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The study “Responsible Investment in Brazil 2016: ESG Adoption by Pension Funds”, carried out by SITAWI, illustrates that several national pension funds have already made progress in integrating ESG aspects into their internally managed assets, but they have carried out fewer changes to encourage their external managers to practice responsible investment as well.
To allow pension funds to evolve in that direction, SITAWI developed the technical content for the elaboration of the “Responsible Pension Funds Guide: Selecting and Monitoring External Managers according to ESG Criteria“, an initiative of the Brazilian National Association of Pension Funds (Abrapp) National Technical Sustainability Committee (CTNSus), in partnership with the Principles for Responsible Investment (PRI), and Carbon Disclosure Program (CDP).
The Guide was launched at the 38th edition of the Brazilian Congress on Private Pension Funds in São Paulo, during a technical session presented by Raquel Castelpoggi, Coordinator of Social and Environmental Responsibility of Fundação Real Grandeza and Coordinator of CTNsus, and Gustavo Pimentel, director of SITAWI.
According to Castelpoggi, pension funds should practice responsible investment because more than 3 million participants and 3.9 million dependents entrust their resources to these entities to ensure future returns. For Castelpoggi, “responsible investment does not mean reducing the number of assets available, but improving risk-adjusted return”. The use of this guide will protect institutions so that future generations can continue to apply their resources through pension funds.
Gustavo Pimentel presented the guide and highlighted that “it is a didactic step-by-step [guide], so that any pension fund can incorporate ESG issues into its process of selecting and monitoring external managers”. Still, according to Pimentel, this guide offers “practical tools for entities to increasingly act as responsible investors”.
The step-by-step process of manager selection and monitoring – presented in the figure below – includes: the application of a questionnaire to assess the manager’s responsible investment practices, with general and specific asset class issues (equities, fixed income – private equity, real estate, structured investments -, and infrastructure); and a list of the manager’s documents to be analyzed during the due diligence process.
The guide helps orient this process, which needs to be adapted to the reality of each entity and the asset classes managed by their external managers. In addition, it encourages entities to maintain an open channel with their managers to share best practices and standards for incorporating ESG themes into investment analysis and incentivizes collaboration to address challenges and other emerging issues.
Through its Sustainable Finance program, SITAWI offers a variety of tools and services to encourage and advise institutional investors. SITAWI’s Valuations and ESG Ratings are based on the ESG analysis of companies and help incorporate these aspects into external managers’ decision-making processes. In addition, SITAWI provides customized consulting for pension funds and is responsible for the ESG evaluation in the process of selection and monitoring of managers.