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Colonial First State Global Asset Management (including First State Investments)

PRI reporting framework 2016

Export Public Responses

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Outputs and outcomes

LEI 14. How ESG incorporation has influenced portfolio composition

14.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any alteration to your investment universe or other effects.

As described in the methodology section, rather than seeking to limit the universe, the Stewart Investors Sustainability Strategies take a positive view and seek to identify companies which are particularly well positioned to benefit from, and contribute to, the sustainable development of the countries in which they operate.

Select which of these effects followed your ESG integration:

14.2. Additional information.

For integration of ESG issues for the eight active equity teams:

All but one team reduces or prioritises the investment universe (one always, two often and three sometimes and two N/A)

Three sometimes overweight/underweight at a sector level (note three teams are sector strategies and so it was not applicable, one team is benchmark unaware and so doesn't allocate across sectors and the last didn't use ESG factors to overweight/underweight at a sector level) 

All teams overweight or underweight at a stock level as part of overall analysis (three always, one often, three sometimes and one is benchmark unaware and so doesn't seek to over or underweight stocks); and

All teams' buy and sell decisions are influenced (three always, one often, four sometimes)

LEI 15. Measurement of financial and ESG outcomes of ESG incorporation

15.1. Indicate whether your organisation measures how your approach to ESG issues in listed equity investments has affected financial and/or ESG performance.

15.2. Describe how you are able to determine these outcomes.

15.3. Additional information.

Our approach to integrating ESG factors does not result in investment decisions being wholly attributable to ESG factors. While we don't measure these outcomes specifically we do poll the investment teams on this. Of the eight active equity teams:

  • Five believe that ESG helps to reduce the funds financial risk
  • Five believe that ESG helps improve the funds
  • Four believe that ESG helps to improve financial performance
  • Four believe that ESG helps improve the funds reputation

LEI 16. Examples of ESG issues that affected your investment view / performance

16.1. Provide examples of ESG issues that affected your investment view and/or performance during the reporting year.

ESG issue and explanation

OceanaGold Corp 

Impending closure of Reefton gold mine in New Zealand.

Fund was shareholder in Romarco Minerals Inc, which was the subject of a takeover bid from OceanaGold.  The bid was all shares, so the fund stood to become an OceanaGold Shareholder if the bid was successful. 

A team member undertook a site visit to New Zealand to visit the Reefton mine.  The mine is in a forest park, and has been operating since 2008.  OceanaGold and on-site management have worked closely with New Zealand’s Department of Conservation to ensure minimal environmental impact.  

Rehabilitation has been undertaken progressively, since production first began.  It was clear from our site visit that the rehabilitation had been carefully planned and well executed.  

On the site visit we saw rehabilitated areas that were indistinguishable from surrounding natural landscape.  We believe the ongoing rehabilitation program will ensure the entire site is left in this state.  

Impact on investment decision or performance

Prior to the site visit, the team was concerned the NZ$13mn set aside for rehabilitation was not enough.  However, the site visit allowed us to see the state of the operation, and the impact ongoing rehabilitation has had.  We concluded the rehabilitation liability was adequate.

After the site visit, the fund voted for the OceanaGold takeover of Romarco.  The takeover was successful and the fund became become a shareholder in OceanaGold.  The fund continues to hold shares in OceanaGold today.   

ESG issue and explanation

BHP Billiton

​The human and environmental disaster failure of the Fundão tailings dam at Samarco on 5 November 2015 operated by Samarco, a 50%-owned joint venture. 

Incidents such as these are near impossible to predict. We had, however, had various sustainability concerns relating to BHP Billiton in the 18 months leading up to the disaster. Specifically, there had been a number of events affecting our perception of BHP Billiton from an environmental and community relations perspective. These included:

  • A concentrate spill at the Antamina copper mine in Chile, operated by a company in which BHP Billiton has a 33.75% interest;
  • Indigenous protests leading to temporary closure of the Cerro Matosa nickel operation in Columbia (now owned and operated by South 32, which was demerged from BHP Billiton in 2015);
  • The Papua New Guinea Government reviewing terms and process for the negotiation of the handover of the Ok Tedi copper and gold mine;
  • Industrial activity in the BHP Billiton Mitsubishi Alliance, Australia’s largest coal producer;
  • An significant increase in community complaints against BHP Billiton, as reported in the company’s Sustainability Report; and
  • A US Department of Justice investigation into corrupt practices around corporate entertainment at the 2008 Olympic Games.

Impact on investment decision or performance

In combination with a deteriorating financial position due to lower commodity prices, these concerns resulted in a negative view of the company on sustainability grounds and underpinned underweight positioning in the stock.

ESG issue and explanation

Crown Resorts

During 2015, CWN purchased a number of non-gaming assets, including 20% of the Nobu restaurant chain for US$100m in October and a 50% acquisition of the related-party-transaction of Packer’s Ellerston Farm for $60m in August 2015. These acquisitions raised concern with the governance, risk appetite and independence of the board.

Post these transactions, the board announced that James Packer will be leaving the board as Chairman and reducing his time spent on the core business. This has been designed to take away any further potential conflicts. Unfortunately, speculation around the privatisation of some of the CWN businesses, and potentially an increase in advisory fees to James Packer and his investment company (Consolidated Press holdings), have not improved the perception of the board.

Impact on investment decision or performance

On concerns surrounding governance and board independence, together with diversification away from its core casino business, we reduced our holdings in CWN.

ESG issue and explanation

Federal Realty

High ESG Score

Following meetings with management to get understanding of operations, we identified that the company employs sustainability concepts and considers ESG impacts as regular part of operations from developments to day to day activities. This led to a high ESG score which is used in our valuation process. 

Impact on investment decision or performance

Higher DCF valuation due to high ESG score, looked even more attractive on a relative basis. The company was included in our Global Property Funds

ESG issue and explanation

Dr Reddy’s

Resurfacing quality issues highlighted by U S Food and Drug Administration (FDA) letters.

In 2015 the FDA issued a warning letter to Dr Reddy's highlighting a number of breaches and quality control issues. While the company actively engaged with the FDA to make improvements, it did not satisfy the regulator on all counts, and there was mismatch between what Dr Reddy's believed was sufficient and what the FDA expected.

Impact on investment decision or performance

A mismatch between company’s approach and FDA’s expectations. The Chief Financial Officer (CFO) felt it was enough for them to be doing the 'right thing', but the risks that the warning letter highlights that issues exist. We will only get clarity on these issues over the next 12-18 months, so security is on HOLD.

16.2. Additional information.

We provide case studies in our annual responsible investment report, with 30 provided in the 2015 report which can be viewed on line here: .