2015 was another significant year for RI and stewardship globally. Developments included:
- new guidance issued by the USA's Labor Department which said that Trustees should consider ESG factors when they are material to investment outcomes and may consider them in certain other circumstances;
- consultations by International Corporate Governance Network and the Hong Kong regulators on a stewardship code; and
- the implementation of the Japanese Stewardship Code.
These developments underline the global momentum for stronger RI and stewardship practices. Our long-term focus on RI has ensured we are well positioned to adopt these new standards and expectations as they evolve while continuing to deliver strong long-term outcomes for our clients.
However, as these standards evolve, so to must our approach. 2015 marks the end of our most recent three year strategy and we are making some changes to our governance structures to support our new strategy. In addition to describing our progress over the past year, this section outlines the key elements of our new strategy and the governance changes we are making to support and deliver it.
For this reason we are pleased to be able to include for the first time our Principles for Responsible Investment (PRI) assessment results. Every PRI signatory reports to the PRI annually on their progress. In 2013 the PRI launched a new assessment framework and in 2015 we received the first assessment report following the pilot, the results of which are below. The full report can be downloaded here.
PRI assessment ratings
|Module||2014 Level (Pilot)||2015 Level||Median manager|
|Listed Equity Incorporation||A||A+||A|
|Listed Equity Active Ownership||A||A||B|
|Fixed Income Corporate||A||A+||C|
|Fixed Income Government||B||B||E|
We are encouraged that our results have improved from the pilot year and we will work to further improve these results where possible.
NAPF Stewardship Disclosure Framework
We also benchmark our practices against the UK's National Association of Pension Funds (NAPF) (now called the Pensions and Lifetime Savings Association (PLSA)) Stewardship Disclosure Framework. The framework provides an 'at a glance' comparison between the approaches of different asset managers. Our results are available as part of our full report and on the PLSA website.
CFA Institute's Code of Ethics and Standards of Professional Conduct
In 2014 we assessed our investment practices against the CFA Institute's Code of Ethics and Standards of Professional Conduct for asset managers and found that our practices are fully compliant with the code.
We believe the CFA code is an excellent framework for assessing an investment manager's approach to internal governance, ethical conduct and a fiduciary mindset.
We have reviewed our adherence to the code annually through our compliance process and will do so more formally this year when we review our Global Stewardship Principles. The code is available to view on the CFA Institute website.
RIAA benchmark report assessment
In 2015, in a first of its kind, the Responsible Investment Association of Australasia assessed the RI practises of 76 Australian asset managers in its annual benchmark report. The assessment rated investment managers across the following areas:
- Publicly stated commitment to RI;
- RI policy;
- Commitment to transparency of processes and approach;
- Systematic process for ESG integration and evidence of how this process is applied within traditional financial analysis;
- Evidence of activity in other areas of 'Active Ownership and Stewardship' including voting and engagement;
- Membership of collaborative investor initiatives; and
- Coverage of total AUM by RI or ESG practices.
Awards and other recognition
In 2015, we were pleased to win the ESG Strategy of the Year Award at the Financial News Awards for Excellence, Institutional Asset Management, for the second consecutive year.
In winning the award the judges noted our decision to disclose the gender diversity of our investment professionals for the first time in our 2015 RI and Stewardship Report.
We were also the co-winner of the "Best Application of ESG" award in the Asia Asset Management Best of the Best Awards 2015.
In addition to this our 2015 RI and Stewardship Report was shortlisted in the top three entries in the "External Publication" category of the Asia-Pacific Excellence Awards 2015. The awards attracted over 2,600 applications around the globe so we were pleased that our report was recognised in the top three.
Formal recognition is not something we specifically seek or target, however it provides an indication of the progress we have made and importantly highlights areas where we can improve.
Our main achievements over the three years have been:
- RI Strategy developed and implemented;
- Global RI Committee and ESG Committee established;
- RI Marketing & Communications Group established;
- Development and rollout of the Global Stewardship Principles; and
- CFA Code of Asset Manager Practice adopted.
- Investment team benchmarking completed;
- New ESG research providers appointed and rolled out, including integration with investment systems like Bloomberg and Factset;
- ESG Dashboard developed for investment teams using Bloomberg;
- Stranded asset risk toolkit developed;
- First beta tests of ESG Portfolio Monitor developed; and
- Improved PRI Scores - top 10% of all manager signatories.
- Market leading RI Reporting;
- Online, interactive report launched in 2015;
- ESG data included in Investment Assurance reporting process; and
- European Diversified Infrastructure Fund ESG Report (2014, 2015).
- Partnership with Cambridge Investment Leaders Group formed;
- Australian Investment Leaders Roundtable November 2015;
- Members of Willis Towers Watson Thinking Ahead Institute;
- Significant commitments to industry collaborations; and including key governance roles in Australian and pan European industry bodies.
- All staff survey completed (70%+ response rate);
- Clear message to enhance our RI Agenda from staff;
- Quarterly RI Update launched; and
- Diversity disclosure and programs developed.
Over the course of 2015 we completed key components of our ESG Information Management Plan. As reported in previous years we have been working on integrating our external ESG research providers, ratings and research with investment and other systems. During the course of 2015:
- We finalised the integration of Sustainalytics and MSCI Governance Ratings into Factset, a data aggregation and investment analysis system used by a number of our investment teams.
- We have also developed early versions of an ESG dashboard report similar to what we have already completed in Bloomberg. By incorporating these ratings into Factset, every investment professional across the organisation has access to ratings without needing to log in to external systems.
- The excel ESG Dashboard we reported on last year, which draws on Sustainalytics, MSCI Governance Ratings and Bloomberg ESG data is now being used by the Global Resources and US Fixed Income Investment teams for stock notes. Rollout to other teams will continue during 2016.
