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Alliance Bernstein

PRI reporting framework 2018

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

New selection options have been added to this indicator. Please review your prefilled responses carefully.

13.1. Indicate if your organisation executes scenario analysis and/or modelling in which the risk profile of future ESG trends at portfolio level is calculated.

          We execute all above mentioned scenario analyses at a security level, but not at a portfolio level yet. The approach might vary per investment strategy.
        

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]

Our clients often determine their own allocation between asset classes, with the exception of our multi-asset strategies in which we currently do not systematically considers ESG issues for asset allocation, and many of our private client accounts.

For single asset class strategies, ESG issues in sector weightings and/or geographic markets are evaluated by the chief investment officer (CIO) of each strategy. For example, for a global strategy the CIO  may bring to the discussion a broader understanding of the ESG risks and opportunities of investing in emerging markets. The same goes for understanding sector specific risk and opportunities such as climate change or cyber risk, for example. The approach might vary per investment strategy 


SG 14. Long term investment risks and opportunity

14.1. Describe the process used to identify short, medium and long-term risks and opportunities that could have a material impact on your organisation and its activities.

AB’s organizational structure fosters risk management at all levels of the firm. Risk management is a core value embedded across our  research, investment, and operational processes. AB maintains a significant risk infrastructure firm-wide, including separate units overseeing counterparty, investment, and operational risks. Our infrastructure also features several firm-wide Risk Committees, including: 1) Senior Management Risk Oversight Committee, comprised of AB’s CEO, Chief Operating Officer, Global Head of Risk, and Chief Compliance Officer, helping ensure that risks within the firm are openly discussed at a senior level and mitigation priorities established; 2) Counterparty Risk Committee, providing oversight and management of counterparty risk to us and our clients; 3)  Investment Risk Oversight Committee, comprised of the Head of Investment Risk and the Risk Manager within each investment services, providing independent investment risk oversight of all AB client portfolios;  4) Operational Risk Oversight Committee, providing oversight of the firm’s management of operational risks globally. Additionally, we maintain Risk Sub-Committees focused on specific asset classes, businesses, or tools/systems used firm-wide. AB’s risk management policies and frameworks are vetted and approved through our extensive risk governance structure, with the Audit Committee of our Board briefed on risk management issues quarterly by our Chief Risk Officer. 

14.1 CC. Describe the processes used to determine which climate-related short, medium and long-term risks and opportunities could have a material impact on your organisation and its activities.

AB recognizes climate change as a very real phenomenon that poses risks and, in some cases, opportunities. It can impact our organisation for example by causing disruptions in global economic conditions, thereby decreasing investor confidence and making investment products generally less attractive. Our operations are not without risk as climate change can inflict loss of life; requiring substantial capital expenditures and operating expenses to remediate damage and restore operations after adverse weather events.

However, we believe our climate-related risks and opportunities transpire mainly in our investments. Our approach is to integrate the assessment of climate change risks/opportunities into our investment process via our fundamental research. Our analysts evaluate climate-related risks as part of their overall research assessment, focusing on each company’s climate strategy, the political and regulatory backdrop, potential environmental liabilities and greenhouse-gas emissions. Our analysts then determine the short-, medium- and long-term risks and opportunities. Assessing carbon risk can be challenging given the lack of reporting standards and general transparency. In an effort to gain insight, we regularly engage with companies on all of these issues, and encourage them to provide more detailed, relevant climate-related reporting. 

14.2. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following you act on.

14.2a cc. Please describe how you define “short”, “medium” and “long term”, and describe your material climate-related issues over these time horizons.

Definition
Description of material climate-related issues
Short term
          1 year. The definition might vary per investment strategy.
        
          Regulation, commodity pricing, water levels, water quality, air quality, weather shocks
        
Medium term
          1-3 year. The definition might vary per investment strategy.
        
          Regulation and government subsidies, migration, commodity pricing, water levels, water quality, air quality, demand and production capability, consumer preferences
        
Long term
          3+ years. The definition might vary per investment strategy.
        
