Greening our Retirement – What does this mean for your decision-making

1. Greening our Retirement – What does this mean for your decision-making OMIGSA, SYGNIA, GEPF

2. Agenda The Sustainability Context - Jon Duncan/ OMIGSA Regulation 28 - Magda Wierzycka/SYGINA CRISA – Adrian Bertrand/ GEPF Perspectives on Responsible Investment – Jon Duncan/OMIGSA Q&A

3. 1. Sustainability Context – Social 9 to 11 Bil by 2050 • Implications: • Consumption growth • Urban densification • Aging populations • Poverty / Inequality • Conflict / Unrest • Disease / Malnutrition 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

4. 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) Phosphorus cycle (biogeochemical flow boundary) Rate of biodiversity loss Global freshwater use Land system change 2010 Stockholm Environment Institute

5. 1. Sustainability Context – Governance World Bank 2009 Governance indicators

6. 1. Sustainability Context – Summary • “Meeting the needs of the current generation without compromising the ability offuture 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

7. How to deal with the implications of New Regulation 28 MagdaWierzycka CEO SYGNIA ASSET MANAGEMENT

8. 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

9. Most Important Changes • Imposes compliance with Principles in addition to Rules: • 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

10. 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? • 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.

11. 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? • 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? • 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? • 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.

12. 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? • 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? • 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? • The issues require education / training and a member communication strategy.

13. Questions You Need to Answer • To protect yourself, what tools are you going to use to arrive at a justifiable decision? • Before you tackle these questions, you need to ensure you understand the issues (education). • 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.

14. Answer to Regulation 28 Compliance • Answer lies in technology and appropriate advice: • 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 • Boards of trustees need to assess the services to be provided by: • Investment consultants • Liability administrators • Investment administration platforms • Multi-managers • Asset managers

15. 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

16. 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!

17. Greening our Retirement CRISA & UN-backed PRI Adrian Bertrand, ESG Manager, GEPF

19. The 6 PRI Principles We will incorporate ESG issues into investment analysis and decision-making processes. We will be active owners and incorporate ESG issues into our ownership policies and practices. We will seek appropriate disclosure on ESG issues by the entities in which we invest. We will promote acceptance and implementation of the Principles within the investment industry. We will work together to enhance our effectiveness in implementing the Principles. We will each report on our activities and progress towards implementing the Principles.

20. 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

21. 900 signatories|$25 trillion AUM

22. PRI in South Africa • Currently 35 signatories in South Africa • GEPF a founding member of the PRI & serves on PRI Advisory Council • PRI South Africa Network launched in 2009 • Local network addresses local issues (Acting in Concert, Emerging Markets Disclosure Project, CRISA)

23. 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

24. 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)

25. 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-moonUN Secretary-General

26. 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 • Implementation date – 1 February 2012

27. The 5 CRISA Principles Principle 1: Incorporation of ESG Principle 2: Active ownership Principle 3: Collaboration Principle 4: Conflict of interest Principle 5: Disclosure

28. PRI and CRISA are aligned

29. Perspectives on Responsible Investment Jon Duncan ESG Analyst Old Mutual Investment Group South Africa

30. 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

31. 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

32. 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

33. 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

34. 4. RI Approaches • Approach to ESG integration vary by Asset class and Investment style • Property • Private Equity • Listed Equity

35. 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

36. 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

37. 5. Q&A