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Specialist in Asia Pacific, China, India and South East Asia and Global Emerging Market equities.

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Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

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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.

At COP28 in Dubai, the final statement said that while the Paris Agreement has driven near-universal climate action, much more needs to be done to avoid the worst effects of a changing climate.

As noted in the statement, “[we] are not yet collectively on track towards achieving the purpose of the Paris Agreement and its long-term goals”. As a result, we must “accelerate action in this critical decade”.1

The overarching message of the event was that the decisions we are taking now will influence how successfully we meet the Paris Agreement goals. We need to rapidly transition to a lower-carbon world. As investors, we play a key part in the many strands of activity now being undertaken to keep global warming to below 1.5 degree Celsius. We also face significant risks to portfolios if we fail to act, as extreme weather events and nature loss can significantly affect the companies we invest in.

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 time2.

 

The 5 C's of Climate Action

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’.

Company engagement

We will use our influence and proxy voting to influence companies and we will allocate capital to help accelerate the climate transition.

Collaboration

We will continue to support climate-related industry collaborations, climate policies, and regulation, to drive systemic change.

Clients

We aim to be a trusted partner who can support clients in their transition to a low carbon economy.

Clarity

We will be transparent about our progress on reaching net zero, and provide evidence for any climate-related claims we make.

Corporate sustainability

We are decarbonising our business operations through a broad range of initiatives, and will report on progress.

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 CCSs.

Going forward, we will regularly report on our progress against 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 clients. We plan to make it publicly available on our website in 2023.

2 The commitments and targets set out in this webpage 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).

Investment team progress

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

Australian Equities Growth

The Australian Equities Growth team completed two detailed research projects on climate-related topics: the quality and integrity of Australian carbon credits to inform its assessment of companies’ net zero commitments; and the merits of carbon capture and storage (CCS), including the costs and merits of the technology. This research is helping the team assess the place of CCS in companies’ transition plans. The team also developed its own net zero model to assess portfolio companies’ degree of alignment to the transition; participated in Climate Action 100+ initiatives; and developed stock specific engagements with tailored climate change objectives. These engagements have been designed to encourage improvements in companies’ transition plans.

Australian Small and Mid Cap Companies

The Australian Small and Mid Cap Companies team seeks to engage 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.

Short Term Investments

The Short Term Investments team has continued to engage with companies on their strategy and progress towards becoming net zero, with a focus on the Australian banking sector. Additionally, the team has sought to understand the banks’ treatment of high emitting clients, and their strategy to manage those that are unable/unwilling to meet net zero by 2050. The team has encouraged the banks to disclose sufficient detail on their progress in meeting sector-based targets to allow external scrutiny. Importantly, the team has emphasised the need for industry to collaborate on standardising disclosure.

Global Listed Infrastructure

For the Global Listed Infrastructure team, the energy transition has been at the forefront of its engagement with companies. Transition risk represents one of the largest climate-related risk for listed infrastructure companies, as the world moves away from fossil fuels and towards lower-carbon sources of energy. However, energy transition also represents a substantial opportunity. Attempts to reduce carbon emissions are having significant implications for the way in which electricity is generated, transmitted and distributed. More than 90% of the portfolio’s emissions come from utilities, so this is where the team spends the most time on analysis and engagement. In 2023, the team engaged with a number of companies in its portfolio on topics including transition plans and the impact on their workforces.

RQI Investors

In 2022, RQI Investors 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 several companies on issues of improved emissions disclosure, setting science-based targets, and disclosure of capex expenditure needed for the transition.

Stewart Investors

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.

Reporting on progress

Table 1: Table of key carbon metrics for all investment teams

This table shows the following key carbon metrics for all investment teams7, as recommended by the Task Force on Climate-Related Financial Disclosures (TCFD).

Source: First Sentier Investors, ISS ESG, Sustainalytics. Data as at 31 December 2023

The data set out above are estimates based on data sourced by First Sentier Investors. This data is current as at 31 December 2023. 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.

7 Excluding AlbaCore Capital Group. Its data has not yet been fully integrated into firm-wide reporting since completion of its acquisition took place in November 2023. AlbaCore Capital Group has plans in progress to issue its TCFD report.

8 Assets under management

9 Corporate fixed income coverage excludes ineligible portions of AUM, including asset-backed securities, investment funds, derivatives, NCDs and FX.

10 We have updated our fossil fuel metric to show the portion of exposure to companies with any involvement in the fossil fuel industry, as per the SFDR definition of fossil companies.

Relative carbon footprint: the carbon emissions of a portfolio per US $m invested. Scope 1 and 2 emissions are allocated to investors based on 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 tCO2e. 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 measures the portion of exposure to companies involved in fossil fuels, as defined by Sustainalytics, including (i) exploration, mining, extraction, distribution or refining of hard coal and lignite; (ii) exploration, extraction, distribution (including transportation, storage and trade) or refining of liquid fossil fuels; and (iii) exploration, extraction or distribution (including transportation, storage and trade) of gaseous fossil fuels.

Carbon footprint reports for each investment team (with the exception of AlbaCore Capital Group7), and an explanation of how each measure is calculated, is available on the First Sentier Investors 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.

The benchmark is an aggregated weighted averqage benchmark, using benchmarks associated with each portfolio and weighted by each portfolio's portion of the total assets under management.

Challenges

Access to reliable data continues to be a challenge.

An issue we are grappling with is definitions: we still need more convergence of terminology around net zero ambitions, target setting and the credibility of transition plans, in order to properly assess the quality of a company’s ambitions.

Another challenge is the growing array of climate-related disclosures required for different markets, including the United Kingdom, New Zealand and Australia. While there are broad similarities, there are also some meaningful differences, as well as different reporting periods. For a global entity with requirements across different jurisdictions, we are working to manage these differences.

Future plans

Plans for the firm are outlined in the 2023 Climate Action Plan. We are also looking to introduce targets for the short-term investments and cash teams after our constructive discussions with IIGCC.

Resources

In 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).

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

We have written 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.

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Read our latest annual
Stewardship Report

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Any targets (including, but not limited to, the net zero targets) on this webpage are based on (i) available information and representations made to First Sentier Investors by third parties, including, but not limited to, portfolio companies; and (ii) assumptions made in relation to future matters such as the implementation of government policy in climate-related areas, enhanced future technology and the actions of portfolio companies. Such information and representations may ultimately prove to be inaccurate and such future matters may not ultimately be realised. As such, First Sentier Investors cannot guarantee the achievement of these targets. These targets are subject to ongoing review and may change without notice.

Any ESG related commitments, are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments 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 depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any ESG related commitments are continuously reviewed by the relevant investment teams and subject to change without notice.

To the extent this material contains any measurements or data related to ESG factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate.