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Vision Super

PRI reporting framework 2020

You are in Indirect – Manager Selection, Appointment and Monitoring » Appointment

Appointment

SAM 04. Appointment processes (listed equity/fixed income)

04.1. Indicate if in the majority of cases and where the structure of the product allows, your organisation does any of the following as part of the manager appointment and/or commitment process

04.2. Provide an example per asset class of your benchmarks, objectives, incentives/controls and reporting requirements that would typically be included in your managers’ appointment.

Asset class

Benchmark

          IFM Investors manages a Low Carbon Australian indexed equity mandate for Vision Super, which achieves enhancements in aggregate carbon mitigation with minimum possible active risk. The portfolio is designed to mitigate carbon pricing risks while adopting an indexed investment approach.
The target level of carbon abatement is 12.5%. If IFM measures an abatement level of less than 10.5%, they trade the portfolio back to its target level. Carbon emissions data is provided in metric tons (t CO2e) and includes:
•	Direct emissions (from sources owned or controlled by the company)
•	Indirect emissions (from production of electricity consumed by the company).
Furthermore, in terms of approach, IFM divides a companies’ total carbon output by its market capitalisation to calculate a measure of how much carbon is emitted per dollar invested. Applying this across a portfolio shows the amount of carbon emitted by that portfolio’s holdings. The portfolio lowers the carbon footprint comprising of Scope 1 and Scope 2 emissions of companies by underweighting companies with high emissions and overweighting companies with low emissions.
The possible constituent companies are the same as in the S&P/ASX 100 Index but the weights of those companies are varied depending on their relative carbon emissions. In effect, the portfolio tends to be overweight in companies with lower carbon emissions per dollar of market capitalisation.
In order to minimise the investment risks due to carbon pricing without taking on other unintended bets, the portfolio is optimised to give the lowest possible tracking error to the S&P/ASX 100 Index within the constraints of being neutral at GICS Level 2 and to have no net short positions.
Vision's international passive index portfolio is managed by SSgA and we use the MSCI Low Carbon Index meaning that we invest in global companies that have a 70% lower carbon exposure than the rest of the market as calculated by MSCI.
        

ESG Objectives

          Vision Super supports the ACSI Australian & International Guidelines relating to ESG frameworks for our equity shareholdings and on occassions if they are not in line with our investment beliefs may vote differently.
The core principles that structure the guidelines are:
* Board oversight of all material risks
* Sustainable, long-term value creation
* Active ownership
* Transparency, and
* Licence to operate
        
          The Trustee determined that it will not invest in companies that derive material revenue from controversial weapons which include companies that are involved in the manufacture and or production of land mines, cluster bombs, nuclear weapons, or within any other companies with similar characteristics. During 2019 we implemented a decision to divest of thermal coal and tar sands at a 25% of revenue materiality threshold. We also implemented a low carbon approach to our fundamental indexing mandate with RealIndex and maintained our low carbon approach with our index equity portfolios. We have moved to a carbon intensity approach.
        
          ESG integration is Vision Super's preferred approach with listed equity managers, however we do not believe that many portfolio managers do this as effectively.
When we are searching and appointing managers, the due diligence process includes a fundamental understanding of how an assessment of ESG risk are incorporated into the investment process including the use of positive screens if they apply. The managers should also specify what resources are involved which extends to people/skills and any outsourced research service.
        
          Monitoring and evaluation is done through semi-annual progress reports and itemized company assessments.
Glass Lewis conducts engagement discussions only outside the proxy solicitation period once the proxy statement is filed. Companies can contact them at any time regarding any factual inaccuracies within their research recommendations.
As a further example on engagement, Baillie Gifford who manages our Long term Global Growth equities mandate believes in engaging with management in a collaborative rather than an activist approach. Turnover within the portfolio is low and building a strong relationship over the long term gives them greater insight and influence with the company, and as such the impact with these discussions tends to flow over the longer term horizon. Some examples of engagement undertaken by Baillie Gifford is in relation to merger activity with examples of Tesla and SolarCity, Microsoft and LinkedIn and ARM Holdings and Softbank.
We undertook extensive lobbying activity on the BHP resolution with proxy advisors, managers and other funds at the end of 2019.
        
          Vision Super exercises all its equity shareholding rights directly as per the ACSI Governance Guidelines and recommended research voting under the ACSI International Agreeement in conjunction with Glass Lewis proxy voting research advice. Our fund managers no longer vote on behalf of the Fund but on occassions we will ask them how they are thinking on specific contentious type items.
Management will evaluate its critical meeting list weekly for upcoming meetings based on Vision Super's customised voting relating to contentious governance issues, contentious reputational matters and voting recommendations against management. Where we believe it is warranted, Vision Super will seek to vote outside of the ACSI voting alert service recommendations if it is not aligned to our investment governance framework, ESG Policy and or investment beliefs. This decision will based on internal discussion withi the ESG team, fund managers and with other affiliated relationships.
        
