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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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Climate change

Climate change

Why is it important to us?

We believe that society must drastically reduce greenhouse gas emissions if we are to avoid the worst consequences of the climate crisis. It has become obvious that immediate climate action is needed in order to meet the goal of limiting rises in global temperature to 1.5 degrees Celsius.  

The individual and collective decisions we make as active investors can influence the nature and speed of this transition.  

This year marked the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 27), which was convened with hopes for more climate change action. While it was disappointing no significant strides were made in terms of emissions targets, the creation of a Loss and Damage Fund was a win for vulnerable countries faced with growing climate disasters.

What is First Sentier Investors doing?

We are playing an active role in the transition to a low-carbon economy by managing investment risks, identifying opportunities and driving change through our stewardship approach. 

We support the global transition to net zero emissions in line with the goals of the Paris Agreement, and in 2022, we made a public commitment in relation to net zero targets.  

We are committed to reducing greenhouse gas emissions across investment portfolios in line with a target of net zero emissions by 2050 (or sooner) and across business operations in line with a target of net zero emissions by 2030 (or sooner). This includes a range of targets committed to by investment teams over the short, medium and long term and an aim to increase the proportion of assets covered by formal net zero commitments over time.1

Our net zero transition strategy is detailed in our Climate Action Plan (CAP), which was launched in 2022 and includes details on our investment and operational alignment. We have summarised our approach as ‘The 5 C’s of Climate Action’:

In response to various global regulations and guidance coming into force, we implemented a comprehensive Climate Risk Management Plan (CRMP), which sets out a pathway for our governance and oversight of climate-related risks and opportunities, our strategy and risk management approach, and the metrics we are tracking and targets we have set. The CRMP is based on the Task Force on Climate-Related Financial Disclosures (TCFD) framework. Our updated TCFD aligned disclosures are available in our firm-level Climate Change Statement (CCS), and in investment team level CCS’s. 

Going forward, we will regularly report on our progress against our net zero commitment at firm and investment team levels. The CCS and CAP can be found on our website, along with each investment team’s respective net zero targets. 

We have also upgraded our interactive climate risk dashboard to include a broader range of climate-related metrics as recommended by the TCFD. This information is available to our investment teams, other teams across the business, senior management and to clients, and we plan to make it publicly available on our website in 2023. 

1. The commitments and targets set out in this report are current as of the date of publication. Such commitments and targets are based in part on information and representations made to FSI by portfolio companies, together with assumptions 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. As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations (which may prove to be inaccurate) and the realisation of such future matters (which are not guaranteed).

In addition to the firm-wide work on net zero targets and reporting, investment teams have made progress in the following areas:

The Fixed Income, Short Term Investments and Global Credit team has continued to engage with companies on their strategy and progress towards becoming net zero, with a focus on firms in the Australian and European banking sectors, utilities, materials, chemicals, and retail sectors. Notably, the team has begun engagement with Australian states and New Zealand local authority issuers on their sustainability approach including climate change and modern slavery and advocating for improved transparency and where relevant to set targets. The Sovereign, Supranational and Agency (SSA) sector has traditionally been the most difficult to gain access to and engage with on ESG issues, although the team has been encouraged by the receptive and open approach of these issuers.

In 2022 the Australian Equities Growth team started assessing the quality of portfolio companies’ transition plans and set multi-year engagement agendas for eight portfolio stocks either materially exposed to climate change or perceived to be lagging on climate commitments. On oil and gas specifically, the team set out the features it expects in a transition plan and engaged with producers on the alignment of capital expenditure with their climate commitments.

The Australian Small and Mid-Cap Companies team engages with companies in their portfolios on their strategy and progress towards becoming net zero. Some smaller companies have lagged the larger end of the market when it comes to putting net zero strategies in place. However, the team understands the challenges that some smaller companies face and is encouraged by the progress that has been made.

Stewart Investors has written to 108 companies to encourage them to measure and disclose their current carbon footprint, set carbon reduction targets appropriate for their business and industry and then report on their progress towards meeting them. The companies fall under three broad categories: those with neither climate disclosures nor targets (62 companies), those with disclosures but no targets (39 companies), and a small number (seven companies) with targets but no disclosures. At the end of 2022, the team had received responses from 82 of the companies and held three meetings with companies. Over the next year, the team will continue to follow up with these companies while assessing the progress of companies across its portfolios. The team recognises that climate change is relevant to different companies in different ways but that all companies need to make progress on reducing emissions and increasing resilience.

Global Listed Infrastructure (GLI) tends to have a higher level of carbon intensity given its exposure to the electric power and transportation sectors. To address the impacts of climate change, it is critical that infrastructure companies invest in adaptation and mitigation. Active investors can support this by directing capital to utilities that are leading the shift from fossil fuels to renewable energy, and identifying utilities with under-utilised wind and solar resources. The GLI team has committed to engaging with the 10 largest emitters in the portfolio and is working collaboratively with Climate Action 100+ to engage with two key companies on behalf of the group.

