Step six

Disclosure AND REPORTING

Responsible Investment and Ownership Tool-Step 6



The FSCA Guidance Notice requests pension funds to report at least annually on how it has adopted ESG integration in its investment process.

Pension funds are encouraged to adopt Sustainable Reporting practices in its Annual Reporting.

This section provides guidance on how to do that.

Disclosure AND REPORTING

What the Regulations Say

The FSCA Guidance Notice, paragraph 6, reporting, states that pension funds are encouraged to adopt Sustainable Reporting practices in its Annual Reporting, and to include details of:

  • how it has adopted ESG integration in its investment process
  • type and value of assets held in compliance with the Guidance Notice
  • any significant changes to the IPS (with relevance to the Guidance Notice i.e. ESG strategy and integration) during the year in review
  • information about how the IPS has been distributed to members.

Reporting is the opportunity for any entity to clearly and succinctly communicate to its key stakeholders its performance on key parameters, including its ESG integration practices. This information should enable stakeholders including beneficiaries to understand:
  • What the organisation is and what its core purpose and objectives are.
  • What the organisation’s beliefs and commitments on sustainable investment are.
  • How these beliefs and commitments are translated into action.
  • The organisation’s performance against its beliefs, its commitments and its objectives and targets.
The reporting serves several important purposes and provides benefits to the pension fund and its key stakeholders in a number of ways, including:
  • Advances transparency and accountability, providing key stakeholders with assurance that commitments are being carried out in practice
  • Drives continuous performance improvement
  • Safeguards the integrity of codes and initiatives (such as CRISA and PRI) to which the investor has made a public commitment
  • Helps build a growing knowledge bank of RI in practice, promoting dialogue and learning

To make the task of annual reporting easier, it is relevant to ensure that the ongoing monitoring and fund managers’ data reporting are as streamlined and efficient as possible, as much of the data will be obtained and aggregated from the fund managers.

Based on the FSCA Guidance Notice, the CRISA Principle 5 and the CRISA Practice Note on Disclosure, a summary of what pension funds should disclose include:

  • From the top, an overview and explanation of ESG is integrated into its Investment Beliefs and Investment Policy Statement.
  • The progress related to the priorities and targets stated in the IPS (note: An A of this tool may also provide helpful input to the progress reporting).
  • Any significant changes to the IPS during the year in review.
  • Information about how the IPS has been distributed to members.
  • Type and value of assets held under some form of ESG strategy.
  • How the pension fund has adopted ESG integration in their investment process, this can include:
    • The awareness of ESG-related risks, estimated exposure to these risks, and over time, the expected impacts of the priority ESG matters on portfolio performance. For emerging disclosure practices related to climate risk, it is recommended that pension funds familiarise themselves with , since this is likely to become mandatory (in some shape or form) for investors in the near future.
    • How the pension fund (or through its service providers) handles priority ESG topics, such as plans for the transition towards a low-carbon economy, risks related to changing market sentiments, new financial or environmental regulations or the emergence of new technologies.
  • Disclose the information on the nature and extent of active ownership practices, i.e. engagement with the companies the pension fund invests in, including voting, in order to safeguard sustainable returns in the long term.
  • Disclosure of proxy voting results.
  • Information on other actions such as application of exclusionary policies, positive screening and participation in initiatives with sustainability objectives may also be disclosed.
  • Statement on compliance with CRISA (by applying the steps outlined in this Tool, pension funds can be expected to be in compliance with CRISA).

CRISA requires that institutional investors “at least once a year, fully and publicly disclose to what extent it applies this Code”. Thereby a statement of compliance should be considered in pension funds’ Annual Reports.

In general, by applying this Tool, pension funds can be expected to be in compliance with the requirements of Reg 28 and the FSCA Guidance Notice as well as the recommendations of CRISA.