          Through our membership with ACSI, we aim to promote best practice within company boards in the following manner:
* Company commitment to publicly disclosed charter, code of ethics and governance framework.
* Opportunties for asset owners to be engaged at regular points in time with companies and not just reporting season.
* Process to ensure that ESG concerns are adequately addressed and managed into the process.
* Shareholder rights to be maintained and not to be diminished
* Discussion with our managers on contentious issues
        
          As part of our asset consultant's (Frontier Advisors) broader ESG assessment, the level of engagement fund managers have with underlying companies is assessed. How managers apply the voting power that is associated with most equities to encourage company management to advance ESG parameters is also considered.
Frontier also considers how ESG is integrated into portfolio construction and how the manager monitors and manages unintended ESG related risks that may evolve within different segments of a portfolio. (i.e. what impact would an $x carbon tax have on the portfolio)
        

Incentives and controls

Reporting requirements

Benchmark

          Vision Super does not have any specific ESG benchmarks maintained across any of its listed bond mandates or pooled fund/trusts investment arrangements.
Fund managers within this asset class incorporate responsible investment considerations within the decision-making processes and benchmarked against global best-practice. IFM Investors experience and research tells them that well-governed companies make for better long-term investments.
        

ESG Objectives

          The manner and approach that ESG is incorporated into the investment framework for fixed income will generally be different across types of managers and strategies. 
As example, when we are reviewing a developed market government bond manager, this will be different in approach to an emerging maket debt fund manager.
Furthermore, given the nature of our passive portfolios, Amundi manages both fixed income mandates with the objective of matching benchmark performance within the tracking error constraints set out in the investment mandate guidelines. Apart from decarbonising the Australian Aggregate portfolio upon instruction by Vision Super, there is no on-going carbon emission optimisation in place at the moment.  We continue to monitor and evaluate progress in this area.
        
          We do not have any restrictions in place for our bond portofolio mandates currently, managers like Brandywine Global Investment Management can make an investment in any type of company. However, Brandywine consider any ESG factor that may have the potential to introduce risk to the investment.  This is discussed by the team in the context of the overall assessment and valuation discussion which will guide the investment decision. In addition to Brandywine's integration of ESG factors as part of their broad approach, they also manage customized client portfolios that have ESG restrictions.  
They have in place restrictions that prevent them as manager from making investments in the debt or currencies of countries that appear on the terrorist lists maintained by OFAC, the U.S. State Department and the U.N. Security Council. In addition, the firm maintains restrictions to prohibit the purchase of corporate issuers that may be subject to current governmental sanctions. Furthermore, while they generally do not have specific restrictions regarding individual companies that may conduct some part of their business in sanctioned countries, credit investments are typically a small part of the portfolio and within this allocation it is likely that any companies that conduct business in such jurisdictions would comprise a de minimis part of the portfolio.  Barings do not have a restriction per see but have stated they see Tobacco investments as too risky to invest in.
        
          In addition to focuing on broad ESG risks within portfolios that are generally already incorporated, our managers objectives are to focus on integrating ESG issues more broadly and to utilize external data sources where this is available, to evaluate the investment analysis.
For some of Vision Supers portfolios, SSA will include agency debt, emerging market sovereign debt, municipal bonds and U.S. Treasuries. Whilst managers like Barings do not specifically use a third-party database to evaluate issuers, they do factor ESG criteria into their investment analysis, which can become an important risk factor as aprt of emerging market sovereign debt issuers.
Furthermore, managers also analysis weight macro indicators and social governance indicators for each emerging market debt country, which is another layer of analysis within the investment process.
        
          The passive part of the diversified bonds portfolio managed by Amundi Asset Management focus on three main aspects with respect to engagement as follows;
* Engagement for influence
* Collecting information for rating purposes and 
* Voting (equities) at general meetings along with pre-meeting dialogue
        
          As these are bond/debt portfolios, our managers apporach to active ownership is slightly different to our equity fund managers. As example, our investment through Barings who manage the global yield fund, conduct on-site visists and meet with management teams as part of their due diligence process. They have also adopted a proxy voting policy where it may be applicable in certain circumstances.
Furthermore, Barings has engaged with companies in which they hold credit by raising concerns about ESG risks with management teams. Their responses influence their decision to maintain or alter the investment thesis.
        