In 2022, Realindex released its climate statement in which it committed to raising issues of the transition to net zero with all companies it engaged with. During the year it engaged with 23 companies issues of improved emissions disclosure, setting science-based targets, and disclosure of capex expenditure needed for the transition.

Reporting on progress

Figure 1.

This table shows the following key carbon metrics for all investment teams, as recommended by the Task Force on Climate-Related Financial Disclosures (TCFD)

The data set out above are estimates based on data sourced by First Sentier Investors. This data is current as at 31/12/2022. It is based on information and representations sourced from third parties (including portfolio companies), which may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this data and no reliance should be placed on it by any third party.

Carbon footprint: the carbon emissions of a portfolio per US $m invested. Scope 1 and 2 emissions are allocated to investors based on an enterprise value ownership approach i.e. if an investor owns 10% of a company’s total enterprise value including cash (EVIC), then they own 10% of the company and therefore 10% of the company’s emissions. This is then normalised by portfolio value.

Weighted average carbon intensity: portfolio weighted average of each company’s carbon intensity (scope 1 & 2) per US $m sales.

Total carbon emissions: this metric measures the absolute carbon emissions associated with a portfolio (Scope 1 and 2) expressed in tCO2e1. Scope 1 and 2 emissions are allocated to investors based on an enterprise value ownership approach (as with the carbon footprint).

Fossil fuel companies: This indicator shows the average number of fossil fuel companies (as defined by MSCI) per portfolio. This includes companies involved in extraction or production, and/ or those that own reserves

Carbon footprint reports for each investment team, and an explanation of how each measure is calculated, is available on the FSI website.

Note: Portfolio emissions and carbon footprint are now based off Enterprise Value as a proxy for company size, as recommended in the most recent Partnership for Carbon Accounting Financials (PCAF) Standard. This is a change from previous years where calculations were based off Market Capitalisation.

1. tCO2e refers to tonnes of carbon dioxide equivalent.

Challenges

A key challenge for investors has been the rapidly evolving regulatory environment on mandatory climate disclosure across many global markets. While most initiatives are aligned to the TCFD, most local disclosure frameworks have unique requirements, and some are significantly more prescriptive than others. As a global investment manager, we need to comply with a multitude of different disclosure requirements. Although this is challenging, we have welcomed the additional guidance, and the opportunity to uplift our approach globally.

The quality and availability of data reported by investee companies and collated by ESG data providers remains a challenge for investors. For example, Oil and Gas reporting entities disclose Scope 1 emissions based on either operational control or equity share. Individual data providers choose one of these, which can make it difficult to compare. Another example is where some data providers release GHG emissions data following companies’ reporting cycles, while others update their data sets annually. We therefore welcome further guidance from the TCFD and the PCAF to create a more standardised industry approach and have worked closely with our data providers on these topics in 2022.

Future plans

In 2022 we were focused on setting a solid foundation for the implementation of our net zero commitments, as well as developing a robust governance and disclosure framework for climate-related risks and opportunities, and supporting data. Moving forward, we will be more focused on working with investment teams and other stakeholders to continue the work we have started to implement our commitments and monitor progress. This will include providing sector level guidance and training on assessing transition plans, developing updated proxy guidance, and supporting teams with the integration of additional forward-looking climate metrics, physical risk, and resilience.

We will complete our first reporting to the Net Zero Asset Managers initiative and will also report on progress on implementing our CAP.

Resources

At First Sentier Investors, our commitment to RI research and analysis enables us to make more informed decisions that not only benefit our clients, but our environment and our society. To do this, we use a wide variety of tools and resources some of which are listed below.

We believe that society must drastically reduce emissions if we are to avoid the worst consequences of the climate crisis. For this reason the First Sentier Investors Group including its branded investment teams, support the global transition to net zero emissions in line with the goals of the Paris Agreement. As allocators of capital, stewards of our clients’ assets and as active shareholders in companies on their behalf, the individual and collective decisions we make as investors will influence the nature and speed of this transition. We recognise that we have a wider responsibility to contribute through our investment activities and business operations to a sustainable economy and society.

In response to this, in 2016 First Sentier Investors established a climate change working group to take a broader view of the issue and its investment implications. From this work, we identified five key areas of climate change risk and opportunity facing investors today and into the future.

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

Building on this work, in early 2022, First Sentier Investors made a commitment to reduce greenhouse gas emissions across our investment portfolios in line with a target of net zero emissions by 2050 (or sooner) and across our business operations in line with a target of net zero emissions by 2030 (or sooner). Read our commitment here.

We have sought to align our Climate Change Statement with the Task Force for Climate Related Financial Disclosure's recommendations.

Also released is a series of white papers (below) which present the context for each issue, the implications for investors, and provide guidance on how investors can incorporate these issues into their risk management and investment decision-making processes.

Discover our Responsible Investment report

As long-term investors, we know that the decisions we make today impact communities today, tomorrow and years from now. Responsible Investment is at the core of how we operate as a business and allocate capital, and we are committed to transparency and accountability regarding our performance in this area.