Element 1: Disclosure of policies

Policies should be made publicly available to provide stakeholders with information on the following:

  • The extent to which the institutional investor (or the service provider under mandate) incorporates sustainability considerations, including ESG, into the investment process as set out under Principle 1.
  • The manner in which the institutional investor (or the service provider under mandate) discharges its ownership responsibilities, including its policies regarding proxy voting and the disclosure of proxy vote results as set out under Principle 2.
  • The manner in which the institutional investor (or the service provider under mandate) identifies, prevents and manages conflicts of interests as set out under Principle 4.

Further to the above, these policies should also provide stakeholders with information on the governance structures and controls that are in place to ensure effective implementation.

Additionally, policies should be reviewed by the board and, when necessary, updated annually.

It should be noted that the above policies may be drafted as separate policies or may be rolled into a single policy. Similarly, the above policies may be incorporated in overarching responsible investment policies that address both the requirements of CRISA and the UN-backed PRI.

Element 2: Disclosure of responsible ownership practises

Disclosure of responsible ownership practises includes disclosure on both proxy vote results (in a manner consistent with the policy on proxy voting) and a summary of engagement activities. This may include, but is not limited to the following:

  • Disclosure of proxy vote results in a manner consistent with the institutional investor’s responsible ownership policy. In the event that voting is not made public but only divulged in terms of a mandate to clients directly, a full explanation of the considerations that informed this practice and agreement should be provided – refer to paragraph 15 under Principle 5. Good practice with regards to responsible ownership should include:
    • direct disclosure of vote results per resolution
    • whether the vote cast by the institutional investor or its service provider was against or where it abstained from voting
    • an explanation of the reasons where it abstained or a vote was cast against the proposed resolution
    • whether the meeting was attended by the institutional investor or whether voting took place by proxy.
  • Summary of engagement activity in a manner consistent with the institutional investor’s responsible ownership policy with details on the nature and number of engagements and otherwise include the substance of the engagement and progress made.

Proxy voting and engagement are on-going activities and it is therefore recommended that disclosure occurs at a minimum twice a year, in a manner consistent with the institutional investor’s (or the service provider under mandate) responsible ownership policy. Disclosure of this nature may occur more frequently or on a continual basis according to each institutional investor’s requirements.

Element 3: Comprehensive disclosure of CRISA implementation

CRISA requires that institutional investors “at least once a year, fully and publicly disclose to what extent it applies this Code” Disclosure of a general statement concerning the implementation of CRISA should include:

  • A general description of the approach adopted in order to implement CRISA.
    • A description of the governance structures and controls that the institutional investor has in place to support the monitoring of the application of the CRISA Principles.
    • A description of the extent to which the institutional investor outsources the application of CRISA through its mandate with services providers.
  • Time period which the disclosure covers.
  • Extent to which the institutional investor or its service providers’ have engaged with stakeholders to better understand information requirements (paragraph 11 of CRISA).
  • Measures adopted by the institutional investor to ensure application of CRISA by service providers (paragraph 17 of CRISA). Please refer to heading 2.3 above for further guidance in this regard.
  • In respect of each Principle:
    • Description of how each Principle has been practically implemented, including scope of application (refer paragraph 16 of CRISA). In terms of this, the scope of application may be either through direct investment and/or ownership decision making processes and/or through the selection and/or management of service providers.
    • Description of specific monitoring actions undertaken, including qualitative and quantitative measures that support the application of the Principles (refer paragraph 16 of CRISA).
    • Any forward-looking commitments, if applicable, regarding the application of the Principles over the next 12 months, including key performance indicators or targets and timelines for applying CRISA.
    • Details concerning progress made on any forward-looking commitments for the previous reporting period.
  • If the Principle is not applied then a clear explanation should be provided covering the following:
    • Background information and context taken into consideration when the decision was made not to apply or to apply differently
    • Reason for not applying the Principle or applying it differently
    • Mitigating factors introduced to manage the risk emanating from a limited application or no application of a specific CRISA Principle.

