Our Progress

Ten years ago we became a signatory to the UN Principles for Responsible Investment (PRI) and released our first responsible investment report. Over that time our business and our approach to responsible investment have been greatly enhanced.

In this section we cover our progress against our strategy during 2016.

External Benchmarking

Our approach to RI and stewardship has always been client-focused and investment-led. We also benchmark our progress against various global standards and look to those standards to identify areas where we can improve our practices. These standards also provide a basis for developing our disclosures and therefore allow us to be more transparent about our progress. 

Principle for Responsible Investment - assessment ratings

Each year every PRI signatory reports to the PRI on their responsible investment practices and how they are going about applying the Principles. In 2013, the PRI piloted a new strengthened and more granular assessment framework and in 2015 we received our first ratings under the new system. Our results since 2014 are below and our full Transparency Report for 2016 can be downloaded here and full assessment report can be downloaded here.

We strive to achieve industry best practice and are therefore encouraged that our results have steadily improved from the pilot year. The benchmarking process allows us to identify areas for improvement and establish our relative ranking to our industry peers.  

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. 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.

In 2016 RIAA repeated the exercise and we were pleased to remain one of only 15 Australasian managers (from more than 70 assessed) who scored above 80% in the RIAA assessment. 


Module 2014 (Pilot) 2015 2016 Median manager 2016
Overarching Approach A A A+ B
Listed Equity Incorporation A A+ A+ A
Listed Equity Active Ownership A A A B
Fixed Income SSA B B A+ C
Fixed Income Corporate A A+ A+ C
Fixed Income Corporate Financial N/A N/A A+ C
Fixed Income Securitised N/A N/A B E
Infrastructure A A A+ B

 

"In 2016 we achieved A+ ratings in five of eight areas in our Principles for Responsible Investment Assessment report, with upgrades in three areas." 

 

 

"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 were pleased to remain one of only 15 Australasian managers (from more than 70 assessed) who scored above 80% in the RIAA assessment.

Awards and Recognition

In 2016, we were runners up in the ESG Specialist of the Year Award at the UK’s Financial News Awards for Excellence in Institutional Asset Management, after having won the ESG Strategy of the Year Award the previous two years. 

We were also the winner of the “Best Responsible Investor, Asset Manager” in the Asia Asset Management Best of the Best Awards 2016, after having won the "Best Application of ESG" award in 2015. 

Although such awards are not something that we specifically seek, they can be helpful in providing an indication of the progress we have made and importantly highlight areas where we can seek to improve. 

2016 in Review – progress against our strategic goals 

Below is a description of our progress during the 2016 against our strategic goals of investment quality, employee engagement and stewardship.

Quality investment processes

Across our diverse investment teams we share a belief 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 and mistakes. The governance of RI and the systems for cross-team information sharing and collaboration are critical and a significant strength in this regard.

During 2016 and in early 2017 we sought to support our investment teams’ processes in three areas:

  • Improving access to data and reporting on company ESG performance;
  • Improving, understanding and developing guidance on complex ESG issues; and
  • Supporting new and existing investment teams as they developed their approach to RI.

 

Information management plan

Over the course of 2016, we completed key components of our ESG Information Management Plan. In 2016 we:

  • Developed an interactive ESG Portfolio Monitor Tool;
  • Established our ESG Working groups on climate change, human rights and executive remuneration;
  • The human rights group developed guidance for the identification, assessment and management of human rights issues;
  • Developed an online eLearning training module which will be rolled out to all employees in 2017
  • Tendered for climate risk related data including carbon footprints and fossil fuel exposures. We appointed MSCI in late 2016.

 

 

 

 

ESG Portfolio Monitor

Our ESG Portfolio Monitor tool is an interactive tool for monitoring the ESG quality and overall profile of our investment teams, portfolio managers and funds. Some of the key features of the tool include:

  • All listed equity holdings and their benchmarks are linked to their respective ESG ratings (Sustainalytics and MSCI Governance)
  • Different reporting modules focused on team, portfolio and stock levels allow users to analyse ESG exposures from a number of levels
  • Full interactivity allows users to filter, select different companies grouping and isolate companies who have been downgraded or upgraded.

