Transcript Slide 1

Greening our Retirement –
What does this mean for your
decision-making
OMIGSA, SYGNIA, GEPF
Agenda
1. The Sustainability Context - Jon Duncan/ OMIGSA
2. Regulation 28 - Magda Wierzycka/SYGINA
3. CRISA – Adrian Bertrand/ GEPF
4. Perspectives on Responsible Investment – Jon
Duncan/OMIGSA
5. Q&A
1. Sustainability Context – Social
9 to 11 Bil by
2050
6.93 Bil-2010
2.6 Bil-1945
World population from 1800 to 2100, based on UN 2004 projections and US Census
Bureau historical estimates
Implications:
• Consumption growth
• Urban densification
• Aging populations
• Poverty / Inequality
• Conflict / Unrest
• Disease / Malnutrition
1. Sustainability Context – Environmental
Climate change
Chemical pollution
Not yet quantified
Ocean acidification
Atmospheric
aerosol loading
Not yet quantified
Stratospheric
ozone depletion
Nitrogen cycle
(biogeochemical
flow boundary)
Rate of
biodiversity loss
Phosphorus cycle
(biogeochemical
flow boundary)
Land system change
2010 Stockholm Environment Institute
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Global freshwater use
1. Sustainability Context – Governance
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World Bank 2009
Governance indicators
1. Sustainability Context – Summary
• “Meeting the needs of the
current generation without
compromising the ability of
future generations to meet their
needs”
• “Living off the earths interest not
its capital”
Source: Natural Step
The sustainability spot light has swung onto the investment community challenging it to think and act more responsibly through the integration of ESG
factors into long term investment and ownership decisions
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How to deal with the
implications of
New Regulation 28
Magda Wierzycka
CEO
SYGNIA ASSET MANAGEMENT
Update
 New Regulation 28 became
effective 1 July 2011
– Phase in period till 31
December 2011
– Additional draft notices:
Derivatives, scrip lending,
public entities
 Requires active and ongoing
decisions and actions from boards
of trustees in respect to:
– Rules: Asset managers can
monitor rules compliance, but
asset allocation limit changes
necessitate a strategy review
– Principles: Trustees need to
implement, apply and
demonstrate compliance to
auditors and regulators
Most Important Changes

Imposes compliance with Principles in addition to Rules:
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Compliance with the spirit of the regulation
Promotion of education of trustees
Consideration of BEE when appointing service providers
Ensuring that assets are appropriate to the liabilities
Performance of appropriate due diligence (taking into account risk factors) when making
investment decisions, particularly in foreign assets, derivatives and scrip lending
Consideration of environmental, social and governance factors when making investment
decisions
Applicable at individual member level
Requires ability to “look through” to holding information
Lifts permissible International Exposure to 25%
Hedge Fund/Private Equity Exposure to 15%
and Commodity ETFs to 10%
Board of trustees retains responsibility for compliance
Questions Trustees Need to Answer
How are you going to manage compliance with Regulation 28 at individual member level?

The easiest way is to unitise all the investments / investment channels so as to ensure members
hold units rather than market values for ease of information management.
What systems and procedures are you putting in place to be able to easily demonstrate
compliance with Regulation 28 to auditors? How are you going to consolidate holdings
and review those on a look-through basis?
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The answer lies in technology and systems which allow for look-through and consolidation.
Once consolidation of holdings information is available ESG principles can be integrated in
investment decision making.
How are you going to assess counterparty risk in OTC, scrip lending and derivative
transactions?