          Amundi Asset Management manage the passive bond arrangments for Vision Super takes active part in many working groups conducted by market bodies so as to move responsible finance, sustainable development and corporate governance forward. They are a member of the French Asset Management Association, European Fund and Asset Management Association, the French Institute of Administrators, the Observatory for Societal Responsibility and the European Sustainable Investmnet Forums to highlight a few. Amundi is also a member and director of Finansol and are active supporters of advanced academic research on responsible finance chairs. (i.e. The Sustainable Finance and Responsible Investment academic chair and the Climate Economy chair)
        
          Vision Super instructed Amundi Asset Management to exclude the biggest carbon polluting issuers from the credit part of the Australian passive bond portfolio, whereby Amundi assigned a zero carbon footprint to the non-rated issuers and as such applied a 50% de-carbonization of the portfolio. In order to obtain the level at 50%, the following carbon exclusions were undertaken within the Australian passive bond portfolio:
* Korea South East Power 5.75% Sep 2020 EMTN
* Qantas Airways 7.75% May 2022 EMTN 
* Lafarge Holcium Finance Australia 5-25SER MTN 4 April 2019 (this held 64% of the total footprint of the portfolio that represented 0.28% of the AUM).
Furthermore, on the 24 february 2017 we had made a further exclusion of issuer Holcium Finance Australia 5-25SER MTN 4 April 2019.
        
          General observations to date is that ESG integration is less developed within the bond/debt managers space when compared to the equities universe. Whilst the vast majority of managers we meet with place importance on ESG areas, we along with our asset consultant have the view that the level of integration and relevance to bond/debt offerings is fairly mixed.
Its also important that when we meet with any short-rated managers that we understand a manager's ESG culture and the manner in which ESG is integrated into the framework.
Another area we look for is what ESG data sources or subscription services has the fund manager signed up for.
        

Incentives and controls

Reporting requirements

Benchmark

          We do not have a specifc ESG benchmark for the corporate (financial) sub-section of the fixed income configuration. 
We apply the following benchmarks:
Alternative Debt: Bloomberg AusBond Bank Bill Index + 3% p.a.
Diversified Bonds:
Citigroup World Government Bond Index ex Australia Hedged
Barclays Capital Global Agg. Hedged (AUD)
Bloomberg Ausbond Composite 1+ Yr Index
        

ESG Objectives

          Amundi Asset Management manages the fixed income passive mandates for Vision Super, with the objective of matching benchmark performance within the tracking error constraints set out in the investment managemnet guidelines. Apart from decarbonising the Australian passive bond portfolio upon direction from Vision Super, there is no on-going carbon emission optimisation in place at the moment.  There is an ongoing dialogue regarding what might be possible with regards to government bonds.
        
          ESG risk issues are integrated within the corporate bond research and security process for managers who have exposure here.  Brandywine for example, evaluates governance specifically in assessing management's style and quality, but also consider a company's social and environmental practices.
For corporate issues, Brandywine utilize the ESG ratings that are available through the MSCI platform. Companies exhibiting a score below their determined threshold on the overall ESG score, or the individual E, S, or G component are further analysed to understand the drivers to these scores and what risks may be represented. As part of the manager's dialogue with companies, they will engage management to gain a better understanding of these risks and how the company is managing and addressing those risks.
        
          IFM Investors undertakes ongoing monitoring of the companies in which they invest. This can cover a broad range of activities from site visits, formal and informal meetings with management and attending investor briefings. ESG issues are raised formally and informally when required. 
IFM is well aware that debt investors have somewhat limited capacity to engage with issuers on ESG (or other) matters and as a result, it is critical that ESG assessments and engagements are made prior to making a debt investments within the portfolio, as part of credit assessment framework process.
Amundi Asset management who manages Vision Super's passive bond investments are involved both in collective initiatives on specific themes and collective engagements directed toward specific corporate issuers.
Examples of recent initiatives are as follows:
* UNPRI letter calling stock exchanges to put in place voluntary guidance for issuers on reporting ESG information by the end of 2016. (ESG reporting 2015)
* Amundi supported IIGCC letter to 77 EU companies on their positions and lobbying activities on EU climate and energy policy. (Climate change	2015)
* PRI Human rights engagement (Human rights - ESG reporting	2015)
* Amundi signed the Montreal Carbon Pledge (Climate change 2015)
* Amundi subscribes to the Green Bonds Principles (Climate change 2015)
* Amundi signed the Paris Green Bonds Statement of the Climate bond initiative	(Climate change 2015)
        
          By the end of 2021, as part of Amundi renewed commitment to Responsible Investment, Amundi aims to:
–	integrate ESG factors in all Amundi funds wherever technically possible;
–	systematically include ESG issues in shareholder engagement and voting at company Annual General Meetings (AGMs);
–	develop ESG advisory services for institutional clients; 
–	double the number of initiatives promoting investment in projects with an environmental or social impact; and 
–	double the Investments in the social and solidarity economy.
With the newly announced 2021 Action Plan, Amundi confirmed its founding principle as a responsible investor, committed to aligning its fiduciary and social responsibilities and to meeting its clients’ expectations.
        

