The Pera International Staff Pension and Life Assurance Scheme Implementation Statement (“SIP”)
Purpose of this Statement
Under regulatory requirements, trustees are required to prepare and review an implementation statement outlining their approach to dealing with certain specific matters with regards to their Environmental, Social and Governance (ESG) principals outlined in their latest Statement of Investment Principles (SIP).
This Statement sets out the principles governing decisions about the ESG aspect of investment of the assets of The Pera International Staff Pension and Life Assurance Scheme (the Scheme).
ESG Principles Environmental, Social and Corporate Governance Policies
The Trustees believes that good stewardship and ESG issues may have a financially material impact on investment risk and return outcomes, and that good stewardship can create and preserve value for companies and markets as a whole. The Trustees also recognise that long-term sustainability issues, particularly climate change, present risks and potential opportunities that increasingly may require explicit consideration. However, given the Trustees’ investment objectives and desire to secure member benefits in the short-term, it is expected that ESG risks are relevant to the Scheme and could impact the portfolio in the short term, most likely through individual asset holdings, but there may be more limited scope for medium-to-longer term ESG themes to potentially unfold.
The Trustees have given the appointed investment manager full discretion when evaluating ESG issues, including climate change considerations, and exercising voting rights and stewardship obligations attached to the Scheme’s investments. We expect the manager to have integrated ESG into their risk analysis and investment process. The Scheme does not invest in equities, so there are no voting rights to consider.
Further information on the Trustees’ policies can be found in the latest SIP dated June 2020.
In the Trustees’ opinion, their policies, as recorded in the SIP, have been followed over the 12-month period to 31 December 2020.
The following pages illustrate how the Trustees, through their fund manager, have followed their stewardship and engagement policies.
Investments Attitudes to ESG
The Scheme is not directly investing in Cheyne’s TRCF funds. It holds an interest in a limited partnership which in turn has invested its assets in Cheyne’s TRCF funds.
Total Return Credit Fund (“TRCF”) Duration (Accumulation)
Total Return Credit Fund (“TRCF”) Duration (Income)
Total Return Credit Fund (“TRCF”) (Income)
· Fund Manager Overview
ESG is integrated in the Investment Process as ESG considerations form a necessary and integral part of Cheyne’s research process. ESG is not simply a moral consideration but is also central to the profitability and sustainability of the companies in which they invest.
Cheyne believe that they have always viewed sound corporate governance and management guided by its principles as the keystone of sustainability and the point from which good environmental and social practice devolve.
They acknowledge that ESG practice (especially regarding environmental factors) will increasingly impact both the operating and financial risk of the companies they position, necessitating the companies’ more comprehensive inclusion in their investment process.
Cheyne describe their investment philosophy to have an integrationist approach consistent with Principles of Responsible Investment, informed by impartial data. Further detail can be found in the slides titled ‘Cheyne Corporate ESG June 2021’.
· ESG Integration
Cheyne believe that ESG-Conscious companies bear less operational risk, are more resilient to change and offer a superior risk-reward trade-off over the longer term. Cheyne approach to ESG is integrationist, excluding individual companies for gross breaches of ESG practice or violation of international standards, law and regulations. By promoting good behaviour rather than issuing sanctions, Cheyne attempts to achieve acceptance and implement of Principles of Responsible Investment (”PRI”)within the investment industry.
With regards to environmental issues, Cheyne look at the:
· Impact of climate change on product and supply chains.
· Political and regulatory changes
· Resources used, emissions and potential liabilities.
· Green tech footprint and opportunities
Cheyne integrate good governance into the process by looking at the:
· Expertise, experience and treatment of stakeholders in prior roles.
· Independence of the board and that they have the appropriate skill set. This includes consideration of committees and staffing, size, diversity, dense networks with management.
· Remuneration philosophy and structures.
Cheyne looks at the social impact in the process by:
· Maximising workforce commitment with diversity and engagement.
· Considering the product liability and associated costs.
· Ensuring the sustainability of relations with stakeholders.
· Vetting supply chains and not seeking to displace ESG challenges.
Cheyne has formed an ESG forum to oversee both the Responsible Investment and Investment Manager ESG policy in practice and to ensure that Cheyne continuously improves the ESG profile of the investment manager.
· Active Ownership (1 year to 31 March 2021)
Cheyne Capital is a signatory to the Principles of Responsible Investment (PRI) and, as such, commits to consider these principles throughout the course of its investment process and ongoing monitoring of investments. Cheyne was awarded an “A” rating in the 2020 assessment.
However, Cheyne currently acknowledge that the relationship between ESG scores and credit spreads is weak. They expect the relationship to strengthen with the integration of ESG into the investment philosophies and processes of market participants.
Cheyne is committed to operate in a responsible and sustainable manner over the long term and recognises that this is best achieved through ongoing engagement to prioritise and continuously enhance the ESG profile of their business operations. They have subscribed to Climate Action 100+ and has joined the action group for a corporation in the midstream energy and utility sectors on a trial basis.
Cheyne seeks to minimise the environmental impact of their business through various initiatives. Cheyne’s electricity supply is 100% renewable, clean electricity, generated by wind and hydro assets. The provider
is certified by Renewable Energy Guarantees of Origin (REGOs) and independently verified by EcoAct, a Carbon Disclosure Project (CDP) accredited provider.
Partnering with SEO London, a social mobility charity, as part of their corporate social responsibility to help source diverse candidates for their first formal internship program.
Cheyne have provided several case studies in how it has used its ESG screening tools in credit to determine value relative to ESG:
· One Case study looks at Enel which is its largest utility exposure and ranks in their top 10 for total ESG Score. The company progressively decarbonises, which has reduced operating risk.
· Another case study of a significant credit exposure is Marks & Spencer. This also holds a ranking in the top 10 for total ESG score. The MSCI ranks the company in the top quartile by raw materials sourcing, product carbon footprint, chemical safety, supply chain labour standard, corporate governance and behaviour. The management furloughed staff on full pay during the pandemic in contrast to other retailers.
More examples on ESG screening in the credit selection can be found in within the slides titled ‘Cheyne Corporate ESG June 2021’.
Further information is available from:
o Cheyne Corporate ESG June 2021
o Investment Manager ESG Policy May 2021