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Pendal

PRI reporting framework 2020

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Outputs and outcomes

LEA 09. Number of companies engaged with, intensity of engagement and effort

Indicate the proportion of companies in your listed equities portfolio with which your organisation engaged during the reporting year.
We did not complete any engagements in the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion of companies engaged with, out of total listed equities portfolio

Individual / Internal staff engagements

249
29

Collaborative engagements

1
0.1
Service-provider engagements
6
0.7

09.2. Indicate the breakdown of engagements conducted within the reporting year by the number of interactions (including interactions made on your behalf).

No. of interactions with a company
% of engagements
One interaction
2 to 3 interactions
More than 3 interactions
Total
100%

09.3. Indicate the percentage of your collaborative engagements in which you were the leading organisation during the reporting year.

Type of engagement

% leading role
  Collaborative engagements

09.4. Indicate the percentage of your service-provider engagements in which you had some involvement during the reporting year.

Type of engagement

% of engagements with some involvement
Service-provider engagements

09.5. Additional information. [Optional]

For responses under LEA09, as per the PRI definition, engagements refer to ESG engagements undertaken either directly by our equities teams, by Regnan our in-house ESG team (listed here as a "service provider"), or as part of collaborative initiatives. We note that our investment teams undertake hundreds more direct meetings with companies which are not reflected in these figures. For example, these figures only include engagements with companies which we own even though we undertake engagement to drive improved ESG performance at companies in which we are interested in investing in the future.

Pendal is an investor participant in the Climate Action 100+ (CA100+) engagement initiative. While we were directly involved in engagement with one company, as a signatory to the initiative, we also indirectly supported engagement with the 161+ targeted companies. Regnan also provided support in our involvement in CA100+ engagement with our nominated company.

Re: LEA09.4 - All clients of Regnan's collaborative engagement program provide input into the finalisation of the engagement plan and are kept abreast of developments via monthly reporting. Alerts are also provided on contentious issues to support clients' voting decision making processes.


LEA 10. Engagement methods

10.1. Indicate which of the following your engagement involved.

10.2. Additional information. [Optional]

Pendal engagement primarily involves direct one-on-one meetings with the Board or senior executives. The investment team also holds regular telephone calls with senior management, but these are typically to discuss financial results rather than an opportunity to discuss ESG matters. On occasion, Pendal is invited to participate in investor roadshows, site visits and, to a lesser extent, supplier visits. 

Regnan typically engages with the Board or relevant members of management, such as Head of Sustainability or Human Resources, rather than the CEO or CFO. Regnan also employs letters to complement its engagement program, such as writing to attendees after meetings to reiterate investor priorities communicated during the meeting.


LEA 11. Examples of ESG engagements

11.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

ESG Topic
Climate Change|Sustainability reporting
Conducted by
Objectives

We wanted this oil and gas company to take a more proactive position on climate change transition given its emissions intensity, and to build out its lower-carbon processing techniques and carbon capture and storage (CCS)

Scope and Process

We have met regularly with the company for years and held 3 meetings in 2019 alone. We've had ongoing dialogue with the company to encourage it to mitigate transition risks via restructuring and reimagining its business to look for genuine commercial opportunities around lower-carbon processing techniques and carbon capture and storage (CCS). As part of this, the company has also improved processes to factor in carbon modelling in project decision making. We will continue to encourage the company to provide greater transparency to investors in company disclosures regarding how decision making incorporates such modelling, providing greater insight into climate risk management. The company has shown greater willingness to be more proactive on climate, and is iteratively improving its climate disclosures in line with the TCFD. It released its third Climate Report in early 2020.

Outcomes
ESG Topic
Climate Change|Sustainability reporting
Conducted by
Objectives

Our global equities team’s engagement with a Fortune 500 paint and coating manufacturing company sought to better understand how management viewed the risks of climate change and what plans they had in place to mitigate the risks. In addition, in its 2 meetings in 2019, the team sought to get a better understanding of the company’s approach to broader ESG disclosure.

Scope and Process

We identified that this company was particularly exposed to climate-related risks, yet there were limited disclosures available to provide insight into whether these risks were being managed or not.

For example, the company has not undertaken any scenario analysis, and position statements suggest that the assessment of environmental risk is limited to a focus on pollution prevention and waste minimisation. Further, climate change is not specifically mentioned as a risk factor within 10k reporting.

We requested the company provide greater detail on physical climate impacts on its business, including robust analysis being undertaken. Further, we encouraged the company to pursue opportunities relating to sustainable product development.

In 2019, the Board’s Nominations and Corporate Governance Committee adopted sustainability on its agenda and has been tasked with ensuring the Board remains informed on ESG topics, while a Sustainability Committee was also established to bring together cross functional business leads to report to the CEO.

We view these developments positively and have encouraged these committees to drive improved, investor-relevant ESG reporting. Early discussions indicate that the company is looking to adopt the SASB disclosure framework. Either way, the company has committed to enhanced disclosures in 2020, including additional sustainability metrics and targets.

Outcomes
ESG Topic
Climate Change
Conducted by
Objectives

We sought:
- more detailed disclosure of analysis taken by this infrastructure operator into the physical risks of climate change
- that  future analysis give consideration to interdependency risks, including the resilience of supporting infrastructure for instance roads and public transport links, the disruption of which has the potentially to severely disrupt its operations.

 

Scope and Process

Engagement occurred under a climate resilience thematic approved by clients in 2013 and updated in 2016 at which time this company was added to the priority list of stocks for engagement. We first met with management in 2016, and in all met with the company five times, including a meeting with chair at the mid point of our engagement. We conveyed investor interest in understanding more about the parameters of the work undertaken to date and the extent to which mitigation of these risks was possible. In response the company's description of the scope of work we raised the need to consider physical risks of climate change not just to the direct operations of the business, but to the infrastructure on which it was reliant as well as the potential macro economic impacts of a major event in key markets. Public disclosures released in 2018 confirmed that these items are now formally on the company's risk register, together with a more detailed description and relative weighting of the risks identified. In our view this expansion of its climate analysis sees the company better placed to mitigate these risks.

Outcomes
ESG Topic
Executive Remuneration|Sustainability reporting|Other

specify

          
        
Conducted by
Objectives

A change in strategy saw this company take a greater customer focus. Accordingly we sought an improvement in measures used to assess this dimension of the strategy (including within remuneration). More specifically we sought measures that considered both end users of its products as well as from those commissioning the work. In addition we sought that the company more formally measured and tracked the social impacts/contributions of the its work to support information sharing within the business and provide a factbase in support of future tenders, especially amongst government clients.

Scope and Process

We first raised interest in how performance against the customer dimension of this company's strategy was being measured in two meetings with the chair and in a subsequent meeting with management to provide detailed disclosure feedback. At the request of chair we wrote to the company setting out in more detail the potential benefits of  considering measures that included end users as well as the paying client. Further we highlighted the potential opportunity from more systematically measuring the social impact of its work as a potential differentiator in future tenders. This led to a further meeting with management to provide input to strategy development in this area. In all we engaged with company 6 times on this matter (3 meetings with the chair, 2 with management and 1 letter to the chair.) The company now collates and benchmarks impact data in a bespoke, formal tool to demonstrate both impact and leadership and serve as an important source of knowledge for future projects. Further evidence of the consideration of end users is provided in the scope of NPS participants with the definition of customers expanded to include selected end users.

Outcomes
ESG Topic
Climate Change
Conducted by
Objectives

Seek consideration of physical risks of climate change by a telecommunication company under our thematic engagement on climate resilience given the potential impacts on business continuity from extreme weather events. Specific change objectives included:
- clear acknowledgement of risks associated with a changing climate (not merely weather risk)
- evidence of processes in place to identify and assess risks using data at appropriate scaling and with consideration of interdependencies
- implementation of tailored mitigation and adaptation strategies

Scope and Process

We met with management in 2018. During the meeting the company expressed confidence that business as usual resilience activities were sufficient, specifically with respect to sea level rise and storm surge, but was evident that climate risks had not been specifically considered. The meeting also provided an opportunity to promote the TCFD as a useful framework against which to consider and disclose how the company could identify and manage material climate-related risk. Approximately 12 months later the company disclosed that it had undertaken an analysis of physical risks during the year and identified that key assets were in fact at risk with climate change now formally considered a potential risk to the business.

Outcomes
ESG Topic
Health and Safety
Conducted by
Objectives

In this instance we engaged with a company entering a strong cost controls environment to seek assurances that earlier gains on environmental, health and safety issues would not be eroded. Specifically we sought:
- Evidence that this company with high exposure to environmental health and safety risks, elevated by community stakeholder concerns, is sufficiently prioritising EHS management including through active board management and adequate resourcing.
- Adoption and improved disclosure of leading metrics on the efficacy of controls.

Scope and Process

We met extensively with company management during 2016 and 2017 (4 times in all). We raised concerns that current cost cutting had the potential to undermine strong gains made in EHS performance over recent years. Examples of good practice were provided to the company following our discussions to further illustrate our requests both with respect to governance practice over EHS matters as well as the disclosure of leading indicators. Over time the company has progressively improved its disclosure on this issue, including the reporting of leading measures consistent with our feedback. A number of these measures provided assurances that cost cutting requirements were not being achieved at the expense of EHS performance. While EHS was already included in executive pay this has been expanded to include a leading metric relevant to this concern and the risk statement provides more detail on how EHS risks are managed. The company has commenced engaging with ESG analysts seeking input for forthcoming disclosures, suggesting that further disclosure enhancements are likely. 

Outcomes
ESG Topic
Sustainability reporting
Conducted by
Objectives

We sought enhanced disclosure from a listed insurer with respect to human capital and customer metrics consistent with our longstanding thematic engagement on strategic human capital management. This thematic seeks greater alignment between people strategy and overall business strategy supported by effective oversight by the board and executive. In this instance we sought more granular disclosure of performance metrics to assist in assessing the effectiveness of its employee strategy and a greater understanding of how the company viewed the links between its employee strategy and the delivery of its business strategy.

Scope and Process

In this instance we met with company management in 2018, followed by a meeting with the board in 2019. During the meetings we emphasised the need for greater disclosure to enable the market to more effectively understand and factor in its human capital strategy, including how it supports delivery of its customer centric business strategy. We noted that net promoter score (NPS) measures were high level and sought to test whether more granular data is monitored internally. Subsequent disclosures broke down NPS for different business divisions directly consistent with our request. This was further supported by enhanced disclosure of the links between culture, diversity, talent attraction and retention and improved outcomes customer service and related initiatives.

Outcomes

11.2. Additional information. [Optional]

Regnan is Pendal's in-house specialist ESG research, engagement and advisory team. Even though Regnan is wholly owned by Pendal, we classified the engagements mentioned above undertaken by Regnan as service provider engagements rather than internal engagements. This is due to the fact our investment teams also conduct engagements separate to the Regnan program, and Regnan also represents several other institutional investors in its program.


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