          Regulation, commodity pricing, water levels, water quality, air quality, demand and production capability
        

14.3. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

other description

          For certain clients, we have excluded coal and other high emission companies. A few mutual funds exclude coal. We have developed a Green Alpha strategy.
        

14.4. Indicate which of the following tools you use to manage emissions risks and opportunities

other description (1)

          Changes in regulatory environment
        

14.4a CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Metric Trend
Limitations / Weaknesses
Weighted average carbon intensity
          Minority
        
          We address the strategy’s carbon footprint in two ways: (1) when analysing the companies in which we invest. We
often engage with companies to understand their strategy with regard to moving to a low carbon economy; (2) we
work with our clients to develop solutions for their specific requirements.
        
          tons CO2e / $M sales
        
          We use MSCI’s Carbon Metrics data
        
          We started monitoring this data in 2017. It is too early to report on trends. Unless direct by clients, portfolios are not managed with the objective to reduce the metric.
        
          Carbon data is backward looking and does not help understanding how companies are moving to a low carbon economy. There is also inconsistency in the data reported and a lack of disclosure, particularly in emerging markets.
        
Carbon footprint (scope 1 and 2)
          Minority
        
          We address the strategy’s carbon footprint in two ways: (1) when analysing the companies in which we invest. We
often engage with companies to understand their strategy with regard to moving to a low carbon economy; (2) we
work with our clients to develop solutions for their specific requirements.
        
          metric tons
        
          We use MSCI’s Carbon Metrics data
        
          We started monitoring this data in 2017. It is too early to report on trends. Unless direct by clients, portfolios are not managed with the objective to reduce the metric.
        
          Carbon data is backward looking and does not help understanding how companies are moving to a low carbon economy. There is also inconsistency in the data reported and a lack of disclosure, particularly in emerging markets.
        
Portfolio carbon footprint
          Minority
        
          We address the strategy’s carbon footprint in two ways: (1) when analysing the companies in which we invest. We
often engage with companies to understand their strategy with regard to moving to a low carbon economy; (2) we
work with our clients to develop solutions for their specific requirements.
        
          MSCI ESG Carbon Footprint Calculator which we use for portfolio carbon footprinting includes Carbon Emissions, Total Carbon Emissions, Carbon Intensity and Weighted Average Carbon Intensity.
        
          We use MSCI’s Carbon Metrics data
        
          We started monitoring this data in 2017. It is too early to report on trends. Unless direct by clients, portfolios are not managed with the objective to reduce the metric.
        
          Carbon data is backward looking and does not help understanding how companies are moving to a low carbon economy. There is also inconsistency in the data reported and a lack of disclosure, particularly in emerging markets.
        
Total carbon emissions
          
        
          
        
          
        
          
        
          
        
          
        
Carbon intensity
          Minority
        
          We address the strategy’s carbon footprint in two ways: (1) when analysing the companies in which we invest. We
often engage with companies to understand their strategy with regard to moving to a low carbon economy; (2) we
work with our clients to develop solutions for their specific requirements.
        
          tons CO2e / $M sales
        
          We use MSCI’s Carbon Metrics data
        
          We started monitoring this data in 2017. It is too early to report on trends. Unless direct by clients, portfolios are not managed with the objective to reduce the metric.
        
          Carbon data is backward looking and does not help understanding how companies are moving to a low carbon economy. There is also inconsistency in the data report and a lack of disclosure, particularly in emerging markets.
        
Exposure to carbon-related assets
          
        
          
        
          
        
          
        
          
        
          
        

14.5. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

We subscribe to MSCI’s Carbon Metrics data tool to assist us in evaluating the companies in our portfolio and to measure the carbon footprint. AB became an Investor Signatory of the CDP (formerly the Carbon Disclosure Project) in May 2015.

14.6. Additional information [Optional]

14.7 CC. Describe your risk management processes for identifying, assessing, and managing climate-related risks.

Please describe

We started monitoring climate related metrics in 2017. While it is currently not integrated into our overall risk management, we will evaluate how that can be done.

