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Pendal

PRI reporting framework 2020

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Asset class implementation not reported in other modules

SG 16. ESG issues for internally managed assets not reported in framework

Describe how you address ESG issues for internally managed assets for which a specific PRI asset class module has yet to be developed or for which you are not required to report because your assets are below the minimum threshold.

Asset Class

Describe what processes are in place and the outputs or outcomes achieved

Money market instruments

For our mandates with explicit "Sustainability" objectives. "Cash" assets are deemed to be sustainable if the sponsor is a constituent of the Barclays MSCI Global Aggregate Sustainability Index and not on Regnan's ESG exclusion list.

Other (1) [as defined in Organisational Overview module]

Not addressed as not deemed material to this product.

16.2. Additional information [Optional].


SG 17. ESG issues for externally managed assets not reported in framework

17.1. Describe how you address ESG issues for externally managed assets for which a specific PRI asset class module has yet to be developed or for which you are not required to report because your assets are below the minimum threshold.

Asset Class

Describe what processes are in place and the outputs or outcomes achieved

Listed equities - ESG incorporation

RI considerations are included in Pendal's investment manager selection, appointment and monitoring as outlined in our "Investment Manager Due Diligence Guidelines". We require our external managers to complete an annual ESG Due Diligence Questionnaire that, in line with PRI recommendations, also requests information on any changes in RI/ESG-related policies, philosophy, governance, practices (across investments, incentives and active ownership). It also requests information on a number of RI-related reporting requirements - such as TCFD alignment and climate risk-related disclosures, Modern Slavery-related oversight and reporting, as well as proxy and engagement reporting (including ESG-related case studies).

In response to our climate-related requests, we received responses that outlined the governance structure and investment approach to managing climate-related risks. Approaches varied from reporting on standard carbon intensity metrics to a proprietary stranded assets model. We also received commitments to incorporate reporting on climate-related risks as part of the regular reporting cycle.

In the case of strategies with additional RI criteria (e.g. Ethical and Sustainable funds) we conduct a more ESG-focused due diligence process, which includes requesting additional ESG information and reporting requirements to those outlined above.

Listed equities - engagement

As part of the due diligence process outlined above and below (SG 17.2), we have established Investment Guidelines with explicit ESG requirements covering active ownership practices. 

We requested an outline of the manager's engagement framework along with examples of case studies of ESG-related engagement conducted during the reporting period. The manager provided a copy of their organisation's Engagement Policy along with a report outlining engagements conducted by E, S, and G themes with underlying statistics and case studies included. 

Our external manager has appointed Institutional Shareholder Services Inc. ("ISS"), through its Pooled Engagement Service ("Pooled Engagement"), to provide corporate engagement services. Pooled Engagement allows our external manager to join collectively with other investment managers and asset owners to facilitate a dialogue with certain companies on ESG. The intention of such dialogue is to request improved disclosure by such companies involved in potential issues related to ESG. Our external manager believes that improved disclosure and greater transparency is in the best interests of all investors and allows asset owners to make more informed decisions about investable companies 

Listed equities - (proxy) voting

As part of the due diligence process outlined above and below (SG 17.2), we have established Investment Guidelines with explicit ESG requirements covering active ownership practices.

Our external manager uses ISS, an independent third-party proxy advisory firm, to provide proxy voting services with respect to securities held in a given fund or account. Our external managergenerally votes proxies according to the proxy voting guidelines developed by ISS and adopted by our external manager. In addition, the proxy voting policy includes guidelines for the Chief Compliance Office, or designee, to follow if a material conflict of interest arises between AQR and/or its employees and its clients to ensure any material conflict is resolved in the best interest of its clients.

Under our instruction, the external manager for our Sustainable International Share mandate manages the fund's proxy voting decisions in accordance with a Sustainability Policy for the fund's proxy voting framework. The framework is based on proxy voting guidelines that are consistent with the objectives of sustainability-minded investors and fiduciaries. The guidelines are updated on an annual basis to take into account emerging issues and trends on ESG topics, as well as the evolution of market standards, regulatory changes and client feedback

Hedge funds - DDQ

Select whether you use the PRI Hedge Fund DDQ

Hedge funds

N/A

17.2. Additional information.

As we are an investment manager ourselves, we have a very small allocation to external managers (<10% AUM). All of our external managers are PRI Signatories and consistent with PRI Principle 1 they incorporate ESG issues into investment analysis and decision-making processes.

Responsible investment considerations are included in Pendal's investment manager selection, appointment and monitoring as outlined in our "Investment Manager Due Diligence Guidelines".

Investment due diligence oversight is done by the Investment Boutique and operational due diligence oversight is done by Investment Operations, although both are conducted in consultation with area experts, such as Risk and Compliance, Responsible Investments, Operations and IT.

The due diligence process can involve a combination of site visits (recommended for all new appointments) and/or video/audio conference meetings for annual monitoring purposes, together with desktop reviews. Where relevant, desktop reviews include detailed questionnaires on ESG-related areas (such as investment philosophy, governance structures, strategies, investment approach, engagement and proxy voting practices), risk management framework and reporting. Such reviews are in addition to reviews of manager performance reports, policies and procedures, as well as manager presentations, conference calls and use of external consultants.

We also require our external managers to complete an annual ESG Due Diligence Questionnaire. The latest questionnaire covered areas such as:

  • Updates on governance structure, roles and responsibilities for ESG policy development and implementation.
  • ESG reporting / transparency initiatives.
  • ESG integration related data sources and research inputs.
  • ESG risk management framework - tools, review cycle, oversight and responsibilities - in particular climate-related risk management framework, tools and client reporting.
  • The organisation's latest PRI Transparency and Assessment Reports
  • Active Ownership practices - engagement and proxy voting policies, case studies, statistics and related client disclosures.
  • Any enhancements / changes to RI related investment processes or policies.
  • The Sustainable Development Goals (SDGs) and whether their organisation is developing investment strategies or broader initiatives aligned with the SDGs.
  • Impact investing, in particular whether their organisation is involved in impact investing solutions with reference to asset classes and jurisdiction.

Managers have responded in detail with supporting material provided in most cases to reinforce their responses (in particular on ESG risk management frameworks, climate-related reporting and active ownership practices.

For our external managers implementing additional ESG strategies, such as Ethical (negative) and Best of Sector screening we conduct a more ESG-focused due diligence process, which includes requesting additional ESG information and reporting requirements to those outlined above.

The only externally managed asset class where we do not integrate ESG factors into investment decisions is hedge funds.

The majority of our hedge funds investments are quantitatively based. To incorporate a new factor into a quantitative investment process requires a sufficient back history of objective data with availability on an 'as released' basis to avoid 'look back bias', as well as for the insights from this data to be proven to add value when tested in a statistically rigorous fashion. ESG has not yet reached the point where this is able to be done, however we expect that as more data history becomes available this could change. Furthermore, our hedge fund investments frequently employ trading strategies that are more short term in nature. Most ESG risks are expected to manifest over much longer horizons. This makes incorporation of ESG factors less relevant in this asset class.


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