Climate change and global warming pose systemic risks to society and the global economy.
It impacts the availability of resources, the price and structure of the energy market, the vulnerability of infrastructure and the valuation of companies. Failure to take action on climate change has been ranked as the highest risk in terms of impact by the World Economic Forum, and in terms of likelihood it ranks second only to extreme weather.1
As investors, we understand that climate change poses a complex problem which has already impacted, and will continue to impact different assets in different ways.
Climate change resources
At First Sentier Investors, we're driven by our Responsible Investment principles. 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 accept the science of climate change and support the global transition to net zero emissions in line with the goals of the Paris Agreement. Climate change and global warming pose systemic risks to society and the global economy. It impacts the availability of resources, the price and structure of the energy market, the vulnerability of infrastructure and the valuation of companies. For investors it poses a complex problem which has already, and will continue to, impact on different investments in a number of ways.
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
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.
Physical risks of climate change
- First Sentier Investors - The physical risks of climate change whitepaper
- Centre for climate and energy solutions: Extreme Weather and Climate Change: Understanding the Link and Managing the Risk
- 2015 Corporate Adaption Survey
- European Commissions Joint Research Centre Projection of Economic Impacts of Climate Change
- Investor Group on Climate Change
- Mercer Climate Change Study
Director duties and legal risk
- First Sentier Investors - Climate change fiduciary and directors duties whitepaper
- AICD Climate Change & Directors Duties
- Centre for Policy Development Updated Legal Opinion on Climate Change and Directors’ Duties
- EU Directive 2014/95/EU on non-financial disclosures
- Sustainable Stock Exchanges Initiative
- Grantham Institute on Climate Change and the Environment Climate Change Laws of the World
Human rights and modern slavery
Human rights is a complex issue attracting increasing levels of scrutiny and which can affect multiple asset classes.
Corporations have legal, moral and commercial responsibilities to respect human rights and manage the human rights impacts of their operations. They are not only expected to meet their human rights responsibilities, but may face reputational, legal or other consequences if they fail to do so. As an investor in these businesses on behalf of our clients, it is imperative that we fully understand the risks and seek to mitigate them.
Modern slavery has been a particular area of focus for us at First Sentier Investors. The International Labour Organization has estimated that there are over 40 million victims of modern slavery. Women and girls account for 71 per cent of modern slavery victims, while one in four victims are children.2
Modern slavery includes crimes such as forced labour, debt bondage, human trafficking, child labour and forced marriage and disproportionately affects vulnerable communities.
Against this backdrop, investors, regulators and markets have an obligation to address modern slavery risks as a key aspect of their ESG obligations. The opportunity to influence positive change for the millions of victims of modern slavery is central to our stewardship responsibilities.
Additionally, we recognise that there are business risks associated with human rights, and this impacts our investment portfolios.
Modern slavery & human rights resources
First Sentier Investors has developed a Human Rights Toolkit to help all investment teams globally better manage human rights risks in our portfolios. The toolkit provides research and guidance for each of the following steps:
- Identifying companies with a risk of human rights in their operations or supply chains
- Assessing companies’ approach to the issues identified
- Engaging with the companies identified as at risk of human rights violations.
- Internal reporting on our progress
This has formed the basis of our approach to addressing human rights risks within our investment portfolios, which we are required to report on in accordance with legislation in Australia.
Download our latest Modern Slavery Statement.
We believe that representation matters in business and recognises that diversity goes beyond gender, with factors such as race, religion, socioeconomic background, sexuality and disability being of equal importance. A diverse workplace fosters an environment of informed decisions and stakeholder engagement.
We believe diversity is a business issue as well as an ethical one. For example, there is a raft of research demonstrating that gender diversity contributes to better business and economic outcomes. This includes:
- An increase in the share of female ‘top-tier’ managers by 10 percentage points or more led to a 6.6 per cent increase in the market value of ASX-listed companies.3
- Improving gender equality would lead to an increase in EU (GDP) per capita from 6.1% to 9.6%, which amounts to €1.95 to €3.15 trillion.4
2 ILO, 2016
3 https://www.wgea.gov.au/newsroom/media-releases/ more-women-at-the-top-proves-better-for-business
5 Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy WEF January 2020