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.
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.
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 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
How we identify these risks
How we address these risks
The targets and objectives we have set
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
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.
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
(Source: First Sentier Investors Responsible Investment & Stewardship Report 2019)