Incentives and controls

Reporting requirements

Benchmark

          We do not have  a specifc ESG benchmark for the corporate (non-financial) sub-section of the fixed income configuration. 
We apply the following benchmarks:
Alternative Debt: Bloomberg AusBond Bank Bill Index + 3% p.a.
Diversified Bonds:
Citigroup World Government Bond Index ex Australia Hedged
Barclays Capital Global Agg. Hedged (AUD)
Bloomberg Ausbond Composite 1+ Yr Index
        

ESG Objectives

          With the alternative debt part of the portfolio, many investments as example with our portfolio in the Barings Global Loan and High Yield Fund are not publicy held. As such, disclosures are limited further down the credit ratings chain, making it even more difficult to make an assessment on carbon footprinting. Despite this obstacle, managers like Barings who undertake rigorous analysis and which is also supplemented with data from thrird party systems, look to take into account climate related risks.
        
          The Trustee has also instructed Barings for our investment within the Global Loan and High Yield Bond Fund to notify Vision Super in the event that the Fund should purchase an asset which is issued by a company that derives material revenue from controversial weapons or armaments in any of the companies in the portfolio.
Barings is also able to code their front-end compliance system for any ESG requirements provided by clients for separately managed accounts. The compliance system can exclude investments based on country, sector and/or company. They currently manage a number of separate accounts that utilize such restrictions.  We are in the pooled fund.
        
          Barings as an example considers environmental and climate risks as part of the incorporation of ESG factors in their fundamental credit analysis, and utilize third-party systems to supplement the investment and decision-making processes. These systems include data on carbon usage and other issuer-specific environmental risks and opportunities.
Furthermore, through fundamental credit analysis , which is inclusive of ESG factors in conjunction with a range of other potential risks and opportunties, Barings will evaluate factors that may impact issuers and industries. They view ESG considerations as important data points within the investment process as oppossed to an overriding determinant in credit decisions.
        
          Barings has also placed importance on collaboration with industry peers and participation in important initiatives. As such, the firm has signed on to a statement to the governments of the G7 and G20 in support of the Paris Climate Agreement, urging these governments to continue to uphold the Agreement’s principles aimed at combatting climate change. Additionally, the firm is supportive of an industry letter to credit rating agencies, emphasizing that a truly comprehensive credit rating should inherently include consideration of ESG risks and opportunities.
The Global High Yield Investments Group specifically has updated their processes for incorporating ESG in our fundamental analysis by adding additional ESG considerations within their underwriting memos. Analysts are required to cover any ESG concerns from both of their third-party systems, off-balance sheet liabilities, and any idiosyncratic news events that could affect the issuer’s ESG rating.
        
          Barings who manage the Global High Yield Investment, have joined several PRI-led initiatives, including the Global Investor Letter on Climate Change, urging the governments of the G7 and G20 countries to remain in the Paris Agreement, as well as the ESG in Credit Ratings initiative, collaborating with other asset owners, managers and credit rating agencies to ensure ESG incorporation in credit ratings is transparent and appropriate. 

At the end of 2018, the Barings firm formally signed on to the United Nations’ Global Compact in support of the UN’s Sustainable Development Goals. They also formally partnered with Pensions for Purpose in the UK, a platform devoted to sharing thought leadership and best practices in the ESG and impact investing spaces.
        
          Over the past few years Barings has enhanced their ESG processes by adding a resource dedicated to internal ESG coordination and have recently formed a Human Capital and ESG Steering Committee which will contribute to guiding the quarterly ESG Working Group meetings. This Steering Committee consists of members of the firm’s Global Management Team and is supported by the corporate strategy team and a third party consultant. The Working Group consists of members of Global Management Team, representatives from each of the investment areas, and members of the legal, compliance, risk management and business development functions. 
These key players meet quarterly to discuss enhancements to the ESG platform and processes, including discussion of implementing firm wide training programs for investment professionals.
        

