We believe that a stewardship mindset is an essential component of a strong approach to responsible investment (RI) and that embedding RI practices into the core of our investment activities is in the best long-term interests of our clients. For more than a decade we have systematically and progressively improved RI practices across our investment teams globally.

Our Strategy
Our RI strategy is based upon three strategic pillars of Quality, Stewardship and Engagement. This strategy is underpinned by a strong governance framework and is supported by our specialist RI team.

The team engages the entire business to deliver the strategy which is overseen by the Responsible Investment Steering Group, chaired by the CEO and comprised of executive committee members, whose role it is to monitor, direct and champion RI practices across the organisation.

Our Global Stewardship Principles fulfil the requirements of the UK Stewardship Code and other stewardship codes around the world. The principles are underpinned by policies and processes which are overseen by the RI Steering Group. These policies include our policy on cluster munitions and anti-personnel mines, engagement policy and RI policy, all of which are available on our website. Companies currently excluded by the cluster munitions policy are available here.

Each of our investment teams has a lead RI representative who co-ordinates information flows across their respective teams. The RI representatives also sit on an Environment, Social and Governance (ESG) Committee, which plays a key governance role by representing their teams, reporting on team progress, contributing to thought leadership and looking at new approaches to addressing current and emerging ESG risks and opportunities. The ESG Committee is an important part of ensuring that we have the highest quality of ESG integration across the organisation.

Our new RI Strategy and focus areas for 2016
Our new three year RI Strategy was approved by our Executive Committee in February 2016. The new strategy has the following objective:

"To consolidate and extend our position as a global leader in RI and stewardship"

The three strategic pillars and strong governance framework remain, with new objectives centred on strengthening the following areas.

strategies

Our strategic goals over the next three year period include:
  • ESG portfolio monitoring systems and processes implemented and integrated with investment governance processes, in particular the Global Investment Committee.
  • Development of engagement priorities and execution plans with investment teams.
  • Implement systems and processes to better capture engagement activity and outcomes.
  • Establish platforms for greater collaboration on proxy voting and engagement across teams.
  • Integrate data on carbon sensitivity of portfolios and risks of asset stranding into Global Investment Committee processes.
  • Implement a 'controversial investments' monitoring process.
  • Develop and implement an ESG impact monitoring and reporting system.
  • Add ESG data to Global Fixed Income and Credit investment system 'ION'
  • Improve PRI scores for all categories.
Our focus for 2016 specifically is to embed the governance changes which will support these improvements. The changes to the governance structure have been designed to ensure that we:
  • Continue to advance the integration of ESG factors by our investment teams.
  • Implement processes to deal with specific controversial investments where there may be differing views between teams and/or we may have policy gaps.
  • Develop a more consistent and stronger RI narrative within the business and with our clients and prospects.
  • Engage a wider spectrum of colleagues in our RI agenda - over 40 will be actively involved across the business.
The main changes are:
  • Our Global RI Committee is being dissolved and will be replaced by a new, smaller and more focused RI Steering Group comprising solely of Executive Committee members.
  • A new ESG Risk Forum is being introduced to monitor investments exposed to ESG-related controversies
  • Two new working groups to be formalised: 'Business Development & Client Support', and; 'HR & Employee Engagement Group'
  • The ESG Committee is being restructured to focus on key E, S and G issues in greater depth. Sub groups are being established, which in 2016 will consider executive remuneration, climate change and human rights issues with a view of developing guidance that can be used by all investment teams.
Quality Investment Progress
What you can expect when you invest with one of our teams
Our diverse investment capabilities

We employ 15 investment teams across a range of asset classes who are specialists in their respective fields and who set their own investment philosophies and processes. Our commitment to RI and stewardship is a common thread which runs through these diverse investment capabilities.

In particular, all teams believe that ESG issues impact investment value and that as a large institutional investor we can achieve better long-term investment outcomes through active engagement with companies and by exercising the ownership rights we hold on behalf of our clients.

Each investment team's approach to incorporating these factors into their investment process has evolved over time. We believe the diverse approaches of our individual investment teams are a key strength of our collective business as they allow us to share ideas, develop our knowledge and learn from each other's mistakes and successes. The governance of RI and the systems for cross-collaboration are critical in this regard.

