Sustainable Returns article in Public Investors, Public Investment Corporation (PIC) quarterly magazine, July 2012

The majority of Southern African retirement funds will soon be well equipped to
integrate environmental, social and corporate governance (ESG) sustainability factors
into their investment decisions and ownership activities within the next two years.

The training programmes and practical tools needed to help Principal Executive
Officers and Trustees of retirement funds comply with new requirements of the
revised Regulation 28 of the Pension Funds Act and the Code for Responsible
Investing in South Africa (CRISA) are currently being developed by the
Sustainable Returns for Pensions and Society Project.

Wanjiru Kirima, chairperson of the Sustainable Returns Steering Committee, says
the new Regulation 28 and CRISA, both introduced last year, have expanded the
fiduciary duty of retirement fund Trustees significantly. This, she adds, requires a
whole new set of competencies to help Trustees properly implement ESG

considerations.

To help Trustees and Principal Executive Officers achieve these competencies,
the southern Africa retirement industry launched the Sustainable Returns Project,
which Kirima describes as a collaborative effort to implement a world-class system
by learning from each other and evolving together.

Initiated by the Principal Officers Association (POA), the project includes a
pioneering partnership with IFC (International Finance Corporation), a member of the
World Bank Group. The project is supported by the Association for Savings and
Investment South Africa (ASISA), the Government Employees Pension Fund (GEPF),
National Treasury, the Financial Services Board (FSB), Institute of Retirement Funds
(IRF), trade unions and a number of other key stakeholders. The Project Management
Committee (POA, IFC, ASISA & GEPF) oversees the daily operations and tracks and
monitors the project’s development.

The project highlights for
Trustees the importance of integrating ESG issues into
investment decisions and helps them understand both the risks and opportunities
these issues pose over the long term to the value of the investment portfolios
entrusted to them. Once Trustees appreciate this, the project will provide them with
the tools needed to develop investment mandates that guide asset managers in
applying responsible and sustainable investment practices. Key ingredients will be the
policies funds develop to explain their approach to ESG and the questions asset
managers will need to answer in their regular reporting to funds.

This project will ultimately empower institutional money to meet financial
commitments to members and future members through a deeper appreciation of the
relationship to positive environmental, social and governance performance of
investee businesses.

Kirima says only once all retirement funds, as the biggest asset owners, fully

appreciate the importance of responsible investing can an initiative like CRISA truly
come into effect.
Investment managers are bound by the investment mandates given to them by
asset owners like retirement funds. Only once these mandates change to include ESG
issues, can investment managers fully begin to implement CRISA.

“Currently we have a situation whereby our big retirement funds like the GEPF
and EPPF have put in place systems that enable them to successfully integrate ESG
requirements into their investment mandates and to then monitor the implementation
and measure the outcomes. But the same is not true for many of the other
retirement funds.”

Kirima says rather than wait for each and every retirement fund to reinvent the
wheel and to come up with their own systems, the Sustainable Returns project, which
has industry wide representation, will draw on local and international best practice to
develop a common ESG toolkit
for Southern African retirement funds to help with
implementation.

“IFC is our technical partner. As the largest multilateral source of loans and
equity finance for private enterprises in emerging markets, IFC is also a leader in
applying ESG standards to investments. With help from local and international
experts, IFC is supporting us to develop world-class tools relevant to Southern Africa.
At the same time the large retirement funds represented on our steering committee
are sharing with this project their experiences and systems currently being applied by
their Principal Executive Officers and Trustees when considering ESG issues. National
Treasury and the FSB are guiding this project to ensure the tools and training are
achieving the regulatory goals.”

The two-year project consists of four phases, which will cover among other
aspects the analysis of current investment practices within the retirement and
pension fund industry in
Southern Africa as well as the development and introduction
of tools, templates and training. There is constant engagement with asset owners,
asset consultants, and asset managers through the Top 100 pension funds in South
Africa to keep them abreast of developments.

In May this year, the Sustainable Returns Project held a breakfast seminar,
supported by the FSB and National Treasury for the Top 100 Pension Funds. It was a
well-attended seminar with a clear message from Olano Makhubela, Chief Director of
Financial Investments and Savings, who stated:
“The National Treasury welcomes this much needed initiative and its inclusiveness,
and greatly appreciates the involvement of all the stakeholders in this project. This
welcome industry-led initiative follows the promulgation of the new Regulation 28 last
year and seeks to give practical effect to one of the key principles in the Regulation,
namely the need for pension funds Trustees to take
into consideration the role of the
Environment, Society and Governance when they consider their investments.”

The PIC and its main client, the Government Employees Pension Fund (GEPF),
were early adopters of a responsible investment approach by committing to the UN-
backed Principles for Responsible Investment (UNPri). The PIC’s active engagement
with investee companies on ESG issues has resulted in many companies better
incorporating environmental, social and governance (ESG) factors across their
operations in recent years. The PIC, as the country’s largest asset manager,
continues to provide a strong voice on these issues in South Africa and is expected to
continue to flex its investment muscle as it seeks suitable investments for its clients
on the African continent and further afield when investing in other international
markets. The collaborative asset owner-asset manager approach to
ESG as exhibited
by the GEPF and PIC can only result in improved long term sustainable returns for the
more than a million public servants dependent on the GEPF and PIC for their
retirement savings.