Incentives and controls

Reporting requirements

Benchmark

          There is no specifc ESG benchmark for the fixed income securitised sub-section of the fixed income configuration. 
We apply the following benchmarks:
Alternative Debt: Bloomberg AusBond Bank Bill Index + 3% p.a.
Diversified Bonds:
Citigroup World Government Bond Index ex Australia Hedged
Barclays Capital Global Agg. Hedged (AUD)
Bloomberg Ausbond Composite 1+ Yr Index
        

ESG Objectives

          Our fund managers approach to securitised assets is generally similar to the approach applied for corporate (non-financials) whereby all ESG data levels are evaluated within the investment process. (i.e. fundamental and bottom-up credit analysis)
Furthermore, as part of the investment process, our fund managers will raise any ESG issues with their sources of supply (brokers and banks) or any other related parties that forms part of the transaction flow. Fund Managers will also seek to research any publically available information on any issuer which may include independent thrid party assessment.
        

Incentives and controls

Reporting requirements

Benchmark

          Vision Super does not apply a specifc benchmark to its private equity portfolios. The Trustee has generally allocated commitments to private equity via a fund of fund model approach with only a few instances where direct investments were made. The asset class has generally been outside of the investment period for several years now with the sector very mature and in harvest mode. We anticipate that most invested portfolios to finish  their terms between 2022 and 2024.
The benchmarks that are used for the asset class are as follows:
Domestic Private Equity: S&P/ASX 300 Accumulation Index + 5% p.a.
Global Private Equity: MSCI World ex Australia Net Dividends + 5% p.a.
        

ESG Objectives

          LGT Capital Partners work with their partner, RepRisk, which has a proprietary platform for tracking more than 80,000 online information sources in 20 languages. Monitoring these sources helps to flag controversial ESG issues, ranging from allegations of environmental or social harm caused by a company to claims of corruption or other governance issues. With the help of this monitoring solution, LGT have identified 56 ESG incidents over the reporting period that they deemed to be material, either from a reputational risk perspective or in terms of a potential threat to company value. The incidents were concentrated in three sectors: consumer discretionary, financials and health care. The incidents included, amongst others, various accidents, environmental damage and workplace harassment. 
Within their process, LGT make an initial assessment of the incident to determine whether follow-up is required, based on a risk assessment of the incident and whether investors and management can influence or change future behavior. LGT also consider the impact on net asset value and reputational risk. The monitoring solution provides timely insights on the ESG controversies that companies in their private equity portfolios face.
        
          As example, under the terms of its ESG Policy, Vencap will not knowingly recommend an investment in a venture fund that is expected to commit capital to companies involved in:
• the production or distribution of non-therapeutic harmful substances including, but not limited to, drugs, alcohol, tobacco or similar addictive substances;
• the exploitation of juvenile workers and/or individuals in bonded labour;
• the routine experimental testing on humans, animals or self-sustaining foetuses of substances or procedures for non-therapeutic applications;
• the production of weapons or systems of mass destruction;
• the disposal of unprocessed toxic or radioactive waste; 
or companies involved in the management of financial proceeds derived from such activities.
Specifically, VenCap is required to confirm that any proposed investment complies with their ESG Policy, that no special terms or inducements have been offered in connection with the proposed investment and that any connected relationships or conflicts of interest have been fully disclosed.
Beginning in 2017, Mesirow Financial Private Equity formally and contractually agreed to exclude investments in the equity of an issuer if such issuer’s revenue is primarily derived from gambling (excluding legalized gambling in the U.S. or other jurisdictions), prostitution, or the manufacture or commerce of armaments. The firm also exclude from consideration any investments that have negative implications for society, whether local or global. These include, for example, investments that benefit from, or engage in, child labor, forced labor, the sex trade, human-trafficking and non-OFAC compliance.  Finally, Mesirow Financial Private Equity will not knowingly invest into companies that do not comply with specific United Nations Resolutions.
        
          Vision's private equity general partners are generally well aligned with the ability to drive ESG change with fund/partnerships and down to company management as a result of its control structures that are in place.
As a consequence, ESG considerations form a critical part of our general partners long-term investment philosophy and are deeply integrated into their investment strategy and process. 
Furthermore, our private equity managers through their representation on company boards and by holding observer rights, establish and implement responsible investment initiatives to improve the ESG profiles for all their private equity underlying companies. Our investment managers also ensure that boards of these companies take an active approach to ESG, which includes encouraging management to maintain the same standards.
Other managers have adopted and endorsed the principles and practices of the Institutional Limited Partners Association’s Private Equity Principles (“ILPA Principles”). 
Most of the Fund's managers have some form of policy or statement around ESG within their investment process. Whilst many of our general partners are not signatories to the PRI, they have demonstrated that implicitly they do think about and analyse ESG risks as part of thier due diligence and investment decision making process, and adopt  the principles of the UN PRI.