Information management plan milestones


Information Management Plan Features Status
Enhance the quality of available ESG information sources (Appointed Sustainalytics/MSCI/Reprisk) Completed 2013
Integrate ESG data into our data warehouse (Eagle) and into Bloomberg and Factset Completed 2013/2014
Develop smart tools and reporting (ESG Portfolio Monitor tool/Excel dashboards/RI Report) Ongoing
Set up ESG Committee subgroups (human rights climate change remuneration) Started in 2016 – ongoing
Roll out individual and team specific training / Development program 2016 - Ongoing
Invite regular expert speakers to present to investment teams On going
Investment team support (providing advice research industry perspectives) On going

 

ESG Working Groups

In late 2015 as part of a broader governance change, we established three issue specific working groups under the practitioner ESG Committee. This followed the success of our stranded assets working group, the progress of which we reported on in our 2015 RI Report.

The three working groups are focused on climate change, human rights and executive remuneration. The groups are comprised of investment professionals from the EGS Committee and are supported by the RI team. The purpose of the groups is to develop guidance for our investment professionals across the organisation regarding topical and complex issues.

Climate Change Working Group

The climate change group separated climate change risks into five areas. Once defined the group has performed rolling literature reviews of each area and have had input from leading experts in the field including Martin Ross from the Climate Council in Australia, Martijn Wilder, the Global Head of Climate Practice at Baker McKenzie and Chair of the Clean Energy Finance Corporation in Australia and Dr Alan Jones from the Earthwatch Institute at Oxford University. 

The group has recently completed their review of transition risks and will now move on to the last two areas of climate change related risks and opportunities. We expect the group to complete its work in mid-2017.

  1. Physical Impacts of Climate Change 
  1. Carbon Emissions / Regulatory Intervention
  1. Business Transition / Stranded Asset Risk 
  1. Fiduciary Duty / Legal Risk 
  1. License to Operate/Reputational Risk 

Executive Remuneration Working Group

The executive remuneration working group started with a challenging question – is the system of executive remuneration we are asked to vote on as shareholders broken and if so what are the issues? The group has performed a literature review which express opinions from both sides of the statement and have been fortunate to engage with experts including Dan Smith from our proxy voting advisor CGI Glass Lewis and Sophie Black from Mercer’s benefits practice in London.  

The group are preparing a research project which will consider various aspects of remuneration practices and company performance. We expect the group to finalise its guidance by the end of 2017. 

Human Rights Working Group

The human rights working group completed its review and developed investment team guidance during 2016. The group completed a literature review which included standards like the United Nations Guiding Principles on Business and Human Rights and industry specific guidance from groups such as the International Council on Mining and Minerals.

The group also engaged with Human Rights experts including Rachel Ball from the Human Rights Law Centre and Shen Narayanasamy from No Business in Abuse. The guidance note developed was also reviewed by international human rights lawyer. 

The guidance note established a framework for assessment which included the following elements:

Human Rights assessment framework.

The more detailed description of the guidance can be found in the feature articles at the bottom of the home page.

 

The climate change group has performed rolling literature reviews of each area and have had input from leading experts in the field including Martin Ross from the Climate Council in Australia, Martijn Wilder, the Global Head of Climate Practice at Baker McKenzie and Chair of the Clean Energy Finance Corporation in Australia and Dr Alan Jones from the Earthwatch Institute at Oxford University. 

 

 

 "The executive remuneration working group started with a challenging question – is the system of executive remuneration we are asked to vote on as shareholders broken and if so what are the issues?"

 

 

"The human rights working group completed its review and developed investment team guidance during 2016. The review included standards like the United Nations Guiding Principles on Business and Human Rights and industry specific guidance from groups such as the International Council on Mining and Minerals."

