Step TWO

setting targets and timelines

Responsible Investment and Ownership Tool-Step 2



Part and parcel of the policy setting process should be to determine the ESG goals and objectives.

The goals should be set systematically and reviewed on a regular basis.

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

Setting targets and timelines

Adopting the revised Investment Policy Statement and putting in place the management systems to implement the new RI elements takes time and requires development of new skills.

This requires a phased and strategic approach.

Clear roles, deliverables and targets should be determined to ensure successful operational roll-out. Timetables should take account of the planned schedule for meetings of committees and the full board.

Pension funds are encouraged to take a multi-year perspective on phased implementation of ESG best practices.

Specific progress milestones are recommended for a three-year period in the sample Action Plan below and pension fund boards are encouraged to publish their progress in their annual reports.

Practical and achievable targets and milestones are a useful way to keep the fund on track to implement ESG integration. Target setting can include the following areas:   Internal governance, process and capacity building targets:
  • 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 yeara 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 thanks to the fund’s investment strategies, can be set in line with existing frameworks for example Task Force on Climate-Related Financial Disclosures (TCFD), South Africa’s Nationally Determined Contributions (NDCs) or the Sustainable Development Goals.
  • Results of engagement and collaboration in changing company behavior. See further in FAQ section, “What are leading pension funds doing?
  • Impacts on public policy and other systemic issues.
  • Consider a tactical response on an ESG issue in relation to asset allocation. As a practical example in respect to climate change, a potential tactical response (and targets) across asset classes could be:
    • South African Equity – hold Fossil Fuel players at least until 2028 but engage deeply in a collaborative fashion – demand portfolio carbon reporting against a benchmark.
    • Local Private Equity – invest in renewable / green economy infrastructure – use board seats to drive change.
    • Local Fixed income – focus on Green Bonds – will help create a local market Offshore Equity – have 100% fossil fuel exclusion criteria and benchmark performance against 2 degree outcome.
The targets should be set systematically and performance should be reviewed regularly, such as on an annual basis or more frequently, as appropriate. See further details in Toolkit Section 7 – Review.

Sample FOUR STAGE action plan for ESG integration

Pension funds are encouraged to take a multi-year perspective on phased implementation.

Four stages of progress over a period of three years have been identified and described to provide fund boards 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 in RI implementation.

The route map is intended as a guide rather than a precise formula, and in practice the best sequence of steps will vary from fund to fund.

Policy

The fund’s Investment Policy Statement (IPS) incorporates a general statement explaining the fund’s commitment to ESG integration (should this not already have been done).

Capacity

The Principal Officer and/or selected Trustees have taken initial steps (such as participation in training, briefings or conferences) to familiarise themselves with general RI concepts and the requirements under Regulation 28, the FSCA Guidance Notice on the Sustainability of Investments and Assets in the Context of a Retirement Funds Investment Policy Statement and CRISA.

Operational roll-out to date

n/a

Forward planning

The board has developed a preliminary plan for achieving Stage 2 within a 12-month period.

Reporting

The fund has published an Annual Report on Progress providing information on all of the above and consistent with the FSCA Guidance Notice and CRISA Principle 5.

Policy

The fund has a board-approved ESG integrated IPS (or policies) in place. The ESG IPS (or policies) should explain the items as set out in the FSCA Guidance Notice paragraph 4 and CRISA:

  • The scope of application across asset classes
  • how the fund incorporates ESG considerations into its investment processes
  • how the fund defines its responsibilities and approach to active ownership, including voting and engagement
  • the fund’s arrangements for the prevention and management of conflicts of interest (CRISA Principle 4).

The policy (or policies) are publicly available and have been:

  • published on the fund’s website
  • communicated to the fund’s members and service providers
Capacity

The Principal Officer and the Chair of the board (at minimum) have participated in an appropriate training course. A plan is in place for further training and development for all other trustees in the year ahead (including induction training for new trustees).

The Board has reviewed the extent to which it requires external expert support on ESG and, if relevant, has made any necessary arrangements with its investment consultant(s) or other advisors.”

Operational roll-out to date

The board has an adequate overview of the extent to which ESG issues and practices currently apply to its existing portfolio and mandates, covering the Equities asset class at minimum. The board has taken proactive measures to gain at least a general understanding of the following:

  • Whether and how the fund’s existing asset managers are currently following good practice ESG strategies, including ESG analysis, proxy voting and shareholder engagement.
  • The fund’s potential exposure to ESG related risks and opportunities in its Equities portfolio at a minimum.
  • This would include a review of the fund’s most important holdings by company and/or sector; lessons of experience from the fund’s asset managers on particular issues they have encountered in recent years; and/or a forward-looking analysis of future sustainability pressures and trends relevant to the fund’s ALM.
  • Strengths, weaknesses, opportunities and threats arising for the fund as a result of the above.
Forward planning

The board has developed a two-year plan for achieving Stage 4 within another 12-month period.