It can also be argued that the extent to which other private equity or similiar type strategies like secondary interests, distressed debt and for that matter fund of funds are able to influence ESG change is less compelling and effective, but is never-the-less evaluation by general partners.
        
          Our commitment to LGT Capital Partners through the "Crown Europen Private Equity Fund" is a signatory to the UN PRI and one of it's Managing Partners, Mr. Tycho Sneyers, was elected to the UN PRI Board in 2017. Mr Sneyers will represent LGT and fellow asset managers on the PRI Board for a 3-year term.
Other managers like Vencap (venture fund of fund) is committed to raising the awareness of ESG issues amongst investee groups, portfolio companies and the Limited Partner community generally. In particular, they will advise venture firms on best practices and encourage the formulation and adoption of their own ESG policies.
        
          At the moment, our private equity managers cannot track carbon emissions in our portfolios because (1) most managers do not yet report this to our managers (it is not yet market standard) and (2) among those who do report such information, it is provided in different ways and cannot be meaningfully consolidated. Our managers like LGT are currently participating in a PRI Working Group focused on establishing common ESG reporting standards for private equity, which will help to facilitate carbon monitoring in the coming years.
Greenspring Associates, who manage our venture commitments have outlined in their recent ESG Policy, that beyond their formal commitments to ESG, Greenspring is taking a number of steps as an organisation to foster a company culture that emphasizes responsible and inclusive practices. Some specific actions as follows:
* Launch of an Impact Oriented Fund during 2017 targeting venture capital managers in the renewable energy, sustainability and agricultural technology, healthcare, education technology and financial technology sectors.
 * Participation on the National Venture Capital Association's Diversity Task Force
* Best Practices with Respect to Firm Governance as an SEC registered firm, adopting a formal compliance manual, code of ethics and harassment policy, and 
* Encouraging community involvement
        
          In August 2018, our US based venture private equity manager Greenspring Associates announced that it had signed the UN PRI.
See statement released from the manager below:
"While the Firm has already implemented a number of ESG initiatives, such as a formalized policy, the formation of an impact-oriented fund, participation in the National Venture Capital Association’s Diversity Task Force, and several internal programs that foster inclusion and best practices with respect to hiring, firm governance and community involvement, Greenspring Associates believes that joining the PRI represents an important next step. The PRI’s network of international investors work together to implement a set of six voluntary principles that provide a framework for integrating ESG factors into investment analysis and ownership practices. The principles align with Greenspring’s philosophy that ESG considerations can be incorporated in the Firm’s investment approach to better manage risk and generate strong returns."
Mesirow Financial Private Equity evaluates a range of social factors as part of the investment due diligence process.  Components of this analysis include an evaluation of a general partner's diversity and inclusion and social responsibility (corporate giving and community impact) programs, as well as how general partners incorporate social factors, which may include worker safety, utilization of organized labor, diversity and inclusion initiatives, etc. into the investment process and growth strategy of their portfolio companies. Mesirow Financial Private Equity utilizes a proprietary ESG Scorecard, a tool designed to understand how responsible investing is incorporated into a general partner's firm management, investment process and reporting. The resulting score is entered into Mesirow Financial Private Equity’s ESG Scorecard database, which is used to compare a general partner's relative strengths against those of the other general partners in the database.
Case study:  Mesirow Financial Private Equity has been a limited partner in various KPS Capital Partners (“KPS”) private equity funds since 2013.  Their due diligence has validated KPS’ leading reputation and track record as an investor in industrial sectors in the U.S. and Europe.  While KPS is not a UN PRI signatory, our due diligence suggests the firm has robust processes to measure and improve employee safety and environmental sustainability. Safety and environmental performance of KPS’ portfolio companies are generally addressed in both monthly reports and quarterly board meetings to ensure that management is on track with overall goals. Safety is a priority for all KPS portfolio companies and is generally the first item discussed at board meetings.
        
          Private equity managers also believ that the TCFD recommendations for disclosure for consistent climate-related financial information will increase investors' ability to appropriately assess and price climate-related risk and opportunities.
Furthermore, our private equity fund managers have a primary focus to generate strong, risk-adjusted returns and be conscious that the ESG policies and regulation inclusive of climate change, will be more widely promulgated, comapnies will be much better placed around ESG factors and will be less impacted financially in the future.
        

