The PIC believes in the highest standards of business practices and ethics. The PIC is committed to delivering positive, sustainable returns to its clients through integrating Environmental, Social and Governance (ESG) considerations as the fundamental principles of its investment processes.
The PIC has maintained its memberships with the United Nations Principles for Responsible Investment (UNPRI) and the United Nations Global Compact (UNGC) and subscribes to the Code for Responsible Investment in South Africa (CRISA). The PIC remains an active investor in all investee companies and has embedded ESG factors in all investment decisions.
The PIC believes that a strong commitment to the highest standards of business ethics and sound corporate governance is essential to creating long-term value for clients. To that end, the PIC requires all external fund managers to incorporate responsible ESG practices in their investment process which are governed by ESG polices and that is aligned to the PIC policies as well as best practice principles.
The PIC’s responsible investing activities, which have been integrated with its investment process, include:
- Conducting ESG quality reviews:
The ESG team delves into the core of an investee company’s controls, its sustainability strategy, its social responsibility intent and, ultimately, its commitment to all stakeholders. Reviews are based on publicly available information, which includes the investee company’s annual financial statements, sustainability reports, and information displayed on its website. Reliance is placed on the audit and risk reports. The company assessment includes thorough interrogation of the investee company’s business model, its practices and risks, as well as its regulatory compliance. Best practice dictates disclosure on ESG issues by investee companies as well as timeous reporting on activities and progress towards implementing responsible practices. This informs the ESG rating, calculated using the PIC’s ESG rating metrics, to measure investee companies ESG compliance and identify areas for engagement.
- Exercising voting rights (proxy voting):
The PIC makes its listed equities proxy-voting reports publicly available on its website, in adherence of best practice and CRISA principles. Proxy voting reports are updated quarterly. Should the PIC not support a particular resolution and vote against it, and the motion carries with other shareholders voting differently, the matter against which the PIC votes then becomes an engagement item with the investee company.
- Liaison with investee companies:The ESG team participates in various meetings with the management teams of investee companies to address concerns.
- Influencing the ESG landscape through shareholder activism.
ESG at the Core of Stocks Selection
The PIC’s belief is that good governance creates sustainable returns. Being a long-term investor, consideration of both financial and non-financial factors in company analysis offers an opportunity to better understand the risk profile of a company and the possible impact on investment returns. The integration and analysis of ESG factors are important in the investment process. With the assistance of an internally developed risk-based ESG tool, the PIC is able to identify risks and opportunities that may impact on investee companies. Those issues then serve as engagement matters with portfolio investee companies.
PIC influencing the Regulatory Landscape
The PIC has been an advocate of Mandatory Audit Firm Rotation (MAFR) since 2016. Voting records dating back to May 2016 indicate how long the PIC has been concerned about the risks that long-term auditor-client relationships pose to the auditor’s independence. The PIC supports the MAFR ten years interval to uphold the principle of independence.
Sustainable Development Goals and ESG Factors
The UNPRI advocates that long-term investors invest responsibly and integrate ESG principles in investment processes. Investee companies are, in turn, required to consider ESG factors in business operations. The PIC has long been involved in exercising its social responsibility in society. Thus, the integration of ESG in its investment decision-making processes has helped to entrench a firm alignment to the global Sustainable Development Goals (SDGs) 2030 for the way it invests in companies.
ESG engagements provide the PIC with an opportunity to monitor this alignment with SDGs in the business. The PIC has adopted a view that the SDGs provide a practical framework for the institution’s engagement activities.
The PIC is an active investor and regularly engages investee companies. This enables it to develop an integrated view of the investee companies’ affairs, both financial and non-financial.
The PIC has chosen an activist engagement model. Whilst such interactions with investee companies are continuous, the materiality of an issue/s guides the frequency of engagement/s with investee companies. Engagements can take the form of one-on-one meetings with companies, written communications and telephone calls. Investee companies have continued to respond positively to the call for greater transparency and accountability.This is evidenced by the growing number of companies responding to the PIC’s call to engage on myriad issues to promote better corporate governance.
Driving the achievement of SDGs by unlocking the ESG premium in investee companies.
The PIC believes that through focused ESG engagements, it can encourage investee companies to unlock the investee company’s ESG premium and in so doing aid in driving an investee company’s performance and positioning to the PIC’s preferred quartile, the zone of sustainable wealth creation (top right-hand quartile). This will result in a core portfolio constructed to align and drive SDGs.
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