The priorities, goals and objectives addressed in this plan should focus primarily on RI implementation with respect to the fund’s investments and ownership practices in the Equities asset class (should this not already have been done).

Reporting

The fund has published an Annual Report on Progress providing information on all of the above and is consistent with the FSCA Guidance Notice and CRISA Principle 5.

Policy

The board has considered whether the fund requires a more detailed Voting Policy and the options available to achieve this, and has begun to put appropriate arrangements and policies in place.

The board has also considered whether the fund needs more detailed policies on specific sustainability issues such as climate change, etc.

Capacity

The Principal Officer and all trustees have participated in appropriate training courses. ESG training is routinely included in the induction offered to new trustees.

Operational roll-out to date

The fund has begun to roll out its Policy at the operational level, focusing primarily on the Equities asset class. Depending on the fund’s Policy and implementation strategy, this may include the following:

(a) Current mandates

The board has continuing dialogue with the fund’s current managers to encourage and track their progress in implementing ESG strategies.

This may be done informally or, ideally, as part of the fund’s periodic performance evaluation of its current managers.

It includes, but may not necessarily be limited to, consideration of each manager’s public disclosures and progress reports under CRISA (and, if applicable, the PRI Reporting Framework).

(b) Mandate renewals and new mandates

Where mandates come up for renewal or new mandates are created, the board has taken appropriate steps to integrate ESG considerations in those RFPs and management agreements.

Typical options may include the following:

  • RFPs and management agreements include general expectations and references to ESG integration, proxy voting and shareholder engagement
  • RFPs and management agreements include general expectations and references to RI, ESG integration and shareholder engagement plus specific and detailed instructions on proxy voting.
  • RFPs and management agreements include specific and detailed instructions on the ESG integration approach to be employed, potentially including the key norms and standards to be applied and/or the benchmarks to be used.

Information on the actual approach(es) taken should be included in the fund’s Annual Report on Progress.

(c) Collaborative approaches

The board has considered whether it is appropriate for the fund to involve itself in collaborative initiatives, and has acted accordingly (CRISA Principle 3).

Examples at the international level include the UN Principles for Responsible and the Carbon Disclosure Project.

Forward planning

The board has reviewed and updated its plan for achieving Stage 4 (focusing at minimum on its investments in the Equities asset class).

This takes into account any issues and new goals that may arise from:

  • Experience gained from operational roll-out to date
  • New developments in the market and/or in public policy
  • Any feedback received from key stakeholders such as pension fund members, service providers and FSCA.
Reporting

The fund has published an Annual Report on Progress providing information on all of the above and consistent with the FSCA Guidance Notice and CRISA Principle 5.

Policy

The board has conducted a periodic review of the implementation and impact of its ESG Policies, or has firm plans to do so within the next 12 months.

Capacity

ESG-related training and development for the Principal Officer, Chair and other trustees is ongoing as and when needed.

Operational roll-out to date

ESG is routinely incorporated into manager selection, evaluation and performance management in at least the Equities asset class.

Effective mechanisms are in place for the quarterly disclosure of voting records.

Summary information/highlights in relation to shareholder engagement activities and results are routinely disclosed through the Annual Report on Progress or other suitable mechanism such as the fund’s website.

The fund is engaged in collaboration with other investors and investment initiatives in a manner appropriate to the fund’s requirements and opportunities.

Forward planning

The board has a medium-to long-term plan in place for maintaining the fund’s ESG implementation through effective monitoring and continuous improvement.

If it has not already done so before, the board should now be actively considering whether (and if so, how) the fund might:

  • Measure and report on active ownership outcomes and/or ESG risks in the Equities portfolio level. This may include, for example, estimating and benchmarking the carbon intensity of the portfolio.
  • Extend ESG implementation across other asset classes such as Fixed Income, Private Equity, Infrastructure and Property.
  • Engage in thematic investment-grade opportunities targeting specific sustainability issues such as climate finance, sustainable energy, energy efficiency, clean technology, climate resilient infrastructure, SME development and/or social impact investment.

The board’s forward planning takes into account any issues and new goals that may arise from:

  • Experience gained from operational roll-out to date
  • New developments in the market and/or in public policy
  • Evolutions in national and international RI good practice
  • Any feedback received from key stakeholders such as pension fund members, service providers and FSCA
  • Any top-level strategic reviews by the board.
Reporting

The fund has published an Annual Report on Progress providing information on all of the above, consistent with the FSCA Guidance Notice and CRISA Principle 5.

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More Tools

<<    Step 1

Developing a policy

This section describes the steps towards developing the ESG integrated Investment Policy Statement and includes samples, checklists and templates to help getting started.

How to develop a comprehensive ESG-integrated Investment Policy Statement

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Step 3     >>

Establishing ESG committees and training needs.

The Board has collective responsibility for ensuring that the relevant roles and responsibilities have been assigned and that the right level of training and support is available. This section provides examples of how ESG committees and functions can be organised and an overview of training and support available for Trustees.

How to establish committees and capacity to support your Policy

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