Incentives and controls

Reporting requirements

Benchmark

          Our property managers do not have any specific ESG benchmarks in place but are fairly active around ESG considerations within portfolio construction and on-going management of underlying assets.
Furthermore, our property managers are members and partcipate in the Global Real Estate Sustainability Benchmark (GRESB), with most also being members of IGCC and the Carbon Disclosure Project (CDP).
For our Australian core property fund managers, they also apply the National Australian Built Environmnet Rating System (NABERS Rating), which measures the environmental performance (energy efficiency, water usage, waste efficiency and other environmental quality aspects) of Australian buildings, tenancies and homes.
The benchmarks that are used for the asset class are as follows:
* Mercer/IPD Australian Property Pooled Fund
* FTSE/EPRA NAREIT Developed Rental Index Hedged AUD
        

ESG Objectives

          Managers to include initiatives around green building metrics and energy efficiency results.
        
          Vision Super does not restrict any of its property fund managers on specific portfolio holdings or assets.
        
          ESG integration is an important element with property management, and that ESG considerations need to be included within the investment decision framework in order to provide opportunity to create positive environmental and social changes in conjunction with positive long term performance and gains.
Frontier Advisors philosophy is that property related ESG initiatives need to be analysed for their financial benefits and not only for their ESG benefits, with importance on income and cash flow metrics.
        
          ISPT who manages a property fund we are allocated too, is a member and on a number committees as follows:
* Member of GRESB's industry advisory group 
* Member of the GBCA and particpiates on the industry advisory committee
* Holds a number of committee roles with the PCA and SCCA, including the National Sustainability and National Risk Roundtable
* A member of the Cleaning Accountability Framework (CAF) steering committee
* Member of Better Buildings Partnership (leadership panel and waste technical working group)
        
          AMP Capital Real Estate (AMPCRE) has engaged a consultant to prepare Climate Change Risk Assessments which we they will use to evaluate physical and transition risks for all existing ADPF assets during 2018-19. Climate Change risks are also considered as part of the AMPC RE Transaction ESG Checklist which AMP will use as a screening & risk evaluation tool during Due Diligence on prospective acquisitions.
        
          Quality property managers must demonstrate commitment to ESG at an organisational level and its also important that they participate or members of relevant industry associations and endorsement of climate pledges.
        

Incentives and controls

Reporting requirements

Benchmark

          Vision Super does not apply an ESG benchmark to its infrastructure managers or asset class. Our fund managers must ensure that any portfolio/asset decision must take into account ESG considerations and understanding of implications across all key stakeholders. 
The benchmark that is used in the asset class is the Infrastructure Composite Benchmark.
        

ESG Objectives

          The infrastructure managers generally have a long term view on infrastructure investing and aim to deliver sustainable investment returns over time by taking strategic initiatives and seeking growth opportunties whereby they aim to manage ESG risks across the long-term cycle of these assets.  IFM utilizes the MSCI ESG database and  SASB (Sustainability Accounting Standards Board) research and guidelines.  It is in the process of integrating ESG considerations into their decision making.  IFM uses both on initial screens of deals and investment analysis – then usually engage specific advisers to get detail on material risks (eg: ERM for climate change risks)
        
          We view the nature of these assets long term in nature and as such the long-term investment time horizon of open ended infrastructure fund managers, is a perfect alignment of responsible investing and long term value for all key stakeholders.
Due to the nature of these assets and impact they can have within the landscape, there is a close linkage between the social aspect of the community and licenece to operate.
        
          We expect to see fund managers of infrastructure assets demonstrate value through key stakeholder engagement.
Unlisted fund managers who usually have significant stakes in the companies they purchase and in most cases with board representation, allows them to have greater influence from a governance perspective.
        
          Our infrastructure manager IFM Investors, evaluate each infrastructure asset/portfolio individually and will analyse a number of risks and opportunties around areas such as:
•	Energy and carbon emission risks and opportunities 
•	Environmental risks and opportunities
•	Health & Safety risks
        
          We are allocated through IFM Investors in the Australia and International Infrastructure Funds where they focus their efforst on the development of a number of business-specific performance measures and metrics. These include the following:
•	ISO 55000 Asset Management Standard
•	ISO 31000 Risk Management Principles and Guidelines
•	ISO 45001 Occupational Health and Safety Management Systems.
•	ISO 14001 Environmental Management Systems
•	ISO 20400 Sustainable Procurement
        

Incentives and controls

Reporting requirements

04.3. Indicate which of these actions your organisation might take if any of the requirements are not met

          We may consider placing on watch and monitor over a 3-6 month period.
        

