Our approach to RI is based upon three strategic pillars; Investment Quality, Stewardship and Employee Engagement. This strategy is underpinned by a strong governance framework and is supported by our specialist RI team.
The RI team engages on behalf of the entire business to deliver the strategy, which is overseen by the Responsible Investment Steering Group. The steering group is chaired by the CEO and is comprised of executive committee members, whose role is to monitor, direct and champion RI and stewardship practices across the organisation. The way that Responsible Investment governance fits with the broader governance framework of the organisation is described in the 'About us' section of the report.
Our Global Stewardship Principles fulfil the requirements of the UK Stewardship Code, where we have been rated as being in the top tier of asset managers for the quality of our disclosures, and other stewardship codes around the world. These Principles are underpinned by policies and processes, which are overseen by the RI Steering Group.
These include our policy on cluster munitions and anti-personnel mines and engagement policy, all of which are available on our website.
Importantly, each of our investment teams has a lead RI representative, who coordinates information flows across and within their respective teams. The RI representatives also sit as practitioners on an 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 (Environmental, Social and Corporate Governance) related risks and opportunities. The ESG Committee is an important part of ensuring that we have the highest quality of ESG integration across the organisation and supports our Investment Quality pillar.
In 2016, three sub groups of the ESG Committee were established focused on human rights, climate change and executive remuneration. Similar to our stranded assets working group, these groups are charged with developing guidance for all investment teams on these often highly complex issues.
Guidance on human rights has been completed and endorsed by the ESG Committee. The work of the climate change and executive remuneration groups remains in progress. Our climate change disclosure, however, has already been informed by the work of the climate change working group.
We employ 17 investment teams across a range of asset classes. Each are specialists in their respective fields and 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 leading global institutional investor we can achieve better long-term investment outcomes through active engagement and by exercising the equity 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 successes. The governance of RI and the systems for cross-team information sharing and collaboration are critical and a significant strength in this regard.
|Region||Total Staff||Investment Staff|
|UK Europe and Middle East||348||56|
|Asia (Including Japan)||190||40|
|Australia and New Zealand||291||107|
While we are proud of our diverse investment capabilities and their asset class specific approaches to responsible investment, the following provides an overview of what our clients and other stakeholders can expect from all of our investment teams. The individual team profiles accessible via the top navigation menu provide a more in-depth description of each team’s approach.
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 made the strategic decision not to separate proxy voting, engagement or ESG research and analysis into specialised functions.
"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."
Each active listed equity team has a process for identifying and assessing the relevance and materiality of ESG issues for their respective asset classes. For all active equity teams, company engagement is a key source of insights on such 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 and influence company valuations.
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.
Like our equity teams, our fixed income teams have developed their own approaches to ESG integration that complement their investment processes. With the exception of the Emerging Market Debt team, all teams within our global fixed income business share significant elements of their investment processes, including analyst resources.
The teams believe that ESG issues have a direct impact upon an issuer's risk and therefore its probability of default. As risks turn into liabilities, they can impact cash flow and, therefore, on debt costs and credit ratings. ESG issues can also impact on a sovereign's ability to generate sustainable revenues or potentially increase its future costs, affecting its ability to repay bond holders.
Our fixed income teams have an assessment process for ESG issues, which flows into their view of a particular security, whether through the six-factor model used by the Emerging Markets Debt team or the ESG score and internal credit rating used by the other Fixed Income and Credit teams.
For our Unlisted Infrastructure team, the ownership interest we currently hold in our portfolio companies ranges from circa 15% to 100%. Our investment professionals are therefore a key part of the corporate governance structure and often also sit on governance and management committees, such as Boards of Directors or Shareholder Representative Groups. Consequently a more bespoke approach to ESG integration is desirable and necessary. The team has developed separate and detailed RI policies and assessment frameworks, while still adhering to the organisation-wide approach.
The team like to take a lead role in any acquisition and lead the agenda in the consideration of all investment issues, including ESG. Furthermore, in instances where we do not acquire a controlling interest, we make sure we carefully select likeminded co-investors so that we have a similar approach to all investment issues, including ESG considerations, which extends to defining strategy and approving policies.