The look-through requirements, used in conjunction with a professional risk management
framework, should address the issue. Investment mandates need to be clearly worded.
Questions Trustees Need to Answer
How are you going to demonstrate regular consideration of the appropriateness
of assets to liabilities? How are you going to take ESG factors into account?
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Detailed Asset Liability Modelling review performed at least annually
Regular and appropriate communication with members regarding their financial position
How are you going to perform appropriate due diligence of your asset managers
(including offshore ones) and the strategies that they employ so as to ensure that
you have considered all the risks and ensured compliance with new Principles?
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Ongoing quantitative and qualitative analysis of all asset management houses
Review of the Investment Policy Statement, Management Agreements and Mandates
Restructuring of report-back presentations e.g. focus on ESG factors in stock selection
Do you want to assume full responsibility for performing the above functions or
do you want to outsource that responsibility?
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We believe that the wisest course of action is to outsource the functions to experts who will assume
responsibility for risk evaluation and due diligences and make all the information available to trustees
in an easily understandable manner e.g. library of information available to trustees via an internet
based portal.
Questions Trustees Need to Answer
Between equities, listed property, hedge funds, private equity funds and
commodities, exposure to volatile asset classes can be lifted to 100% of a
portfolio.
Do you believe all your members should have 25% allocation to international assets?
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This decision should not be a case of majority opinion. The correct allocation needs to take into
account liabilities and be determined using ALM tools. Trustees can thus easily demonstrate how
they arrived at the conclusion and link the decision to the risk profile of the liabilities.
Do you wish to invest in Africa, hedge funds, private equity fund or ETFs?
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The issues require an education strategy session before any decisions can be made.
Do you and your members understand the benefits of taking environmental, social and
governance factors into account when making investment decisions?
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The issues require education / training and a member communication strategy.
Questions You Need to Answer
To protect yourself, what tools are you going to use to arrive at a justifiable decision?
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Before you tackle these questions, you need to ensure you understand the issues (education).
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Where future is unknown, the only safe answer is a reference to quantitative probability analysis
and an answer which at all costs must be seen as well-considered, documented and sensible.
Answer to Regulation 28 Compliance
Answer lies in technology and
appropriate advice:
Boards of trustees need to assess
the services to be provided by:
 Systems which can consolidate
data and make that information
available to the board of trustees
and auditors
 Advice which ensures board of
trustees can achieve compliance
by 31 December 2011
 Investment consultants
 Liability administrators
 Investment administration
platforms
 Multi-managers
 Asset managers
Recommendations
 Compliance with the new Regulation 28 will COST more money and effort
 Compliance will not happen automatically as it requires active and ongoing
decisions and actions from trustees
 Compliance must start NOW – do not leave it till December to decide who needs to
do what
EXAMPLE: What to do about ESG?
 Rewrite your IPS in line with Code for Responsible Investing in SA (CRISA)
 Decide on the level of compliance: positive selection, activism through voting,
consultative approach, inclusion in analysis or exclusion
 Rewrite your management agreements and mandates with asset managers
 Take a more active interest in proxy voting
 Ask for regular feedback from asset managers and more meaningful reporting
 Put systems and procedures in place to enable MONITORING and
MEASUREMENT!
Greening our Retirement
CRISA & UN-backed PRI
Adrian Bertrand, ESG Manager, GEPF
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The 6 PRI Principles
1. We will incorporate ESG issues into investment
analysis and decision-making processes.
2. We will be active owners and incorporate ESG
issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG
issues by the entities in which we invest.
4. We will promote acceptance and implementation
of the Principles within the investment industry.
5. We will work together to enhance our
effectiveness in implementing the Principles.
6. We will each report on our activities and progress
towards implementing the Principles.
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The UN-backed PRI
∎
A global collaborative investor network in
partnership with the UN, launched at the
New York Stock Exchange in 2006
∎
A tool kit for integrating ESG issues into
mainstream investment decision-making
and ownership processes
∎
Grounded in fiduciary duty
∎
Voluntary and aspirational
∎
A Secretariat providing practical support
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900 signatories|$25 trillion AUM
1000
30
800
25
20
600
15
400
10
200
5
0
0
Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Number of signatories
Assets under management
AUM US$ trillion
Growth in PRI signatories and Assets under
management
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PRI in South Africa
∎
Currently 35 signatories in South Africa
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GEPF a founding member of the PRI &
serves on PRI Advisory Council
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PRI South Africa Network launched in
2009
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Local network addresses local issues
(Acting in Concert, Emerging Markets
Disclosure Project, CRISA)
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PRI signatory benefits

A global platform covering all ESG issues,
reducing research and implementation costs

Reputational benefits from publicly
demonstrating top-level commitment to integrating
ESG issues

Access to a comprehensive knowledge bank of
best practice and implementation support

Be part of a global network of peer investors

Contribute to more long-term oriented,
transparent, sustainable and well-governed
capital markets
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PRI signatory responsibilities