Fixed Income - Stranded Assets Framework

Following the completion of our stranded assets working group’s guidance, the Fixed Income Credit Research team adapted this work when considering stranded asset risks for fixed income which related to the tenor of the bond in question.

The issue identified was that unlike equities which are perpetual, bonds have a limited life (tenor). The risks of assets becoming stranded due to a transition to a low carbon economy is likely to unfold over time meaning that the longer the tenor of the bond the potentially higher the risk of default.

In response the research team developed an additional assessment tool. In order to assess the risk systematically, the team assesses the risks of stranding for sectors .i.e. high to low risk. The sector assessment is reviewed periodically with input from RI team.

 

 

Sectors at risk of stranding

For sectors that are assessed at the high end of the risk spectrum, for instance for the energy sector the team assess the risk of stranding as the relative cost of production against the tenor of the bond to determine a risk rating represented by the diagram below. This is in addition to the standard ESG risk assessment described in the team profile for credit research. 

Production Tenor

New investment teams and investment team changes  

During 2015, a number of changes to our investment capabilities influenced our RI work.

Our fixed income team has continued to evolve from very distinct teams with unique foundations to different teams using shared foundations. This has been reflected in an overarching fixed income profile and separate credit research profile being developed for this report. 

In addition during the year a new High Yield fixed income team joined the group. A Q&A with the head of the team Matt Philo is provided this year with a full profile to be prepared from next year. Also for the first time this year we profile our short-term investment (cash) team.

The Smaller Companies team in our Australian equities Core team were split out to form their own investment team which is reflected in the team now having its own team profile.

Stewart Investors

Stewart Investors has, in effect, become an investment division in its own right while remaining part of First State Investments, reporting to the Chief Executive Officer.

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 www.stewartinvestors.com

Engaged People

Engagement

Our people are a key success factor as we continue to work towards our vision of being a world class global asset manager that delivers superior investment performance, acts at all times in our client’s best interests and is a global leader in responsible investment and stewardship.

In 2016 a working group focused on RI and Employee Engagement was formalised. This group focuses on further integrating RI into the employee lifecycle to engage a wider spectrum of colleagues in our RI philosophy.

The working group has been involved in the development of particular activities, which link to the broader business strategy:

  • Our Recruitment Practices have been refreshed. These practices include updated guidelines for Recruiting Managers and Interviewers which embed RI into our recruitment process with consistent references to RI in our advertisements, briefing packs to external recruitment agencies, and interview question templates.
  • A new RI eLearning module will be rolled out to all employees and new starters to create a consistent base level understanding of RI.
  • Our annual People & Culture Survey now includes RI specific questions focusing on our employees understanding of stewardship, RI, and opportunities to further embed RI.
  • Investment Beliefs All employees were invited to complete a survey to better understand their Investment beliefs and convictions in relation to the value of integrating ESG and sustainability in our investment processes and activities. This has been developed in conjunction with Willis Towers Watson’s think tank, the Thinking Ahead Institute. The results showed very strong belief in responsible investment across the organisation, more on the results can be found in the feature article at the bottom of the homepage.

The First Foundation

Since 2012, our charitable foundation, The First Foundation has encouraged our people to give back to their local communities by promoting charitable time and giving in the areas of Education, Environment and social welfare. In 2016 we donated AUD500k to different charities in locations where we operate. This involved grants to support local charities where our staff are actively involved in volunteer positions as well as matching their financial contributions.

By being employee led the First Foundation not only helps good causes but does so in a way that seeks to engage our people.

Case Study: Dandelion Support Network
Dandelion is a charity run by volunteers who accept, sort and safety check nursery items, clothes, toys and linen for babies and kids. The donations are then passed on to families in need through referrals from social workers. Leanne Sayers has been an advocate for Dandelion in the Sydney office and has driven a number of fundraising initiatives including: volunteering days; Christmas Campaigns; Funding for the purchase of approximately 60 cots; and Three years of fixed funding from First Foundation.
 

