Our approach to responsible investment Adrian Bertrand, ESG Manager

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Topic

1. Regulatory and policy context for ESG 2. GEPF’s approach to responsible & developmental

investment 3. Integrating ESG into investment decision-making

and ownership practices in South Africa 4. Portfolio performance/processes

RI in South Africa

King III Corporate Governance Code and the move towards integrated reporting

Regulation 28 of the Pension Funds Act requiring pension funds to consider ESG issues

The launch of the Code for Responsible Investing in South Africa (CRISA)

Local initiatives such as the PRI South Africa Network, ASISA’s RI Standing committee, AfricaSIF, JSE SRI Index, POA, IoD SA, EMDP SA Project, etc.

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Amended Regulation 28

Preamble to Reg. 28:

“A fund has a fiduciary duty to act in the best interest of its members

whose benefits depend on the responsible management of fund assets. This duty supports the adoption of a responsible investment approach to deploying capital into markets that will earn adequate risk adjusted returns suitable for the fund’s specific member profile, liquidity needs and liabilities. Prudent investing should give appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character. The concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment.”

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CRISA

The Code for Responsible Investing in South Africa (CRISA) gives guidance on how the institutional investor should execute investment analysis and investment activities and exercise rights so as to promote sound governance.

Application of CRISA: Institutional investors as asset owners, for example, pension funds and insurance companies Service providers of institutional investors, for example, asset and fund managers and consultants Institutional investors and service providers should adopt the principles and practice recommendations in CRISA on an “apply or explain” basis. Where there is conflict between CRISA and applicable legislation, the legislation will prevail. The effective date for reporting on the application of CRISA is 1 February 2012.

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CRISA: The 5 Principles 1. An institutional investor should incorporate sustainability considerations, including

environmental, social and governance, into its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries.

2. An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities.

3. Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of CRISA and other codes and standards applicable to institutional investors.

4. An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should proactively manage these when they occur.

5. Institutional investors should be transparent about the content of their policies, how the policies are implemented and how CRISA is applied to enable stakeholders to make informed assessments.

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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

3. Collaboration

4. Promotion 5. Collaboration

4. Conflict of interest

5. Disclosure 6. Reporting

GEPF RI Policy

RI Policy adopted 2009 (publicly launched in March 2010)

RI Policy aligned to the UN-backed Principles for Responsible Investment (PRI) & now CRISA

GEPF RI Policy addresses issues such as: - Integration of ESG issues in investment decisions

- Demonstrating active ownership

- Devoting a portion of GEPF assets towards targeted investments

- Promoting research into investment-related ESG risks and opportunities

- Promoting accountability and transparency around the implementation of the GEPF RI Policy

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GEPF DI Policy DI Policy publicly launched in April 2011

DI Policy follows a two year consultative process with key stakeholders, including government and the private sector

DI Policy commits 5% of the GEPF asset portfolio (approx. R45bn)

Four pillars

Economic infrastructure

Social infrastructure

Sustainability

Enterprise development and BBBEE

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GEPF & developmental investment

Why is developmental investment important to the GEPF?

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The GEPF is one of the largest investors in the South African economy (universal owner)

The fund is equivalent to 1/3 of the country’s GDP and has investments in all sectors of the economy

Any constraints on South Africa’s economic growth will have a similar impact on the GEPF

Economic infrastructure is the hard backbone of any economy

Once South Africa has a competitive economic infrastructure it will require a healthy, well secured and well equipped society to operate it optimally to maximize growth

Such growth will have a direct positive impact on the overall performance of the GEPF portfolio

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GEPF & PIC collaboration on ESG

GEPF RI implementation: Active ownership policy

GEPF-PIC ESG Working Committee established

PIC Corporate Governance Rating Matrix

Emerging Markets Disclosure Project – South Africa

Engagement approach

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Thank you.

adrian.bertrand@gepf.co.za Brooklyn Bridge

Building 3 Steven House

2nd Floor 570 Fehrsen Street

Brooklyn 0075

Tel: +27 12 424 7300 Fax: +27 12 424 7322

Website: www.gepf.co.za

/ www.gepf.gov.za