STEP Two

Setting Targets

RIO Guide Graphic - Step 2 - Setting Targets

Setting targets and timelines is a key step to drive implementation of a fund’s ESG strategy detailed in its IPS.

Developing the IPS in Step One should include determining ESG goals, objectives and targets.

This Step contains an indicative 3-year action plan with recommended progress milestones relevant to the South African context.

Step 2

Introduction

The fund should develop a workplan with specific targets and goals to support implementation of the ESG commitments in the revised IPS. Depending on existing capabilities, implementation such as developing new systems and processes, acquiring appropriate resources, and phasing in asset classes occurs over multiple years, and should be thought about strategically with a clear long term objective.

The Board of Trustees should have oversight of the workplan and remain ultimately responsible for its implementation, though the Trustees may assign day-to-day responsibility to others. The ESG workplan should be integrated into existing Board of Trustees’ schedules and processes.

Practical and achievable targets and milestones (such as SMART targets – specific, measurable, achievable, realistic and time bound) are a useful way to keep the fund on track to implement ESG integration. The workplan should have long-term targets which are supplemented with interim targets and associated key performance indicators. This supports consistent momentum in implementation.

Target Setting

Target setting can cover issues in the following two categories:

Internal governance, process and capacity building targets

  • Developing roles and responsibilities for ESG-related actions and commitments
  • Instigating and completing ESG training for Trustees and fund employees
  • Initial asset classes that will be covered by the new ESG and RI policy: For most pension funds, the logical starting point may be to focus on Listed Equities, given that it makes up the bulk of most SA pension funds’ portfolios
  • Which ESG issues the fund will prioritise in year 1, 2, 3: The fund can focus on a few priorities initially and add new ones over time
  • Which activities the fund will undertake: e.g. engaging with fund managers, companies, others, or joining collaborative initiatives
  • Targets for percentage or amount of capital to be allocated to thematic investments, such as impact, green investment or engagement
  • Achieving certain investment performance objectives or practices, e.g. setting portfolio turnover limits
  • Attaining certain levels of competency and levels of resources for ESG integration
  • Establishing ESG processes, e.g. appointment and monitoring of managers, recording activity, performance review etc
  • Reporting and disclosure practices

Investment outcome and impact-oriented targets

  • Targets for investment outcomes, e.g. monitoring the reduced ESG risks or net benefits to society or the environment thanks to the fund’s investment strategies, can be set in line with existing frameworks such as South Africa’s Nationally Determined Contributions (NDCs), the National Development Plan, the UN Sustainable Development Goals, or the Net Zero Asset Owners Alliance
  • Results of engagement and collaboration in changing company behaviour
  • Impacts on public policy and other systemic issues
  • Consider a tactical response on an ESG issue in relation to asset allocation

Pension funds should be transparent about their targets and objectives for ESG strategies and activities. The fund should consider publicly disclosing ESG targets and/or an implementation workplan on their website. Pension fund boards are also encouraged to publish progress in annual reporting. See further details in Toolkit Section 7 – Review.

At a minimum, the fund should report internally on progress against the workplan and/or ESG targets. This should include a description of the factors that have affected its performance against these targets and the associated KPIs.

Sample Action Plan for ESG integration

The Sample Action Plan, available here, presents a four-stage approach for phased implementation over a three-year period. It provides Trustees with an indicative route map for setting and monitoring targets.

The description provided for each stage of development is a generalised summary of the typical milestones likely to be involved, it is intended as a guide rather than a precise formula, and in practice the best sequence of steps, and specific detail on targets will vary from fund to fund.