved

Internally:

  • Our Head of RI hosted numerous RI/ESG education seminars internally to members of the Investments, Finance, and Sales and Marketing teams.
  • Regnan also presented an ESG education seminar - covering topics such as: ESG data, research processes and engagement services to Pendal's Sales, Operations and Investment teams. 

Externally:

  • Provided ESG training to the boards and investment teams of various clients - institutional and wholesale/advisory.
  • Participated in PRI and RIAA webinars raising awareness of how ESG can be incorporated into Fixed Income products.
  • Collaborated with an asset owner and wealth advisor groups to offer an education platform through a series of sustainable forums. This involved a number of round table seminars around Australia's capital cities to promote an understanding of RI across social, NFP, healthcare and education organisations to help them develop their own RI investment framework and policies and hopefully include RI strategies within their investment platform. Discussions included a specific education component on green, social and sustainable bonds, which are particularly relevant for these sectors.
  • Regnan facilitated a one day work shop for approx. 50 IGCC members on TCFD disclosure.
  • Regnan presented on climate-related risk to the Australian Council of Financial Regulators Climate Change Working Group.

Key performance indicator

          Client education forums
        

Progress achieved

Conducted Stewardship Forums for clients looking to become more actively involved in their own direct engagement programs.

Participant in Responsible Investment Association Australasia’s Corporate Engagement Working Group.

Key performance indicator

          Employee updates on Pendal's RI strategy (RI is one of our company's top 3 growth pillars). RI Working Group.
        

Progress achieved

Responsible Investments (Stewardship, ESG Integration and dedicated RI product strategies) is one of Pendal's top 3 growth strategies. As part of this initiative, the CEO provided quarterly updates to Pendal employees covering resources, product, process and partnerships.

Pendal's Responsible Investments Working Group continued to facilitate knowledge sharing and provide input into RI guidelines, strategy and solutions. The group consists of senior members of the investments (all asset classes) and corporate teams (Risk & Compliance, Legal, Sales and Marketing). The objective of the group is to oversee the development and application of Pendal’s Responsible Investment (RI) process across offerings and communications to ensure alignment with Pendal’s RI philosophy as well as client expectations and needs. The group does not replace prior risk management and compliance processes, rather it serves to enhance the existing controls already in place.

Since Regnan became wholly owned by Pendal in Feb 2019 a number of sessions have been held to foster a broader understanding across the business of Regnan’s responsible investment and stewardship work.

Key performance indicator

          Engagement Platform Enhancement
        

Progress achieved

We continued to develop our Engagement Platforms across both our Australian Equity and Fixed Income teams over the reporting period in terms of tracking engagements. In addition, a plan outline has been scoped that will significantly enhance the measurement, tracking and reporting of engagement activities across investment teams.

The implementation of the new reporting platform was postponed during the year due to a re-allocation of overlapping resources towards the Regnan deal (in February 2019, Pendal announced it has become full owner of Regnan, a dedicated ESG Research and Engagement Service Provider).

In addition, it was also determined that it would be beneficial to postpone the Engagement Platform upgrades to ensure the changes captured the full extent of the Regnan expertise and also allowed for a more efficient alignment of the infrastructure supporting the engagement programs between Regnan and Pendal Investment teams. 

Key performance indicator

          Australian Fixed Income - ESG Integration
        

Progress achieved

Pendal's Fixed Income team built out its Government ESG model in 2018 (important given the significant proportion of Government securities in our Australian composite fixed interest funds). The Federal and State governments in Australia generally have strong Governance and Social scores on an international comparison, with reasonable coverage by third party data sources (e.g. MSCI). However, we identified an opportunity to contribute to portfolio performance by enhancing our framework for Environmental assessments. In particular, the Environmental scores are lower on an international basis and vary more across states. As part of this process, Pendal is engaging with State borrowing authorities to seek additional information and also to support issuance of specific purpose-based bonds and reflect the importance of ESG scores to our investment process.  

