Stewardship and ESG integration
In the Australian fixed income space, the Environmental, Social and Governance (ESG) assessment most often comes through its impact on the internal rating provided by the Credit Analysts via our Credit Research process. The portfolio management team then use this to assess relative value when compared to other similarly rated issuers. For example, ESG considerations in the automotive industry have led to our internal rating for some issuers being lower than that of the external rating agencies. As a result, the risk-reward assessment has often been decided such that we are underweight that sector in our active Australian fixed income portfolios.
Outside of this channel, ESG considerations are also positively incorporated in our investment decision for bonds that have been issued for Socially Responsible purposes. We have recently been actively involved in Green Bond issuance from Queensland Treasury Corporation and the Commonwealth Bank of Australia, as well as the Gender Equality bonds issued by National Australia Bank.
In these instances, the ESG benefits act as an important offset to the lower liquidity that these typically smaller bond lines can encounter. These benefits result in increased demand in the secondary markets, thereby boosting prices and lowering yields, ceteris paribus. Without this consideration, we would not look to actively overweight Socially Responsible focused investments as we have in the recent past, which demonstrates the opportunity for fixed income investors to use ESG factors to broaden the set of investment opportunities.
We believe that a strong commitment to stewardship is an essential component of a strong approach to responsible investment (RI), and that embedding RI 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 our practices and processes across our investment capabilities globally.
The commitments and targets set out on this website are current as of today’s date. They have been formulated by the relevant First Sentier Investors (FSI) investment team in accordance with either internally developed proprietary frameworks or are otherwise, based on the Institutional Investors Group on Climate Change’s (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets set out on this website depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. FSI will report on progress made towards achieving these targets on an annual basis in its Climate Change Action Plan. The commitments and targets set out on this website are continuously reviewed by the relevant investment teams and subject to change without notice.