 

 "Our Recruitment Practices have been refreshed. These practices include updated guidelines for Recruiting Managers and Interviewers which embed RI into our recruitment process with consistent references to RI in our advertisements, briefing packs to external recruitment agencies, and interview question templates."

 

 

"Leanne Sayers has been an advocate for Dandelion in the Sydney office and has driven a number of fundraising initiatives including: volunteering days; Christmas Campaigns; Funding for the purchase of approximately 60 cots; and three years of fixed funding from First Foundation."

 

Diversity

As a firm we have continued our focus on our diversity strategy, which is aimed at the continued development of the firm as a well-rounded, high quality investment business. We value individuals with a diverse range of perspectives and believe that this helps us to be a successful firm. Having an inclusive environment, where everyone feels that they can be themselves and therefore fulfil their potential is essential to us achieving this.

We believe that greater diversity in the companies we invest in will produce better corporate decision making and long-term outcomes for investors. For the same reasons we have had a specific focus on gender diversity amongst our investment professionals and for the last 2 years have reported on this.

At the end of 2016, women represent 22% of our investment management roles – and this is an area we will continue to focus on to improve the gender balance. We also recognise the diversity of the clients who invest with us and as such we have decided to include the gender diversity of our key client facing professionals, which sits at 51% of women at the end of 2016.

Our voluntary turnover rate of 6.4% meanins that seeing a shift in the numbers will take time. However we feel confident that our diversity strategy is focusing on the right activities and supporting our people to have the right discussions for us to see continued progress in increasing gender balance, improving thought diversity and therefore contributing to a well-rounded, high quality investment organisation.

In 2016 we established our Diversity Committee which comprises all members of the Operating Group, acknowledging that the diversity agenda needs to be front and centre of our broader business strategy. The Committee is focused on reviewing our progress against key diversity metrics and monitoring our diversity focused activities accordingly to either ensure they are having the desired impact or agree where we need to change our approach.

As part of this ongoing strategy, we are committed to the following activities:

Improved disclosure of diversity metrics.

We believe that as part of our commitment to achieving more diversity within the firm, improving the disclosure of our diversity metrics provides more visibility and focus to support this. See our diversity scorecard below.

Recruitment approach to maximise the potential talent pool.

We ensure our external recruitment partners understand our position on diversity and provide a gender balanced range of candidates. We have also made it mandatory to have at least one female interviewer for each role we recruit for, to minimise any unconscious bias. We have reviewed the gender breakdown of our recruitment data and in general whilst we see fewer female than male applications for roles, more women are making our shortlists.

Influencing industry change.

We have become members of the Australian chapter of the 30% Club, an organisation that campaigns for ASX 200 boards to comprise at least 30% women. Our Australian Equities teams have signed the 30% Club Statement of Intent which demonstrates our commitment to talk with ASX 200 companies who have one or no women on their Board, and with whom we are a significant shareholder, about the importance of board diversity and to encourage change. In Australia and the UK we have also partnered with Mercer on Industry research into diversity in asset management.

Annual Pay Equity Analysis.

This analysis considers performance outcomes, base remuneration and bonuses. We think comparing people in ‘like’ roles is the most effective approach to the analysis. With this philosophy our last review showed that our men and women in ‘like’ roles are paid comparably.

Global Parental Leave Policy.

We have recently relaunched our parental leave policy which aligns our offering globally. The policy is gender neutral to allow both men and women to be involved as parents, either as the primary or secondary carers, which we also hope enables women to continue to be engaged in the workforce. Our policy offering includes both a paid (18 weeks for primary carers and 4 weeks for secondary carers) and unpaid leave component. In addition, for new parents who have had time away from the business on parental leave, we offer them support to transition back to work with coaching and keep in touch days.

Investment 20:20 Program.

FSI UK continues to take part in the Investment 20:20 trainee scheme managed through the Investment Association which aims to create entry-level opportunities for young people into the investment management sector. Our program focuses on providing opportunities for school leavers from diverse socio economic backgrounds to gain practical work experience, training and networking opportunities and to learn about all aspects of investment management.

