Ethical and Socially Responsible Super

Transcription

1 Ethical and Socially Responsible Super Simon O Connor, CEO, Responsible Investment Association Australia Arti Prasad-Naidu, Head of Responsible Investment, QIC Lisa Domagala, ESG Analyst, Solaris Investment Management

2 RESPONSIBLE INVESTMENT AT QIC Arti Prasad-Naidu Head of Responsible Investment 12 th October 2016

3 BACKGROUND AND CONTEXT SETTING Who is QIC? What is Responsible Investment (RI)? Investment benefits 3

4 A GLOBAL DIVERSIFIED ALTERNATIVE ASSET MANAGER A longstanding investor heritage. Established in 1991 by the Queensland Government to serve its long-term investment responsibilities We have over 90 clients including government, pension plans, sovereign wealth funds and insurance. Spanning Australia, Europe, Asia, Middle East and US. Global Infrastructure Global Real Estate Global Liquid Strategies Global Private Equity Global Multi-Asset Solutions Grown to over A$78 billion in funds under management With over 500 staff with offices in Brisbane, Sydney, Melbourne, London, Los Angeles, San Francisco and Copenhagen & New York with an established platform built to deliver predictable returns to institutional investors As at 30 September 2014 [Please update each quarter] 4

5 DEFINITION - WHAT IS RI? The integration of environmental, social and corporate governance (ESG) considerations into investment management processes and ownership practices in the belief that these factors can have an impact on financial performance. The UN backed Principles of Responsible Investment (UNPRI) is a network of international investors that have put together a set of six principles that give guidance on how to put the approach for responsible investment into practice. The UNPRI now has over 1500 global signatories; with assets under management of over US$60 trillion; it is the largest investor collaboration of its kind. QIC became a signatory to the UNPRI in

6 EXAMPLES OF ESG FACTORS Environmental Issues Social Issues Governance Issues Waste management Labour standards /Human Rights Board Structure Water management Health and Safety Executive compensation Energy & Climate change Working conditions Audit Quality Contaminated sites Supply chain management Gender, Diversity & skills of Boards Air, waste and water pollution Stakeholder relations Bribery and Corruption Loss of biodiversity and habitat Community impact Shareholder Rights 6

7 COMMERCIAL & INVESTMENT BENEFITS OF ESG PRACTICES Good risk management increased confidence in investments Managing reputational risks QIC clients are committed to it and value it Winning business (consultants and potential clients) Differentiator/competitive Advantage Idea generation Best practice portfolio management 7

8 QIC S INTERNAL IMPLEMENTATION Policies Investment team activities 8

9 WHAT DOES RI IMPLEMENTATION MEAN FOR QIC? 1. Policy - Adopting a philosophy and approach 2. Governance - How is the RI programme structured/governed/monitored and reviewed? - How well are we promoting a culture to adopt RI practices 3. Resourcing - What resourcing is committed? How co-ordinated are we in our delivery? 4. Implementation - Frameworks, processes and decision-making across investments - ESG service provider 5. Reporting - Communication 9

10 QIC S RI POLICY & EXCLUSIONS The following has been implemented for QIC: 1. QIC s RI policy: - Commitment and belief on Responsible Investment 2. Exclusions - Added provision to consider company exclusions based on: International conventions/treaties to which Australia is a signatory Australian, National or State law Significant policy positions of the Australian or State Government Legal status of the product or activity. - QIC now excludes securities involved in the manufacture of cluster munitions, landmines and tobacco from our direct investment portfolios. 10

11 EMERGING THEMES Climate change Health and Safety Summary 11

12 CLIMATE CHANGE FOSSIL FUEL Human activity Levels of Greenhouse Gas (GHG) particulates in the atmosphere continue to increase driven mainly by human activity such as manufacturing, transport and deforestation. Paris Climate Change Agreement Nations agreed to aim to limit global warming to 2 C above pre-industrial levels and to pursue a 1.5 C limit. Each country will introduce measures to implement its own contribution to the international effort, and the agreement covered a strengthening of pledges every five years. 12

13 HEALTH AND SAFETY 13

14 SUMMARY Focus on ESG is about risk and return - risk adjusted returns Management of ESG risks is Good risk management gives us increased confidence in investments 14

15 Young Super Network Lunch n Learn Ethical and Socially Responsible Super

16 Australian Equities Fund Manager Current Funds under Management AUD4.8bn 10 person team Clients include Institutional and Corporate Super Funds and Retail Investors We aim to integrate material Environmental, Social and Governance (ESG) factors into our mainstream investing practice Solaris manages two Socially Responsible mandates with bespoke exclusions eg alcohol, tobacco, thermal coal, etc* * Subject to materiality thresholds

17 How do we integrate ESG into our mainstream investment process? ESG factors are considered at 2 points in the investment process The Risk Screening stage Stock Research stage

18 But how does the ESG data get incorporated into a valuation? Communication of material ESG factors to the Solaris Analysts on a fortnightly basis (or more often if required) Follow-up meetings held on a regular basis to decide on course of action company meeting/engagement, valuation adjustment, position adjustment Analyst will advise if ESG factor has caused a valuation adjustment and this is communicated quarterly to our clients The Solaris Analysts will incorporate the ESG factor into their valuation models in the appropriate manner depending on the type of valuation carried out

19 2015/2016 Financial Year ESG Alerts 237 ESG alerts were generated in the 2015/2016 FY covering 69 stocks Notification Breakdown: 57 Environmental, 42 Social, 138 Governance For this FY, 16 items were discussed with 9 companies 9 stocks had their valuations adjusted due to ESG factors in 2015/2016 FY

20 RIO WES WOW AGL ANZ BHP ORG CBA MQG CIM STO WHC GNC AZJ TAH NAB FLT ILU CCV PRY QAN SGH WBC WOR TGA TLS BRS UGL SIP SPO PMV NCM ASX BLD AOG ANN IPL LLC CTX DMP ERA FBU CWN FMG HVN MAH MPL MTS MYR JHX KCN AGI ALL ALQ ARI AST BOQ CPU NUF OGC QBE QUB RRL S32 SGM SGP TWE TGR SWM ESG Alerts and Valuation Impacts for 1 July 2015 to 30 June Number of Company Specific Alerts Number that Affected Valuation