
Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.
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Specialists in equity portfolios in Asia Pacific, emerging markets, global and sustainable investment strategies
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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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- Multi-Asset Solutions - Responsible investment
Approach to Responsible investment
Stewardship and ESG integration
We partner with our clients to provide solutions that maximise the probability that they will achieve their investment objectives. We assess our client needs based on three key criteria: risk tolerance, investment horizon and return ambition level. We utilise third party monitoring services for our direct holdings.
We have a stake in the effective operation and sustainability of the broader economy, society, the integrity and transparency of markets, good governance and business conduct. Given the size, geographical coverage, (multi) asset class mix, and variety of client mandates, we need to be flexible in the way we approach responsible investment and the integration of material ESG factors.
We employ a top-down investment process to efficiently allocate to broad asset classes. We utilise direct access to ESG ratings and data, which provides us with a comprehensive database of ESG scores for global companies. This allows us to directly replicate equity and bond market exposures. If deemed necessary, this allows us to remove poorly rated ESG companies within their sector classifications. Over time this is expected to add value to the portfolio by avoiding negative investment outcomes.
Assessment and monitoring
ESG research is conducted by the Multi-Asset Solutions team, with a focus on developing customised solutions for clients. All research is designed to be implemented systematically using data provided by MSCI Ratings and Sustainalytics. Due to the top-down investment process, we do not typically directly meet with company management.
Integration
As part of our Stewardship responsibilities, we exclude specific companies involved in munitions and armaments across all of our portfolios, as well as apply screens to exclude tobacco and other ESG red flag companies for certain clients. In addition, we believe that voting on company resolutions is an important responsibility of being an equity holder and we vote on company resolutions using the services of CGI Glass Lewis.
Case studies
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.
Climate change
The section below provides additional, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement.
Team climate change statement
Key climate-related risks in our team’s portfolio
Climate-related risks are a large consideration in the design of the objective-based portfolios1. As part of the Multi-Asset Solutions team’s approach to Responsible investment, exposure to fossil fuels is excluded from the universe of our objective-based portfolios. There is a 0% revenue exposure from the below activities:
- Extract thermal coal, generate power or have the capacity to generate power from thermal coal
- Companies in the Coal & Consumable Fuels or Oil & Gas Exploration & Production Global Industry Classification Standard (GICS) subindustries
- Conduct Oil Sands extraction or have the capacity for extraction
Despite the low exposure to fossil fuels, transition risk (financial risk rising from changing strategies, policies or market behaviours as society and industry transitions to a low carbon economy) is still an important consideration to avoid exposure to stranded asset risk. These risks will continue to be prominent, particularly over the next decade as businesses plan and implement their transition. We expect the transition to a lower carbon economy to require widespread changes in how companies operate, service and manufacture. We believe companies that do not transition in an orderly manner are at risk of being left behind, subjected to penalties and with stranded assets. Market pricing for climate risk is already starting to increase. We expect this to grow exponentially as we approach 2030 and beyond. As it pertains to default risk, we view that companies that are not adequately addressing climate-related risks will face a reduced ability to refinance.
If climate change continues to evolve without sufficient mitigation, we would expect company financial performance to be negatively impacted by growing physical risks including natural disasters, supply chain disruptions, extreme temperature changes, employee safety and disruptions to operations. If not mitigated, we would expect the physical impact to worsen as we approach 2050, with instability rising until then. Alongside these risks however, we see opportunities for companies to try to mitigate the impact of these disruptions by developing resilient assets and supply chains. Our objective-based portfolios invest in assets across a broad range of regions and therefore a diverse range of geographies, all facing varying environmental conditions. Using third party data service, we have analysed sector contribution to the portfolio’s physical risks and which companies are most at risk of potential financial implications as a result of fires, floods and other extreme weather events worsened by climate change.
While many of these risks may impact a company’s day-to-day operations, the regulatory environment surrounding climate-related financial risks is rapidly evolving. These regulations will continue to try and discourage companies from participating in activities that adversely affect climate change. Companies that do not comply could be open to litigation, which could pose negative implications for portfolios that hold such companies. The changing regulatory environment accompanies the prospect of reputational risk. Companies that continue to exacerbate climate change, due to their connections to fossil fuels and other high emitting activities, we believe will lose their social licence to operate over time. Similarly, it will be important for our portfolios to monitor this and our exposures to companies that are not transitioning to a low carbon economy.
How we identify these risks
In the Multi-Asset Solutions team, our Responsible investment approach is integrated in the investment process of our objective-based portfolios and can be incorporated into bespoke solutions. We use ethical (values-based) screens to divest from companies that do not align with our purpose and beliefs, as well as investment screens (exclusions) which focus on revenue derived from activities in excluded industries.
In 2020, we underwent a process to divest from fossil fuel assets in our objective-based portfolios. We undertook robust analysis to ensure this exclusion would fit within our portfolio construction process. This process analysed the MSCI All Country World Index with and without the high carbon-emitting sectors. Overall, our analyses concluded that the removal of high carbon-emitting companies significantly reduced the carbon footprint and potential emissions while only generating a small level of tracking error2. The decision to exclude fossil fuel companies involved robust analysis to ensure this exclusion would fit within our portfolio construction process. These findings led to the development of our fossil fuel divestment policy, which can be found in our website. By excluding companies directly involved in exploration and production of fossil fuels, we avoid exposures to companies with a high level of transition and stranded asset risk.
