AVBOB Integrated Annual Report 2018

We believe that traditional financial analysis provides an incomplete picture of a company’s true competitive risks, value potential and future performance. For their inclusion in our investment portfolio, the asset managers are therefore required to use ESG performance and sustainability analysis to provide critical insight into the quality of a company’s management and strategic positioning. The asset managers developed both quantitative and qualitative approaches to incorporate ESG issues into their valuation methodologies. These approaches towards responsible investment include ethical, targeted and socially responsible investment approaches that, in addition to achieving financial returns, also aim to achieve ethical or social outcomes through targeted or selected investments. A typical approach that is followed by our asset managers to manage ESG on each investee is illustrated in the following diagram: While cognisance is taken of the Group’s approach to responsible investing, we are guided by our asset managers’ policies in terms of investments and ownership decision making. Through their responsible investment strategies, asset managers use their influence as an investor, to persuade investee companies, in the interest of long-term sustainability, to adopt and actively implement policies and processes that positively advance: • sound governance practices; • the health, welfare and relationships with their employees, communities and relevant stakeholders; and • the appropriate use and protection of natural resources. The asset managers have corporate governance policies that guide their approaches to proxy voting and set out the expectation of governance behaviour of investee companies. They use proxy voting as a tool to support good governance practices, which we believe are the cornerstone of long-term member value. Where appropriate, they aim to engage with the investee companies on contentious issues. In addition to contacting companies prior to voting, they also formally address concerns after casting their vote. Votes exercised are furnished on a quarterly basis to our Investment Committee. Their engagement with investee companies also raises issues such as carbon reporting, B-BBEE, • Research • ESG analysis • News flow • Crisis • Client concerns • Industry associations • Discussion groups • Analysis of public information • Pinpoint concerns • Identify engagement goals • Develop possible remedies • Discuss remedies • Develop a plan • Revise plan • Communicate final plan • Begin dialogue with the company • Explain concerns • Discuss remedies • Review plan • Revise plan • Encourage change • Brief participating shareholders • Pursue plan • Monitor progress • Report on goal progress • Adjust plan • Realise goals • Brief press where appropriate Identify ESG Analysis Develop Plan Engage Monitor and Report 51