Partnership with the Surry Cricket Club supporting their Disability Program.

FSI UK continues to be involved with disability cricket in the UK through sponsorship and volunteering. We recognise the benefit of diversity and the roles sports programs like this have in challenging preconceptions about disability and go a small way towards helping to break down longstanding barriers to entry to our industry and others. 

2016 Diversity Score Card 

 

Length of Service

Diversity of Ages

Stewardship

UK Stewardship Code - FRC Tiering

In 2016, the UK regulator the Financial Reporting Council (FRC), which has responsibility for the UK’s Stewardship Code, announced that it would be ranking asset managers into three tiers depending on the quality of their stewardship related disclosures and activities. We were delighted to achieve the highest tiering – Tier 1 – awarded by the FRC. To ensure we remain at the forefront of stewardship best practice, we have produced a Global Stewardship Statement which details our approach and activities. Our Stewardship Statement can be found here. 

In addition we asked PwC to assess our stewardship practices against our own Global Stewardship Principles and the UK Code. Following this evaluation, PwC were happy to provide an assurance statement that we were in full compliance with both the UK Code and our own Principles.

PLSA Stewardship Disclosure Framework 

We also benchmark our practices against the UK's 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. 

Improved Proxy Voting Disclosure

While we have been providing our full proxy voting record for a number of years, it has been point in time and only once per years. We have over this time disclosed it in excel format to allow for easier filtering and sorting by our clients and stakeholders.

This year, with the help of proxy voting advisors CGI Glass Lewis, we have created a live and continuous proxy voting disclosure portal. Updated daily the portal will disclosure votes at the conclusion of each meeting.

Investment Assurance - Global Investment Committee Reporting

The introduction of the ESG Portfolio Manager has allowed for reporting to be provided to our Investment Assurance team for their quarterly updates to senior management via the global investment committee. The reporting we have developed (see sample) is evolving and includes:

  • Downgrades in ratings from our external research providers MSCI Governance and Sustainalytics;
  • Significant controversies identified by Reprisk;
  • Worst rated companies for each ESG area;
  • Companies where we have a high active position (i.e. above the benchmark weight) who have a low or declining rating.

The reporting has provided the global investment committee with a different view of portfolio risk and is intended to improve dialogue and engagement between senior leaders like the Chief Investment Officers on the Committee and the investment teams on ESG issues.

The process ahead of the investment committee meetings is that investment teams are required to review the ESG reports. This has helped identify and focus teams on potential opportunities for company engagement or highlight issues with the underlying ratings which we can then raise with the research providers.

Download a sample ESG Risk Report here

Unlisted Infrastructure Team ESG Reports

Following the release of an ESG report for our European Diversified Infrastructure Fund in 2015 we recently released an ESG report for our Global Diversified Infrastructure Fund. The reports provide an overview of the assets in each fund and their ESG profiles.

Investor Group on Climate Change – Disclosure Working Group

Last year we reported on our involvement with the Investor Group on Climate Change’s (IGCC’s) Disclosure Working Group. Through the IGCC we established and chaired the group following concerns we had about the direction of climate change disclosure by investors, and in particular the dominance of carbon foot printing as the primary form of disclosure.  

Following a period of consultation the guidance that the group developed was launched on April 12, 2017. The guide supports the Michael Bloomberg led Task Force for Climate-Related Financial Disclosures (TCFD) recommendations by providing practical approaches for implementing the principles.

This year we have sought to align our disclosure with the guidance and TCFD recommendations.

The guide can be downloaded from the IGCC website.

"To ensure we remain at the forefront of stewardship best practice, we have produced a Global Stewardship Statement which details our approach and activities. Our Stewardship Statement can be found here." 

 

 

"This year, with the help of proxy voting advisors CGI Glass Lewis, we have created a live and continuous proxy voting disclosure portal."

 

 

"Through the IGCC we established and chaired the group following concerns we had about the direction of climate change disclosure by investors, and in particular the dominance of carbon foot printing as the primary form of disclosure."