At AlbaCore, we focus on the long-term. As one of Europe’s leading alternative credit specialists, we invest in private capital solutions, opportunistic and dislocated credit, and structured products.
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Specialist in Asia Pacific, China, India and South East Asia and Global Emerging Market equities.
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Our philosophy is very simple. We are constantly searching for high quality businesses and when we acquire them, we will work relentlessly with them to create long-term sustainable value through innovation, ESG-led and proactive asset management.
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Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.
Backed by a unique blend of research, portfolio construction and risk management, focused on uncovering original insights and translating them into investment strategies that are active and systematic, aiming to generate alpha.
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Specialists in equity portfolios in Asia Pacific, emerging markets, global and sustainable investment strategies
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Nature and biodiversity toolkit
Investors Can Access Nature Now (ICANN)
The unprecedented threats to nature and biodiversity, fundamental to our global economy and the fight against climate change is prompting investors to assess and disclose nature-related risks. To help investors start assessing nature, we have developed a guide that outlines a due diligence approach and resources, focusing on freshwater and forests.
Microplastics policy advocacy update
We believe in our collective responsibility to consider degradation of the natural environment as an investment risk in our decision-making processes, and further proactively collaborate with our industry to encourage the adoption of measures that reduce and mitigate this threat to human and environmental health.
Microfibres have been finding their way into our beaches, rivers and deep ocean, in the air we breathe and the food we eat for decades. Research by the First Sentier MUFG Sustainable Investment Institute (SII) outlines the sources and distribution of microfibre pollution, reasons for its urgent address and steps to prevent it.
Studies have shown the effectiveness of filters on washing machines in capturing microfibres before polluting our aquatic ecosystems2.
Since 2020, First Sentier Investors is leading, in collaboration with the UK’s Marine Conservation Society, a program to engage with the manufacturers of domestic and commercial washing machines to fit filtration technology to their products, as a standard feature. In addition to engaging with companies, we have engaged with a number of regulators as part of this initiative. There has been considerable progress, as shown in the advocacy update below.
Table 1. Policy advocacy on microfibres
| United Kingdom | On 2 November 2022, the Microplastic Filters (Washing Machines) Bill had a second reading in the UK Parliament, requiring manufacturers to fit microplastic-catching filters to new domestic and commercial washing machines. In support of the Bill, we engaged with the then UK Secretary of State for the Environment and various other senior ministers from across Government in collaboration with the UK Marine Conservation Society and UK Womens Institute who have long been campaigning this issue. The Bill, sponsored by Alberto Costa MP, was withdrawn as it has lapsed. The Bill however, will be re-submitted, and if passed would mandate washing machine manufacturers to include microplastic catching filters as a standard feature on all new machines for sale or use in England and Wales by 1 January 2025. We believe the UK Government could take a global leadership position and prioritise this recommendation on microplastics, specifically to mandate the installation of microfibre filters in new washing machines by 2025. |
| Australia | Following a visit to our Sydney office by the Australian Minister for the Environment expressing an interest in the issue, we met with CEO Tony Chappel and the team at the New South Wales Environment Protection Agency. The Agency was very aware of the risks of microplastic pollution and were interested in the engagement work that we had been undertaking. In Australia, the government announced in its 2021 National Plastics Plan that it would introduce microfibre filters in commercial and residential washers by July 2030. This is however expected to be a voluntary requirement. |
| European Union | As of January 2025, all new washing machines sold in France will have to include a filter to stop synthetic cloth fibres from polluting waterways. We are now engaging with policymakers to gauge the potential or ongoing discussions for the French Law to be adopted across the EU. |
2 Washing Machine Filters Reduce Microfiber Emissions: Evidence From a Community-Scale Pilot in Parry Sound, Ontario, https://www.frontiersin.org/articles/10.3389/fmars.2021.777865/full
TNFD scoping exercise and Core Sector Metric Disclosure
In December 2022, First Sentier Investors joined the Taskforce on Nature-related Financial Disclosure (TNFD) Forum. Our approach to implementing the TNFD framework will build on the Nature and Biodiversity Toolkit, developed in 2023, and leveraging the collective knowledge of our Natural Capital and Biodiversity Working Group, convened in 2022. In line with the TNFD’s LEAP (Locate, Evaluate, Assess and Prepare) framework, we started to scope our assessment in 2023.
Initial scoping results
As First Sentier Investors is in the asset management industry, the functional business consists of separate investment teams (of which there are currently 11). In terms of our asset classes, as of December 31, 2023, we invested in listed equities (55%), cash and short-term investments (21%), unlisted direct infrastructure (12%), fixed income (7%), and private debt (5%). For initial firm-level nature assessments we would start with listed equities and corporate fixed income, covering 58% of our total AUM. Our potential interaction with nature would be mostly through our investments, either via listed investments or via direct investments in infrastructure businesses.
Within the in-scope asset classes, we allocate capital to several countries around the world, with 29% of our capital allocated to companies headquartered in Australia, followed by India (15%), US (12%), Hong Kong (11%), Mainland China (5%), Japan (5%), Taiwan (4%), and Singapore (3%). These countries make up about 84% of our total AUM. These countries will be the main focus of our Locate section of the LEAP exercise (material locations3) moving forward in relation to our investments.
TNFD’s Additional Guidance for Financial Institutions version 1.0 notes that financial institutions should disclose a metric that represents the financial exposure to a defined set of sectors considered to have material nature-related dependencies and impacts (one of the core sector metrics for financial industry). The TNFD has identified sectors that should be considered and we have analysed our exposure to these 22 sectors. The percentage of in-scope companies’ AUM with exposure to the TNFD material sectors, relevant to the firm’s total AUM, is 19%4. In other words, 33% of our listed equities investment and 31% of our corporate fixed income investment are allocated to these material sectors.