Timing:

Due to there being multiple financial year-ends throughout the year, it is proposed that each institutional investor discloses, in an annual statement, their application of the Principles set out in CRISA.

Disclosure medium:

  • Ongoing disclosure: Website or other readily accessible public platforms where on-going activity can be tracked by members and companies.
  • Annual reporting: The evident vehicle for comprehensive disclosure is the integrated annual report or responsible investment report of the institutional investor or its service providers, as the case may be. In the alternative the formal report could contain a link(s) to the updated information and other relevant reports on the website.
In the South African context, CRISA provides the following guidance: Active ownership is an RI strategy with particular relevance in the South African market given the significant allocation to equities and the relatively limited investment universe. Disclosure of responsible ownership practises includes disclosure on both proxy vote results (in a manner consistent with the organisation’s policy on proxy voting) and a summary of engagement activities. CRISA’s practice note on disclosure recommends that this reporting element should include, but not be limited to, the following:
  • Disclosure of proxy vote results in a manner consistent with the organisation’s responsible ownership policy.
  • In the event that voting is not made public but only divulged in terms of mandate to clients directly, a full explanation of the considerations that informed this practice and agreement should be provided Good practice with regards to responsible ownership should include:
    • direct disclosure of vote results per resolution
    • whether the vote cast by the institutional investor or its service provider was against or it abstained from voting
    • an explanation of the reasons where it abstained or a vote was cast against the proposed resolution
    • whether the vote was cast by the institutional investor or by proxy
  • whether the vote was cast by the institutional investor or by proxy
  • Summary of engagement activity in a manner consistent with the organisations responsible ownership with details on the nature and number of engagements and whether they were basic, moderate or extensive.
Disclosure of this nature may occur more frequently or on a continual basis according to each institutional investor’s requirements. For pension funds that rely solely or primarily on external managers, the significance of these recommendations is that the pension fund should ensure that its service providers are adhering to the good practice described above. In other words:
  • Asset managers should provide proxy voting results and information on the nature and extent of engagements with investee companies. At minimum, this information should be provided to the client (i.e. asset owners). Preferably, this information (or a summary thereof) should also be published in the public domain.
  • Asset owners should, at minimum, report on the processes and procedures they have in place to ensure that their asset managers are doing this. Preferably, they should also report on the main themes, activities and outcomes that are resulting from the responsible ownership practices that asset managers are implementing on the asset owner’s behalf.
The asset owner bears accountability to ultimate beneficiaries. Please refer to Section 1 for examples of proxy voting disclosure in practice

The relevant ESG and RI information may be presented in the form of a stand-alone Sustainability Report (some pension funds refer to it as a Responsible Investment Report) or preferably, incorporated into the Annual Report, typically referred to as an Annual Integrated Report.

Guidelines for developing this reporting product are available from: The International Integrated Reporting Council’s (IIRC) Integrated Reporting Guidelines.

The Global Reporting Initiative provides detailed sector based ESG Key Performance Indicators that can be applied at the portfolio and investee company level.


InstitutionCountryResource Link
GEPFSouth AfricaDocument Link
New Zealand Superannuation FundNew Zealand Document Link
Ontario Teachers Pension PlanCanadaDocument Link
Environment Agency Pension FundUnited KingdomDocument Link
BT Pension SchemeUnited KingdomDocument Link
GIPF JapanDocument Link
HESTAAustraliaAwaiting Document Link
CalPERSUSADocument Link

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<<    Step 5

Monitoring

The monitoring phase is crucial to assess the actual delivery of the terms and conditions on which the manager was appointed, which in turn was informed by the ESG integrated IPS. This section provides an overview of how the pension fund can review and monitor asset managers’ ongoing integration practices.

Monitoring the effectiveness of implementation of the IPS

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Step 7     >>

Review

The Board should review progress review against the pension fund’s overall action plan at least annually.

Review processes and performance against plan.

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