How we address these risks
Beyond fossil fuel companies, we determine which companies to exclude by looking at which subindustry they operate in as well as the level of carbon risk. To complement our research, we also have access to a variety of ESG data providers to which we subscribe for data on carbon analytics, climate scenario-analysis3, physical and transition risk exposures, global compact screening and controversy. Each year, our objective-based portfolios are reviewed and rebalanced based on the asset allocation and screening processes in place, and climate-related risks and insights we get from several ESG data providers are taken into account.
Our investment process focusses on what we believe is the optimal balance of asset allocation to diversify the portfolio across asset types, regions and currencies. As a result we hold numerous companies for diversification and typically don’t engage directly with the companies. For this reason, we believe a divestment policy is most appropriate for our objective-based portfolios. We typically hold a large number of securities for diversification benefits. Due to the large number of companies the portfolio has exposure to, it can be unfeasible to engage with each directly. Additionally, the allocations can often be quite small, relative to the company’s total market capitalisation or debt outstanding, making it challenging to obtain a meeting.
As it is challenging for our portfolio managers to engage and influence companies directly, we employ engagement services from reputable providers, typically on select relevant topics. Over time, we will continue to consider using such engagement services on other topics, including climate change. We do use voting as a tool to drive change on climate-related issues. While we maintain full control of our voting decisions, we subscribe to Glass Lewis’ ESG guidelines4 as a reference and for research, and climate-related issues are captured as part of this.
The targets and objectives we have set
We have set net zero targets for our objective-based portfolios focussing on portfolio-level targets as opposed to company level and we plan for 100% of these portfolios to be achieving net zero by 2050. As multi-asset investors, we believe that portfolio level targets as opposed to company level are more appropriate as the composition of the portfolios can change frequently. These targets are based on the net zero alignment maturity scale defined by the Paris Alignment Investment Initiative Net Zero Investment Framework Implementation Guide.
Net Zero Targets for the objective-based portfolios
Short term | Medium term | Long term |
50% of portfolio aligning to net zero by 2025, or sooner | 75% of the portfolio aligned to net zero by 2030, or sooner | 100% of portfolio aligned net zero by 2040, or sooner 100% of portfolio achieving net zero by 2050, or sooner |
In monitoring our portfolio’s progress towards these targets, we will look at the ambition and quality of the net zero targets made by portfolio companies, their emissions performance, disclosure and capital allocation towards decarbonisation. We also have access to tools to calculate the carbon intensity of our portfolios and climate scenario analysis, to determine if the portfolio is on the right trajectory to be net zero by 2050.
1. Objective-based investing seeks to overcome the limitations inherent in a traditional balanced (e.g. 60/40 growth vs. defensive assets) approach. A particular outcome is targeted through a bespoke investment strategy, designed to reflect a client’s interests in terms of ambition and risk, and adopts an absolute-return mindset. We make investment decisions with the ultimate goal of consistently delivering a particular objective or multiple objectives, while minimising the chance of failure to meet objectives.
2. The divergence between the return behaviour of a position or a portfolio and the return behaviour of a benchmark.
3. We can use climate scenario analysis to test the alignment of our portfolios to the various International Energy Association scenarios, and indicate which year the portfolio is estimated to overshoot its carbon budget. The scenario analysis data also provides insight for our portfolios concerning physical and transition risk exposures. We plan to use this tool to monitor our portfolios periodically and use the results for reporting.
4. Glass Lewis’ ESG guidelines provide advice and analysis for customers seeking to vote consistent with widely-accepted enhanced environmental, social and governance practices
Proxy voting
The team believes that voting on company resolutions is an important responsibility of any equity holder and votes on company resolutions using the services of CGI Glass Lewis. The team votes in line with CGI Glass Lewis recommendations, which have been formulated to promote high standards of corporate governance. In certain circumstances the team may override CGI Glass Lewis' recommendations where they believe it is in their clients’ interest to do so. Due to the systematic nature of their investment approach, the team maintains a separate proxy voting policy which is available on our website.
Proxy voting history by type of resolution
The table below contains the proxy voting history for the team by issue type. The chart provides the same information for FY2019.
Voting Independence
The chart below shows the number of times the team have voted in each region.
Proxy voting by region
The chart below shows the number of times the team voted in each reason and the percentage of votes against management recommendations, against our proxy advisors' recommendation, or against both. The purpose of this table is to show the regional difference in voting patterns and governance concerns.
Proxy voting information is as at 31/12/2019
Source: First Sentier Investors / CGI Glass Lewis
More information
View First Sentier Investors proxy voting record and statistics
Responsible investment
For over a decade, responsible investment has been integrated into every investment process.
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First Sentier Investors became a Certified B Corporation in November 2022 with a score = 107.2, noting that the passing score is 80. Please visit the B Corp Directory here to view our report and for additional information regarding the assessment process.
Copyright © First Sentier Investors (Australia) Services Pty Ltd 2023, (part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc MUFG.)
In the EU: This is a marketing communication. The fund(s) mentioned here may or may not be registered for marketing to investors in your location. If registered, marketing may cease or be terminated in accordance with the terms of the EU Cross Border Distribution Framework. Copies of the prospectus (in English and German) and key investor information documents in English, German, French, Danish, Spanish, Swedish, Italian, Dutch, Norwegian and Swedish, along with a summary of investors' rights are available free of charge at firstsentierinvestors.com
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