Within this 19% exposure, our listed equities and corporate fixed income investments are allocated to a number of sectors material to nature-related issues, including: metals and mining, semiconductors, electric utilities, food products, oil and gas, transportation infrastructure, household durables, automobiles, personal care products and pharmaceuticals.
Figure 1. TNFD material sector breakdown
Source: TNFD. (2023). Additional guidance for financial institutions. First Sentier Investors. Data as at 31 December 2023.
Note: sector allocation of in-scope companies only; multiple sectors include Chemicals, Textiles Apparel & Luxury Goods, Ground Transportation, Diversified REITs, Beverages, Gas Utilities, Construction Materials, Commercial Services & Supplies, Construction & Engineering, Water Utilities, Independent Power & Renewable Electricity Producers, Passenger Airlines, Containers & Packaging and Marine Transportation. These are grouped together as we have 2% or less exposure to each of them.
Sector mapping and biodiversity sensitive area exposure
The LEAP framework’s L2 question is: “where are the sectors, value chains and direct operations with potentially moderate and high dependencies and impacts located?”. So, we mapped our listed equity holdings using December 2022 AUM data and a heat map, to identify sectors where there is exposure to nature-related issues. This result was disclosed in the second iteration of the Nature and Biodiversity Toolkit, Investors Can Assess Nature Now (ICANN) guide, which was published in September 2023. We note that “a list of environmental assets, ecosystem services and impact drivers by portfolio sector identified in the heat mapping exercise in the Locate phase” is mentioned as one of the outputs of the LEAP framework’s Evaluate phase for financial institutions. From this exercise, we were able to understand key dependencies and impact drivers upstream and in direct operations, per each material sector, especially the dependence on terrestrial ecosystem use and water use, as well as impacts via water and soil pollutants and soil waste.
In addition to the general sector mapping using the Sector Materiality Tool as above, we worked with a number of investment teams to map their investment holdings to high freshwater and (agriculture-related) forest risk sectors and countries, two areas we are focusing on in relation to nature and biodiversity. Our approach to assessing and engaging in these issues is further detailed in the ICANN guide.
Finally, the other core sector metric recommended by the TNFD for financial industry is the exposure to companies with activities in sensitive locations (absolute amount or percentage of invested or owned assets for asset managers). Using reported and estimated data sourced by Sustainalytics5, our AUM exposure as of December 2023 was 5.57%, with about 81% data coverage for the in-scope companies. Where data is available on such sensitive locations, we will try to use it in conjunction with our analysis on material locations6, in order to identify priority locations and to prioritise companies for further assessment and engagement. We use many other indicators collected from various sources, as discussed in the ICANN guide.
In 2024 we plan to work closely with the Corporate Sustainability team to disclose our direct operation locations. Together we will start assessing impacts, dependencies, risks and opportunities in our offices using the TNFD’s core global metrics and documenting firm-wide processes for identifying, assessing and prioritising such nature-related issues in our direct operations.
3 TNFD (2023). Taskforce on Nature-related Financial Disclosures (TNFD) Recommendations
4 This figure therefore does not include material sector exposure of other asset classes that are out of scope (e.g. cash and derivatives)
5 According to Sustainalytics, ’Biodiversity-sensitive areas’ refer to Natura 2000 network of protected areas, UNESCO World Heritage sites and Key Biodiversity Areas (KBAs), as well as other protected areas, as referred to in Appendix D of Annex II to Commission Delegated Regulation (EU) 2021/2139, we view that this definition is aligned with the TNFD’s definition of sensitive locations
6 TNFD (2023). Taskforce on Nature-related Financial Disclosures (TNFD) Recommendations
Table 2. Progress made under the Finance for Biodiversity Pledge
| Commitment | Progress made to date |
|---|---|
| Collaboration and knowledge sharing |
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| Engaging with companies |
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| Assessing impact |
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| Setting targets |
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| Reporting publicly |
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We aim to develop a firm-level approach to key nature-related topics and sector guidelines. This will be accompanied by monitoring, progress reporting, and our assessment of various nature-related commitments made by investee companies.
We will continue to develop our work on scoping assessments using the Taskforce on Nature-related Financial Disclosures (TNFD). This is a new risk management and disclosure framework that aims to enable organisations to report and act on evolving nature-related risks. Along with this work, we aim to equip our funds with the resources to report on nature-related disclosure criteria, such as the ‘biodiversity sensitive area’ or ‘emissions to water’ indicators in the Principal Adverse Impacts of the EU SFDR.
Challenges
As a complex and interconnected issue, there are many challenges for investors.
We believe that assessing our exposure to water and deforestation, mapping various data points to our holding companies, assessing priority companies in depth, and engaging on material issues and gaps, can provide us new opportunities to understand our risk and dependency on nature. However, current data availability is patchy at best, and certain datasets are more accessible than others.
On a positive note, as more companies start to focus on this issue, there will be more opportunities for investors to assess nature-related risks, dependencies, and impacts. We believe improved disclosure is an important objective for company engagement, as this area continues to evolve.
Another challenge is approaching this topic in a more holistic way. Many financial institutions are already engaging with companies on other ESG issues like climate change or human rights. It is our view that biodiversity and nature issues, if not properly addressed, can exacerbate the existing problems, or if better handled, can provide solutions to other issues. This is especially relevant to deforestation issues, where nature loss, climate change and human rights abuse are often intricately linked in a certain biome or location.
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