 

          Enhancing RI Product Offering to meet client needs
        

Key performance indicator

          Launch of a Fossil-Fuel Free strategy
        

Progress achieved

In 2018 we launched Pendal's Sustainable Future Australian Share SMA following a detailed consultation with two clients based on extensive feedback from their respective member bases. The Fund uses an active stock selection process that combines sustainable and ethical criteria with Pendal’s financial analysis and has an explicit exclusion of direct fossil fuel exposures. Being an SMA it also supports our goal of providing solutions to clients that foster a more active stewardship approach through direct ownership structures.

Financial performance of investments

Key performance indicator

          Enhance our ESG integration process across our Fixed Income strategies
        

Progress achieved

Example 1: One of our objectives in 2018 was to more effectively leverage ESG related information synergies available across our internal equity and RI teams in order to increase portfolio performance. An example of one of the case studies that resulted from these efforts can be found on our website at https://www.pendalgroup.com/wp-content/uploads/2018/06/2018-06-Case-Study-on-Credit-Risk_Coca-Cola-Amatil.pdf

Example 2: We have found that the value added from incorporating ESG considerations into fixed income strategies relates more to risk mitigation than other asset classes. In line with this belief, Pendal's Fixed Income team enhanced our proprietary ESG integration framework in our Government ESG model in 2018. The Federal and State governments in Australia generally have strong Governance and Social scores on an international comparison, with reasonable coverage by third party data sources (e.g. MSCI). However, we identified an opportunity to contribute to portfolio performance by enhancing our framework for Environmental assessments. In particular, the Environmental scores are lower on an international basis and vary more across states. As a result we adjusted our portfolio holdings by increasing one state (with a higher E score) vs a state (with a lower E score).  

ESG characteristics of investments

Key performance indicator

          ESG ratings of State Government entities
        

Progress achieved

Our fixed income team developed an internal proprietary ESG risk assessment framework for Government and semi-government issuers to complement external ESG ratings already incorporated into the investment framework. This led to an increase in active positions in some state government holdings relative to benchmark. 

Key performance indicator

          Carbon Intensity Measurement & Reporting
        

Progress achieved

We are now measuring and reporting the carbon footprint across our portfolios.

Other description (1)

          RI Product Awareness and Characteristics
        

Key performance indicator

          RIAA Certification
        

Progress achieved

Our newly launched Sustainable Future Australian Share Fund was awarded RIAA certification in 2018.

Other activities

Key performance indicator

          Participating in Climate Change Awareness and Diversity Initiatives
        

Progress achieved

  • Pendal became a signatory to the Climate Action 100+ global investor engagement initiative. 
  • Members of Pendal's investments and HR team represented Pendal in the Mercer Diversity in Investment Management Initiative.
  • Pendal's Head of Responsible Investments was part of RIAA's Human Rights Working Group, actively involved in consultative capacity and industry feedback during the review process leading up to the adoption of Australia's Modern Slavery Act in 2018.

 

Key performance indicator

          Encourage asset owners to join RIAA or PRI
        

Progress achieved

Presented to asset owners and advisory groups regarding PRI and RIAA.  Some have taken action while others are still in the process of seeking management sign off. 

Advisory work undertaken by Regnan has specifically included recommendations for clients to join the PRI.

Key performance indicator

          Published Case Study on the incorporation of ESG factors in Credit Risk Assessment.
        

Progress achieved

The case study was published in the PRI second report on ESG in Credit Risk Analysis and Ratings in 2018. We also participated in related webinars and investor round-tables. We published the report on our website for public access and education.

https://www.pendalgroup.com/education-and-resources/investing-responsibly-a-case-study-on-assessing-credit-risk/

 

Key performance indicator

          Diversity on Boards Case Study
        

Progress achieved

Outlined engagement thematic to clients focused on Gender Diversity on Boards with a number of case studies tracking the progress of those engagements.

06.2. Additional information.

Improved communication publicly:

In 2018, Pendal published a document that outlines Pendal Australia’s Principles of Internal Governance and Asset Stewardship on our website. The key principles of the Standard are: organisational and investment approach; internal governance; and asset stewardship. The document sets out Pendal Australia’s organisational and investment approach, and our approach to internal governance and asset stewardship. These Principles apply to all portfolios for which Pendal Australia acts as investment manager or adviser. 

https://www.pendalgroup.com/wp-content/uploads/2018/09/Principles-of-Internal-Governance-and-Asset-Stewardship.pdf


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