04.4. Provide additional information relevant to your organisation`s appointment processes of external managers. [OPTIONAL]

          Appointment processes
Overview
The Board has formally delegated responsibility for the appointment of Investment managers (with the exception of strategic investments) to the Investment Committee.
The Investment manager appointment process can be summarised as follows
Step 1	Decide to initiate an investment manager search
•	The Investment Committee will resolve to commence an investment manager search
•	This decision will generally be based on the written advice of the Investment team
Step 2	Agree prospective investment managers
•	The internal Investment team and the consultant will agree up to three prospective investment managers, for recommendation to the Internal Investment Committee, or directly to the Investment Committee  
•	The Investment advisor will provide recommendations
•	The Investment team will consider the recommendations from the Investment advisor, and may conduct additional research if required
Step 3	Conduct due diligence and finalise recommendation
•	The Investment team will conduct or facilitate due diligence assessments, including
o	Detailed Investment due diligence
o	Preliminary Operational, legal and tax due diligence
•	Prospective Investment managers may be asked to make a presentation to the Internal Investment Committee
•	(If applicable) The Internal Investment Committee will then finalise a recommendation to the Investment Committee
Step 4	Decision
•	The Investment Committee will consider the recommendation for the appointment of an investment manager from the Investment team or the Internal Investment Committee, unless otherwise required by the Investment Committee.
•	The Investment team must prepare a report for the Investment Committee, outlining the basis for its recommendation, referenced to the principles and criteria set out in Investmnet Manager Appointments and Termination Policy.  The Investment Advisor may also be asked to provide a report.
•	As a minimum, the recommended prospective Investment manager is required to make a presentation to the Investment Committee.   
•	The Investment Committee’s decision is generally subject to completion of operational, tax and legal due diligence.
Step 5	Complete due diligence assessments
•	The Investment team will complete (or facilitate completion of) the due diligence assessment
•	The CIO will determine whether completion of the due diligence process has raised material concerns, to be raised with the Investment Committee
•	The Investment team will complete the Material Outsource Service Provider Checklist
•	The Compliance team will review the completed Material Outsource Service Provider Checklist, provide it to the Internal Auditor and advise APRA as and when required under the Outsourcing Policy and relevant regulation 
Step 6	Implement appointment
•	Including negotiation / review of IMA, side letter or other applicable contractual agreements
Due diligence assessments
The Investment team is responsible for ensuring that detailed due diligence (Investment, Operational, legal and tax) is performed by appropriately experienced and skilled professionals, who may include
•	Investment team members
•	Internal compliance, legal or tax specialists
•	External Investment due diligence providers
•	External Operational due diligence providers
•	External legal advisors
The approach to due diligence and analysis of potential investments will differ depending on the type, structure and complexity of the proposed investment.  For example, the risks and complexities of investing in unlisted assets require additional research and analysis.
Contractual Agreements
All investment management agreements entered into by Vision Super in relation to the management of assets of the Fund must comply with all relevant requirements of SIS and APRA’s standards in relation to material outsourcing agreements.
The Investment team or the Compliance team (at the request of the Investment team) must review the relevant contractual agreement(s) to ensure that it complies with
•	SIS legislation
•	APRA prudential standards
•	Any other legal requirements in operation from time to time
•	Any other applicable Investment policies, including but not limited to the Derivative Management Policy
The Investment team may engage an external legal advisor to review any contractual and legal documentation relating to a new investment, including
•	For mandates, the Investment Management Agreement
•	For Collective Investment Vehicles, the relevant contractual agreement(s)

The over-riding principle is that appropriately detailed diligence is conducted, aligned to the complexity and risk profile of the investment. 
The criteria against which potential investment managers are assessed includes (but is not limited to) the following
Business: Organisational and ownership structure, Organisational stability, Long term focus on investment management & Clear alignment with the interests of its clients
People: Demonstrated integrity, skills, expertise, knowledge and depth of experience of the investment personnel responsible for managing the portfolio
Investment philosophy and process: Alignment with our Investment philosophy, A clearly articulated and consistently applied Investment process, including alpha generation, portfolio construction and implementation
Fees and terms: Favourable commercial terms and fees, consistent with Vision Super’s Investment fee targets
Performance: High conviction that the manager can achieve expected returns for the level of risk.
Investment risk factors: Impact on the risk profile of the asset class and Investment options, including Liquidity risk 
Operational risk factors: Strong internal operational risk and control environment and investment operations capability
ESG: Consideration of environmental, social and governance risks when making portfolio investments, as required by the Environmental, social governance policy
Taxation: Management of after tax outcomes
Reporting: Ability of the manager to provide the reporting required, To facilitate timely daily unit pricing of Vision Super Investment options, For effective overight and monitoring by Vision Super & For Vision Super to comply with regulatory reporting requirements.
        

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