Deon Botha. Public Investment Corporation

Transcription

1 Deon Botha Public Investment Corporation

2 Measuring and Engaging Investee Companies The PIC/GEPF Approach 13 September 2012

3 PIC ESG RATING MATRIX 77

4 Background Matrix was developed in 2008 consultation with the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School. This is a joint venture between the PIC and the Centre Panel of Experts Prof Bob Garrat Prof Phillip Sutherland Mr Thom Wixley Daniël Malan Thina Siwendu Deon Botha Further Consultations were held with Jako Volschenk (Environmental Finance - USB) Prof Stephen Davies (Millstein Center for Corporate Governance and Performance Yale University) Paul Lee (Director Corporate Governance Hermes UK) Prof Martin Kidd (Department of Statistics and Actuarial Sciences USB) 78

5 Literature Review List of Prominent Corporate Governance Rating Systems Academic research artciles and publications on similar international rating indices were conducted by Daniel Malan and Deon Botha. The Corporate Library (TCL) Board Effectiveness Rating (BER) Institutional Shareholder Services (ISS) Corporate Governance Quotient Rating (CGQ) Governance Metrics International (GMI) GMI Rating Standard and Poor s (S&P) Corporate Governance Score (CGS) Dow Jones Dow Jones Sustainability (DJSI) Mo Ibrahim Foundation Ibrahim Index of African Governance JSE Securities Exchange South Africa Socially Responsible Investment Index (SRI) USA International International International Europe and USA Sub-Saharan Africa South Africa 79

6 The Structure of the MATRIX The relationship between Compliance, Disclosure and Performance COMPLIANCE DISCLOSURE PERFORMANCE The PIC Matrix: Aims at balancing conformance / compliance and performance Awards disclosure and link disclosure to actual performance Aspects of disclosure, compliance and performance are interlinked 80

7 Philosophy of the Matrix Developmental tool: Assist Companies to improve their Corporate Governace performance as well as reporting Encourage transparency hence the Matrix makes use of publicly available information Encourage a paradigm shift to focus on the creation of long term value and the role of business in society, and to Craete a body of knowledge (database) against which to evaluate the South African compnaies for the purposes of enagagement Other rating matrixes: Too much emphasis on control / conformance tick-box mentality allowed some companies with major governance issues to score relatively well in some rating indices This impacted negatively on credibility of rating indices rating fatigue 81

8 Philosophy of the Matrix Statistical Validation of the Matrix The scoring methodology was approved by the Centre for Statistical Consultation,which forms part of the Department of Statistics and Acturial Sciences at the University of Stellenbosch 82

9 The PIC / GEPF and Corporate Governance The Matrix incorporates existing PIC Governance Principles: Based on King II & III Based on triple bottom line which embraces the economic, environmental and social aspects of a company s performance, therefore underpins all the principles which constitutes the UN Global Compact, UN Principles of Responsible Investment and UN Global Reporting Initiative. Companies Act, 2008 National Environmental Management Act Other Corporate Governance Codes PIC Proxy Voting Policy GEPF Responsible Investment Policy 83

10 Methodology The methodology behind the matrix is that it has adopted a three-pronged approach as it tries to achieve a balanced focus on disclosure, compliance and performance issues. The matrix integrates environmental, social and governance issues It only uses publicly-available information. The matrix awards points to companies that disclose the required information while also assessing the company s actual performance and compliance in certain other defined areas. The Matrix s questionnaire comprises the three broad categories (ESG) and 92 Metrics 84

11 Some Specific Metrics Board To assess the boards functionality; Independence Chairperson and of the board using the PIC s strict definition of independence; Majority Independent Non-Executive Directors Issues relating to succession planning at board level; The existence of key board committees; Individual director s attendance of board meetings as well as committee meetings; Diversity issues in terms of race and gender; Board development programmes with regards to induction and continuous training. Diversity (Female %) Diversity (Race %) Board Development Programme Composition of Audit Committee Composition of Remuneration Committee Composition of Remuneration Committee Individual Directors To assess each individual director s independence and commitment; Number of directorships that each director holds; Attendance of all board meetings, including the board committees meetings. 85

12 Specific Metrics Executive Management To assess management s standing on governance practices; Diversity and transformation; -Diversity (Female and Race), -Employment terms and conditions of senior management; -Disclosure CEO s terms and notice period- golden parachutes; -Independence of management to the board -Relationships between directors -Succession planning directors and executive managers Remuneration To assess the remuneration strategy of the company for the nonexecutive directors and executives of the company and the oversight role played by the board and shareholders; Existence of performance targets linked remuneration; Existence of share options and the nature thereof; Existence of golden handshakes within executive managers contacts. 86

13 Specific Metrics Shareholder treatment To assess how minority and majority shareholders are treated: Voting policies; One share one vote Concentration of share ownership. Diversified share ownership Investor relations division Related party transactions To assess related party transactions for potential conflicts of interestwhich can benefit the people concerned as opposed to the shareholders. 87

14 Specific Metrics Auditing and accounting To assess the disclosure relating to auditing and accounting in terms of JSE listing requirements; Independence of both external and internal auditors. Unqualified audit report Internal auditor direct reporting line Independence of external auditor Award for quality of financial report Award for quality of sustainability report Disclosure and reporting To assess whether the company s disclosure is both transparent and clear with respect to business specific issues. Clear demonstration of where value of business lies Clear description of principle risks and uncertainties and how it will be managed Simplicity transparent and easy to use for all stakeholders 88

15 Specific Metrics Corporate behaviour To assess the company s behavior in doing business in an ethical manner focusing on consumer treatment and anticompetitive practices. Corporate behaviour disclosure Anti-competitive practices Consumer treatment Evidence of stakeholder analysis and engagement Disclosure and policies on payments to political parties Transformation To assess the company s state of transformation; Reporting on progress with respect to: Ownership Employment equity Procurement practices BBBEE 89

16 Specific Metrics Environmental behaviour To assess the company s initiatives with regards to climate change issues, participation in voluntary standards and networks, as well as the impact on the communities that they operate in: Environmental and climate change initiatives Independent verification of environmental reporting Participation voluntary standards and codes Disclosure of environmental performance using GRI indicators Health and safety To assess the company s compliance with disclosure relating to the health and safety issues both in the workplace and in the communities where they operate: Detailed disclosure of accidents; deaths etc Evidence of HIV / Aids policies and actions Disclosure of relevant health and safety performance GRI indicators 90

17 Specific Metrics Corporate responsibility To assess the company s social responsibility work that is not philanthropic in nature, but mainly impacting the communities that they operate in. Evidence of CR policy Impact on communities Active participation in UN Global Compact CR spend as % of profit after tax Corporate culture To assess the company s ethical conduct in doing business, including anti-corruption programmes: Commitment to accountability, probity and disclosure Organisational integrity Compliance officer functions Anti corruption programmes 91

18 Results of the Matrix SECTOR PERFORMANCE Strong Sectors Dual listed Compnaies Banks Mining Companies Bottom / Weak Sectors Holding Companies Media Companies Property Companies Family Links 92

19 ENGAGEMENT 93

20 ESG Working Committee ESG Working Committee established between GEPF and PIC Why: CRISA Asset Owners and Asset Managers should incorporate ESG issues in investments Includes GEPF Principle Officer and PIC Chief Investment Officer Weekly meetings between PIC and GEPF Discuss Matrix results and proxy voting Focus areas: Transformation Remuneration Environmental issues Important: No more public spats Engage behind closed doors Do not vote with feet will up stake if need be... influence from within 94