While we are proud of our diverse investment capabilities, the following provides an overarching view of some of the universal expectations for all investment teams.

ESG integration

Each team has a process for identifying and assessing the relevance and materiality of Environmental Social and Governance (ESG) issues for their respective asset classes. For all active equity teams, company engagement is a key source of insights on these risks and opportunities.

These insights, coupled with the best available third party ESG research, are assessed by the relevant company analyst and incorporated into stock notes or reviews. Some teams assign specific ESG scores, while others incorporate the assessment into broader views of company management and business quality. All active equity teams hold regular team meetings to discuss company assessments, including ESG factors.

Our fixed income teams have an assessment process which flows into their view of a particular security, whether through the six-factor model used by the Emerging Market Debt Team or the ESG score and internal credit rating used by the other Fixed Income and Credit teams.

For all teams, responsibility and accountability for analysis and integration of ESG factors, investee company engagement and proxy voting rests with each investment professional and the head of the team. Integration and engagement are mutually reinforcing; company analysis drives engagement and engagement outcomes influence the analysis. This is why we have chosen not to separate proxy voting, engagement or ESG research into specialised functions.

For our Unlisted Infrastructure team, a more bespoke approach is possible and necessary. The team has developed separate and detailed RI policies and assessment frameworks while still adhering to the organisation-wide approach.

Company engagement

Engagement with company management is a fundamental part of our equity teams' investment processes. Through company engagement, we seek to highlight areas for potential improvement and risk reduction, encourage improved disclosure on ESG issues, and commend companies that are making progress in this area. We have guidelines and principles for corporate engagement, which are available on our website.

Engagement is more difficult for fixed income investors. We have, however, effectively engaged with counterparties, semi-government and supranational issuers and continue to increase our focus on effectively engaging bond issuers. We also engage with credit rating agencies and collaborate with other fixed income investors to improve the ESG integration practices across the industry. This is an area however where we intend to focus our attention and resources.

For Unlisted Infrastructure, our seats on company boards allow greater direct oversight and influence.

Given the varying nature of the asset classes we manage, the geographies in which they operate and the size of our holdings, each of our investment teams' engagement approaches are tailored to individual companies and the specific issues in question. In all cases there is a focus on material ESG issues which could impact on investment value over all periods, but particularly over the long term.

On occasions where our engagement activities with company management are unsuccessful, we may escalate the issue. This can include, for example, writing to or meeting with the chairperson or lead independent director, voting against directors who we believe are not providing appropriate oversight, or collaborating on further engagement with other like-minded investors. Ultimately we may choose to sell down holdings in companies where we lose confidence in management following unsuccessful attempts to engage.

Proxy voting

Proxy voting rights are an important asset for listed equity investors and exercising these rights is a core part of our stewardship responsibilities. We seek to vote on all possible resolutions at company meetings. Prior to voting, the relevant investment manager and analyst carefully consider each resolution, with guidance provided by our 'Guidelines and principles for corporate engagement on governance, environment and social issues'.

Recommendations from a selection of independent corporate governance research providers are also sought. Our investment teams retain full control over their proxy voting decisions, however, and do not necessarily follow the guidance provided by third party governance research providers. We expect all our active equity teams to vote intelligently, in the best interests of our clients, which may not be in accordance with our proxy voting advisors views. We disclose our full proxy voting record and statistics on the independence of our team's voting.

All teams have an approval and escalation process for proxy votes and maintain records when they vote against management or against the recommendations of the proxy voting adviser.

Investment teams are responsible for their own voting and, from time to time, different teams may vote in different ways on the same issue. To manage this, whilst maintaining team independence, we are developing forums where teams which are voting on the same company can discuss the key issues (while always complying with regulatory requirements related to collusion or takeover provisions).

Our combined proxy voting record and statistics can be downloaded here or from the respective team profile pages.

Teams not covered in this report

Our Short-Term Investment (Cash) team is captured within the Australian Fixed Income and Global Credit profile as the relevant ESG analysis and engagement is shared between the teams.

Our Stewart Investors team has rebranded following the split of the First State Stewart team into two teams. Stewart Investors will provide information independent of this report on their website and directly to clients: http://www.stewartinvestors.com/si/home/