14.8 CC. Describe your processes for prioritising climate-related risks.

Our approach is to integrate the assessment of climate change risks/opportunities into our investment process via our fundamental research. Our analysts evaluate climate-related risks as part of their overall research assessment, focusing on each company’s climate strategy, the political and regulatory backdrop, potential environmental liabilities and greenhouse-gas emissions. Our analysts determine what the short, medium and long-term risks and opportunities. 

In additional to that, we published a formal engagement policy in 2017. It includes a more structured framework for identifying and prioritizing engagement which encompasses potential collaborative engagements. It is based on quantitative metrics, such as, but not limited to, position size, share register ranking, and qualitative ESG issues such as climate changes.

14.9 CC. Do you conduct engagement activity with investee companies to encourage better disclosure and practices around climate-related risks?

Please describe

We often engage with companies to encourage better disclosure and practices around climate-related risks. We take a three-pronged approach to active ownership when it comes to climate change: 1) we directly engage with issuers as part of our research/investment process, and 2) we utilize an engagement framework to assist us in identifying companies with whom we should engage, and 3) we selectively engage as part of our proxy voting process.  These approaches are often used in a coordinated manner for particular investments.

Proxy voting is an integral part of encouraging better disclosure.  We generally support shareholder proposals calling for climate-related reports and disclosure while taking into account existing policies and procedures of the company and whether the proposed information is of added benefit to shareholders, through which we support transparency.

14.10 CC. Describe how you use data from climate-related disclosures.

Our analysts evaluate climate-related risks as part of their overall research assessment, focusing on each company’s climate strategy, the political and regulatory backdrop, potential environmental liabilities and greenhouse-gas emissions. Climate-related disclosures are essential to evaluate risk and opportunities.


SG 15. Allocation of assets to environmental and social themed areas

New selection options have been added to this indicator. Please review your prefilled responses carefully.

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

1.2 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

% of AUM
% of AUM
% of AUM

Brief description and measures of investment

In our Thematic portfolio:

  • Low Carbon Energy Generation
  • Energy Efficiency
  • Clean Transportation
  • Sanitation & Recycling
  • Sustainable Production

We finance renewable energy via both the muni market as well as green bonds in the corporate taxable market. 

Asset class invested

% of AUM

Brief description and measures of investment

Our total AUM in Green Bonds is around $500MM. Although it is still small, it is growing. We have participated in Green Bonds where the proceeds are used for green buildings. 

Asset class invested

% of AUM

Brief description and measures of investment

Our total AUM in Green Bonds is around $500MM. Although it is still small, it is growing. We have participated in Green Bonds where the use of the proceeds included sustainable forestry. 

Asset class invested

% of AUM
% of AUM

Brief description and measures of investment

  • Food Security

Our total AUM in Green Bonds is around $500MM. Although it is still small, it is growing. We have participated in Green Bonds where the use of the proceeds included sustainable agriculture. 

Asset class invested

% of AUM

Brief description and measures of investment

  • Financial Inclusion

Asset class invested

% of AUM
% of AUM

Brief description and measures of investment

  • Financial Inclusion in our Thematic portfolio
  • Housing bonds in the US municipal market

Asset class invested

% of AUM
% of AUM

Brief description and measures of investment

  • Economic Infrastructure
  • Enabling Technologies
  • Gender Equality
  • Financial Inclusion
  • Municipal bonds with social impact
  • Sustainability bonds

Asset class invested

% of AUM
% of AUM

Brief description and measures of investment

  • Financial Inclusion
  • Housing bonds in the US municipal market

Asset class invested

% of AUM

Brief description and measures of investment

As a significant part of the Muni Impact Portfolio, we invest in primary, secondary and adult education systems/facilities in areas with large underserved or low socio-economic status populations.

Other areas of impact within the portfolio include clean technology/renewable energy, health and affordable medical care, mass transit, economic development and water treatment.

Asset class invested

% of AUM
% of AUM

Brief description and measures of investment

  • Medical Innovation
  • Access to Affordable Care
  • Healthy Lifestyles
  • Physical Safety

Asset class invested

% of AUM
% of AUM

Brief description and measures of investment

  • Water (Infrastructure, Treatment & Management)

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