- In addition to ESG ratings, recommendations and special reports from our Australian Proxy Advisor, Ownership Matters, are flowing through Factset, providing our Australian Equities teams access to a history of reports for ASX-listed companies.
Introduction of CGI Glass Lewis platform into Indonesia
In May 2015 we implemented the CGI Glass Lewis platform for our Indonesian Equities team. Market practices and corporate governance are still developing in Indonesia; accordingly we believe it is critical that investors use their voice by voting in all company meetings and in encouraging market reform. The new voting platform will help close the loop on our engagement with companies. Our long-term support of the Asian Corporate Governance Association is a key factor for encouraging improvements in market practices and regulation.
New investment teams and investment team changes
During 2015 a number of changes to our investment capabilities influenced our RI work.
During the year our US based Global Unconstrained Fixed Income Team received regulatory approval to begin investing. The team has adopted various aspects of the strong ESG integration approach used by our global and Asian fixed income teams. In addition the team's proprietary investment opinions database was rolled out across the broader Global Fixed Income team, enhancing the collaboration between the group and capturing ESG information and views for all our bond investments.
The team provide a Q&A in this year's RI report to introduce their investment philosophy and approach to RI. From next year they will be covered in the report in full.
Real Index and Multi-Asset Solutions teams' inclusion in the RI Report.
This year marks the first year where our Realindex and Multi-Asset Solutions teams are profiled in the RI Report.
First State Stewart
On 1 July 2015 the First State Stewart team split into two new teams: one primarily based in Edinburgh (Stewart Investors) and the other primarily based in Hong Kong (First State Stewart Asia). The split will allow the two successor teams to develop as smaller, dynamic investment groups, recognising that this has been critical to their success over the last 20 years. There is no change to either team's investment philosophy.
Stewart Investors has, in effect, become an investment division in its own right. Both teams remain part of First State Investments, reporting to the Chief Executive Officer. Although Stewart Investors' more autonomous model means that they will no longer be covered in this report, clients and other interested parties can access information on their investment philosophy on their website: http://www.stewartinvestors.com/
First State Stewart Asia will continue to be covered by this report and the team has their first independent profile in this year's report.
Last year we reported the gender diversity of our investment professionals for the first time. A lack of diversity in all its forms, and most visibly gender diversity, has been a high profile governance concern for companies for a number of years. It is appropriate that investors who are calling for more diverse boards and management should also be transparent about the diversity in their own organisations.
It stands to reason that if greater diversity in the companies we invest in will produce better corporate decision making and long-term outcomes for investors, the same must be true of diversity amongst teams of investment professionals.
The percentage of women in our investment teams remains steady at 21% from last year's report to now, which falls short of where would like to be. We are committed to achieving an improvement to close the gap and are implementing a new program of initiatives to focus on this.
We believe this program of initiatives will over time enable us to attract the best people to ensure we have diversity of thought which we see as an important success criteria for any high quality investment management firm. We also want everyone to feel that they can be authentic and perform to their full potential in an inclusive working environment. The program includes a focus on enabling different ways of working, support for new parents, focused development for women and the establishment of a Global Diversity Committee to review our progress in this space.
Our gender diversity scorecard
Our base line scorecard for gender diversity is summarised below. We will be reporting against these figures in future years:
- 21% of our Investment teams are women
- 25% of new hires to Investment teams in 2015 were women
During 2015 we continued our active investment in the Cambridge University Investment Leaders Group (ILG) and chaired one of the ILG's Working Groups. In addition, we led the Long-term mandates workstream. The mission of the ILG is 'to shift the investment chain towards responsible, long-term value creation, such that economic, social and environmental sustainability are delivered as an outcome of the investment management process alongside robust, long-term investment returns'.
The group has been working towards the development of a toolkit for asset owners who wish to design investment strategies that can make a particularly strong contribution to this objective, or to assess the extent to which existing strategies contribute to it.
The working group will be releasing the toolkit in May along with papers for the ILG's other work streams.
Investment Leaders Group - Australian Leaders Roundtable
In November 2015 we facilitated an Australian Investment Leaders round table in collaboration with the ILG. The event was hosted by HRH The Prince of Wales at Admiralty House in Sydney. The event brought together trustees and senior executives from some of Australia's largest asset owners, with an objective of discussing the challenges for implementing RI best practice within the Australian financial system. We look forward to making more announcements regarding this initiative in 2016.
During 2015 our main collaborative engagement focused on the Australian market, where we supported the TIAACREF and ACSI led engagement with 38 Australian companies to adopt poll voting, where the 'one-share one-vote' principle applies. In addition to joining the letter campaign, we have raised the issue in company meetings.
Almost two-thirds of companies improved practices in their 2015 shareholder meetings compared to 2014, with most moving to poll voting for all resolutions.
We continue to assess collaborative engagement opportunities when they are of interest to our clients and when we can add value.
Investor Group on Climate Change - Disclosure working group
We have been following the developments in increasing levels of climate change disclosure, including changes to French law and other investor led initiatives. However, we have concerns with the way this disclosure has been provided by some investors, in particular where 'carbon footprints' have been provided without contextual information on how footprinting influences investment decision making, or around limitations with the footprints themselves.
For this reason we have agreed to lead a new working group through the Investor Group on Climate Change with the objective of developing guidance for investor disclosures on climate change risk and carbon footprinting.
Reporting improvements - climate change
Following last year's report where we disclosed sector and country based ESG risk exposures for some teams, this year we are disclosing our fossil fuel exposures for most of our active equity teams. Most teams have also made a statement regarding its approach to managing climate change related risks in their profiles.
More on our approach to climate risk disclosure can be found here.