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

PRI reporting framework 2017

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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:

Describe the influence on composition or other effects

The index follows a global MSCI ESG Index.

14.2. Additional information.[Optional]

ESG issues are integrated in a number of ways for eight of the nine equity teams. The Realindex team don't currently incorporate ESG factors except for applying the policies on cluster munitions, landmine manufacturers and sanctions lists.

All but one team reduces or prioritises the investment universe (Two always, two often and four sometimes.)

One often and two sometimes overweight/underweight at a sector level (note three teams are sector strategies and so it was not applicable and two teams are benchmark unaware and so don't allocate across sectors) 

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

All eight of the active equity teams' buy and sell decisions are influenced by ESG factors (one always, four often,three 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.

The approaches used for integrating ESG factors across our organisation does not result in investment decisions being wholly attributable to ESG factors which in turn makes it difficult to isolate their effect on performance. While we don't measure these outcomes specifically we do poll the investment teams on how they believe it benefits their investment process. Of the eight active equity teams who integrate ESG factors:

Seven believe that ESG helps to reduce the funds financial risk
Six believe that ESG helps improve the funds risk or volatility 
Four believe that ESG helps to improve financial performance
Five 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

Acacia Mining

Our historic misgivings about Acacia Mining’s management, security and social relations, formed in previous site visits, started to shift with the arrival of a new CEO. In the last few years production has increased and costs fallen alongside an improvement in community relations and a dramatic reduction of intrusion related fatalities. 

After several engagements and two site visits we have gained confidence that past issues are turning around after the signing of Community Benefits Agreements to formalise social commitments. This complements the establishment of a formal grievance mechanism.  Now the focus is on developing sustainable incomes by promoting local enterprise and encouraging the development of local teachers and doctors. Company sponsored human rights training for the local police is intended to ensure that historic complaints of abuse do not recur. We were comforted that the CSR (Corporate Social Responsibility) and operating improvements are sustainable. The operation has excellent exploration potential to extend the life of the mine. At the Bulyanhulu mine a change of approach from a new mine manager shows encouraging signs of greater cooperation amongst the workers that should help reduce petty theft and improve productivity.

Impact on investment decision or performance

Made the company investible.

ESG issue and explanation

GPT Group is one of Australia's largest diversified listed property groups, with a property portfolio comprising of high quality Australian retail, office and logistics property assets. The Group owns and manages some of Australia's most iconic real estate assets, including the MLC Centre and Australia Square in Sydney, Melbourne Central and Highpoint Shopping Centre in Melbourne and One One One Eagle Street in Brisbane.  

The company has long been recognized has having a strong focus on sustainability; which is reflected in its inclusion on the Dow Jones Sustainability Index. Our global funds invested in the GPT Group in January 2016. We were attracted to the high quality of the company’s assets, and the potential for its well-regarded new management team to make operational improvements to the company’s property portfolio. The significance attributed by the company to sustainability issues added to its appeal. 

Impact on investment decision or performance

GPT Group is still a key holding in our portfolios.

ESG issue and explanation

For sanctioned and high risk countries we enforce country level restrictions based on the constituents of the Australian Department of Foreign Affairs and Trade (DFAT) Sanctioned Countries List and similar lists issued by Governments in other jurisdictions where our funds are domiciled. The constituents on each system are regularly reviewed and updated.

In addition our controls include screens for any potential investment from a country deemed to be ‘very high risk’ in relation to politically exposed persons, sanctions and ultimate beneficial ownership controls. The scope of this framework will be wider than the sanctioned countries list and the countries deemed to be ‘very high risk’ are updated on a regular basis. Some of the countries on this list include:

Afghanistan
Ivory Coast
Congo, Democratic Republic of the
Cuba
Eritrea (ER) [new]
Iran
Iraq
Lebanon
Myanmar (MM) [formerly MMK]
Korea, Democratic People's Republic (North Korea)
Palestinian Territory, Occupied
Sudan
Somalia
Syria
Venezuela
Yemen

Impact on investment decision or performance

No investment allowed in high risk (of sanction) countries. 

ESG issue and explanation

PG&E is a US regulated utility that provides natural gas and electricity to approximately 16 million people throughout a 70,000-square-mile service area in northern and central California including San Francisco and San Jose.

California has been at the forefront of moving towards a lower carbon economy in the United States. For example, the state has announced a goal of having 1.5 million electric vehicles on the road by 2020. 

From a PG&E service area perspective, this equates to around 600,000 electric vehicles. Over the past year we have continued to engage with the company, including meeting with CEO Geisha J. Williams in March 2017, to better understand key changes under way.

The utility’s main role is to ease customers’ “range anxiety” – the concern that they will run out of “fuel” with no easy way to re-charge. PG&E is tackling this by building out a network of fuel stations which have electric vehicle recharge facilities. This undertaking will require additional investment of around US$300 million into the company’s power distribution network over the next few years.

Impact on investment decision or performance

Over the next decade, we expect to see further significant changes in electric transmission and distribution grids, providing significant capital expenditure-driven growth opportunities for PG&E and other US utility companies. 

ESG issue and explanation

Rio Tinto 

The company highlighted, in a press release on 29 August 2016 that it had become aware of email correspondence from 2011 relating to contractual payments totalling US$10.5 million made to a consultant providing advisory services on the Simandou project in Guinea. We conducted a call with Rio Tinto’s head of investor relations, and have regularly met with the company since. At this stage, there is no additional information on what has happened outside of the material that is in the public domain. Rio are clearly perplexed that something like this has occurred and are taking it very seriously. There are a number of external investigations underway, including by the Australian Federal police. The company commented that ‘the fact that we have reported it, indicates that we are concerned about it’. RIO is confident that the right systems and process are in place but it is impossible to exercise control over individual judgement – there are 55,000 employees and we can’t know what every individual is doing. It is expected that the process of investigation will be very slow. The company has committed to provide an update when more information is available

Impact on investment decision or performance

We have maintained our holding in the company. 

16.2. Additional information.[Optional]

 

 


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