Once appointed, our directors oversee executive management, influence business strategy and embed operational and investment policies (specifically including consideration of ESG issues).
"For all active equity teams, company engagement is a key source of insights on such risks and opportunities."
"Our fixed income teams believe that ESG issues have a direct impact upon an issuer's risk and therefore its probability of default."
"Our unlisted infrastructure team sit on governance and management committees... Consequently a more bespoke approach to ESG integration is desirable and necessary. The team has developed separate and detailed RI policies and assessment frameworks, while still adhering to the organisation-wide approach."
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 that could impact on investment value over all periods, but particularly over the long term.
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 these areas. We have guidelines and principles for corporate engagement, which are available on our website.
On occasions where our engagement activities are unsuccessful and we believe that this will remain so; we may escalate the issue - for example by writing to or meeting with the chairperson or lead independent director, vote against directors who we believe are not providing appropriate oversight, or collaborate on further engagement with other like-minded investors. In some instances we may make our views public. Ultimately, we may choose to sell down our holding where we lose confidence in management following unsuccessful attempts to engage.
While different to the access and approach that is possible for listed equity teams, our fixed income teams engage with counterparties, corporates, governments and supranational issuers to raise ESG concerns. For counterparties, they conduct a formal ESG assessment, which is provided to the counterparties.
We also engage with credit rating agencies and collaborate with other fixed income investors to improve ESG integration practices across the industry. This is an area where we intend to focus more attention and resources.
For Unlisted Infrastructure, our seats on company boards allow greater direct oversight and influence.
"Engagement with company management is a fundamental part of our equity teams’ investment processes... Ultimately, we may choose to sell down our holding where we lose confidence in management following unsuccessful attempts to engage."
"Our fixed income teams conduct a formal ESG assessment for counterparties , which is provided to the counterparties. We also engage with credit rating agencies and collaborate with other fixed income investors to improve ESG integration practices across the industry"
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. In the team profiles section of this report, we have disclosed statistics on the independence of our team’s voting and also provide a ‘live’ voting tool page which discloses all voting decisions post meeting.
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 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. In the team profiles section of this report, we have disclosed statistics on the independence of our team’s voting and also provide a ‘live’ voting tool page which discloses all voting decisions post meeting."
We exclude cluster munition and land mine manufacturers. The criteria were established under our cluster munitions policy which was approved by the Global Responsible Investment Steering Group. The companies captured by the policy are reviewed annually with any changes reported in this report.
Sanctioned and High Risk Countries
We also exclude sanctioned and very high risk countries, companies domiciled in those countries and individuals. The process includes a two-tier system whereby some countries are completely blocked (such as Iran, North Korea and Syria) and others are heavily restricted.
For sanctioned and high risk countries we enforce country level restrictions based on the constituents of the Australian Department of Foreign Affairs and Trade (DFAT) Sanctioned Countries List and similar lists issued by Governments in other jurisdictions where our funds are domiciled. The constituents on each system are regularly reviewed and updated.
Any potential investments in companies domiciled in these countries would be rigorously screened to ensure that there is no association with any sanctioned individual, entity or regime prior to investment. No investment is possible in companies domiciled in any country on the DFAT list without clearance from Investment Compliance personnel as the system controls do not allow it.
In addition our controls include screens for any potential investment from a country deemed to be 'very high risk' in relation to politically exposed persons, sanctions and ultimate beneficial ownership controls. The scope of this framework will be wider than the sanctioned countries list and the countries deemed to be 'very high risk' are updated on a regular basis.
The list of companies subject to our cluster munitions policy are:
Aeroteh SAHanwha CorporationOrbital ATK, IncPoongsan CorporationTextron, IncMotovilikha Plants JSC
Our Stewart Investors team has rebranded following the split of the former First State Stewart team into two separate investment teams. Stewart Investors will provide information independent of this report on its website and directly to clients via: www.stewartinvestors.com