Mandatory reporting on RI activities once a
year using the PRI reporting and assessment
framework

Move towards mandatory transparency from
2013

Move from voluntary to mandatory fees based
on AUM from April 2011. (Over 90% of existing
PRI signatories have paid their mandatory
fees)
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Top level support for the PRI
“I applaud the leadership of
the institutions that have
committed themselves to
this undertaking, and urge
other investors around the
world to join this historic
effort”
Ban Ki-moon
UN Secretary-General
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CRISA
 Formation
of CRISA
committee
 CRISA principles
to be
adopted by institutional
investors in South Africa
 CRISA an
integral part of
governance in South Africa
date –
1 February 2012
 Implementation
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The 5 CRISA Principles
Principle 1: Incorporation of ESG
Principle 2: Active ownership
Principle 3: Collaboration
Principle 4: Conflict of interest
Principle 5: Disclosure
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PRI and CRISA are aligned
CRISA’s 5 Principles
PRI’s 6 Principles
1. Incorporation of ESG
1. Incorporation of ESG
2. Active Ownership
2. Active Ownership
3. Disclosure
4. Promotion
3. Collaboration
5. Collaboration
4. Conflict of interest
5. Disclosure
6. Reporting
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Perspectives on
Responsible Investment
Jon Duncan
ESG Analyst
Old Mutual Investment Group South Africa
4. Perspectives on Responsible Investment
• RI versus SRI versus Targeted
• What you need to know about RI and ESG issues
• What does good look like ?
• RI approaches across asset classes
• What about performance?
• Key take out points
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4. RI vs SRI vs Ethical Investment
• Responsible Investment - SD analysis and Best in Class
• Calls for the integration of environmental, social and corporate
governance (ESG) considerations into investment management
processes and ownership practices
• Not about reducing investment Universe
• Simply about pricing ESG risk and demonstrating responsible
ownership practises
• SRI / Targeted Investment /Impact Investing – Positive Screening
• Aims to achieve social outcome while at the same time achieving a
financial return
• Investment universe typically focused to investments that are aligned
with the investors desired social outcomes/impacts
• Ethical / Faith based Investment – Negative Screening
• Investment universe constrained by certain ethical criteria
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4. What you need to know
• Responsible Investment requires changes to the decision making activities
of both:
• Asset Owners
• Investment Managers
• Investment thesis is
largely focused on the
belief that ESG analysis
will enhance the
understanding of a
companies’ competitive
risks/opportunities, value
potential, and future
performance
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4. What does good look like ?
• Public commitments to RI through Policy Statements / Guideline Documents
• Development of approaches to ESG integration into investment decisions:
• Dependant on asset class
• Normally propriety in nature
• Requires access to ESG data
• Driven by a professional dedicated resource
• Approaches to responsible ownership
• Publically available proxy policy
• Publication of vote records
• Engagement activities both with investee companies and co-investors
• Being actively engaged in RI activity across the industry
• Support policy development
• Academic research and training
• Annual disclosures of progress around RI activities
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4. RI Approaches
• Approach to ESG integration vary by Asset class and Investment style
• Property
• Private Equity
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• Listed Equity
4. What About Performance?
• RCM study released August 2011 - focused on listed equities for the period
2005 to 2010 using MSCI ESG rating methodology
• Bench marked against the MSCI World Equal Weighted Index (to control for
sector and size)
• Study showed that during the time period tested, investing in companies that
operate best-in-class ESG strategies did not detract from returns.
• Even in extreme market conditions, performance was not negatively
impacted
• Outperformance was seen across the range of global sectors and
geographies
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4. Key Take out Points
• Changing Context:
• Current science on sustainability tells us we need to be mindful of the
long term impacts of our current growth path
• At a global and local level regulation now requires greater
consideration of sustainability issues
• The South Africa investment community has voluntarily responded
with CRISA – an investment industry endorsed code that sets a
professional bench mark for Responsible Investment practises
• The Asset Manager of the future should be including ESG factors in their
investment and ownership decision making processes
• As OMIGSA we believe that this not only makes sound business sense but
that it is also right thing to do as the custodian of our collective long term
future
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5. Q&A
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