The Government Pension Fund of Thailand is looking to broaden its knowledge and influence across a full range of environmental, social and governance themes as it looks to implement the UN Principles of Responsible Investment (PRI) that it signed-up to at the end of last year.
And it doesn't appear to have taken it long to get into a stride.
“It’s very much a work in progress,” Yingyong Nilasena, GPF's deputy secretary general for the fund management division, told AsianInvestor. “[But] we already have a dedicated ESG team inside the GPF and together with the analysts we have been visiting Thai companies to engage with them on governance.”
By signing up to the PRI, institutions uphold that their primary duty is to act in the best long-term interests of their beneficiaries and recognise that ESG issues can affect the performance of their investment portfolio. They commit to incorporate ESG issues into their investment processes and ownership practices, and they agree to seek appropriate disclosure on ESG issues by investee companies and to report on the effectiveness of their ESG work.
GPF, with $21 billion under management, began studying how ESG factors can impact its portfolio four years ago, but the emphasis then was very much on governance, Nilasena said.
The fund’s research team has also looked at how international managers carry out their own ESG analysis. “This was all designed to help us improve our ESG focus,” he said. “We want to show a commitment and that is why we decided to apply for membership of the PRI.”
Since the sign-up was confirmed, GPF’s internal team has discussed the practicalities of integration. “There has been some discussion in the last two weeks between the investment team and the ESG analysts,” Nilasena said. “Within the framework of the PRI, our initial focus is on research. In 2019 the plan is to increase our knowledge.”
The fund has subscribed to database services from global index provider MSCI, which includes many Thai companies in its universe. “We look into the details of how Thai corporations are doing compared to their international peers and their overall ranking. We can identify the areas in which each company should improve, including on the environment and [on] social issues because on governance we have done some good work already.”
GPF integrated ESG into its investment process for corporate bonds in 2018. The team of eight analysts came up with an ESG scoring system and in 2019 Nilasena expects the fund to extend this into its equity investments.
“Once the team can import the ESG analysis into their models for equity valuation, they can make the whole process more systematic, assigning different discount rates for the various ESG scores and evaluations,” he said.
The third part of the integration, which involves applying it to the total portfolio, is a project for 2020, Nilasena added.
MORE ESG PUNCH
As a result of these adjustments, the underlying message is that external managers should prepare for a punchier attitude from GPF when engaging on ESG matters.
“We are going to find out more about how they are integrating ESG into their own processes,” Nilasena said. "We are then going to advise them on whether they could do more and monitor their development.”
In future, the aim is to have an equal focus on the E, S and G said Nilasena. “The problem for the E and the S is that it’s pretty difficult because we are not the experts on carbon footprint issues or such things, so we have to buy the information. We have appointed a lot of global external fund managers and from time to time we ask them what they do in this regard.”
The fund is continuing to increase the headcount on the investment team but its pool of experienced personnel is still not deep. “The problem for us is not the people but on how to increase our expertise."
PRI’s chief executive Fiona Reynolds told AsianInvestor she is pleased to see the GPF taking the lead in Southeast Asia: “We applaud their leadership on responsible investment in Asia. We hope they will inspire other asset owners in the region to recognise the importance of considering ESG factors as part of the investment decision-making process.”
PRI data shows how poorly Asian countries, especially outside the well-developed markets of Japan, Australia and New Zealand, are represented. The only other Asian asset owners signed up to the PRI are two Indonesian funds, Persero and Kehati, the National Pension Service in Korea, plus KWAP and Khazanah Nasional Berhad in Malaysia.
Reynolds said focusing on sustainability and ESG can provide the economic lift that central bank policy tools such as quantitative easing and low interest rates have failed to generate. In Asia, this drive is focused on meeting the region's vast infrastructure needs.
The region is already making measurable progress, Reynolds said.
"The stock exchanges in Malaysia and Hong Kong are demanding more disclosure on sustainability before public listings," she noted. “In Thailand, the [stock exchange] has carried out a series of sustainability-related workshops as part of its Sustainable Development Forum. In addition, it has organised free-of-charge training sessions with listed companies on, among other things, the specifics of sustainability reporting, sustainability indexing, evaluation and data management, corporate social initiatives, sustainable development risks and materiality. "
The GPF regularly talks with the Stock Exchange of Thailand (SET) and Nilasena said the pension fund was instrumental in the development of the local stewardship code. But he added he is not sure any other Thai asset owners will be following their lead and signing up to the PRI.
"There’s a lot of work to do when you sign up. The PRI expects you to act on the principles and report back to them on your progress. So, many investment institutions might be reluctant to join. But we are going to talk with them and see what they think about this.”