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Universities Superannuation Scheme - USS

PRI reporting framework 2018

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You are in Direct - Listed Equity Incorporation » Outputs and outcomes

成果および結果

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. 組織のESG組み入れ戦略がポートフォリオや投資ユニバースの構成にどういう影響を与えているかを記載してください。

投資ユニバースの変更またはその他の効果について説明してください

The 3% refers to portion of USS’s public equity portfolio that is managed by quantitative strategies within a Low Volatility portfolio.

In early 2017 USS received the final results of its portfolio carbon footprint.   This showed that the Low Volatility quant Portfolio was significantly more carbon intensive than its benchmark.  The carbon intensity was driven by a large exposure to utilities.  Historically utilities stocks satisfy the criteria of the low volatility quant model.

As a result of this carbon exposure the RI team and Quant team collaborated on a back testing analysis to assess the impact on historical performance of removing the most carbon intensive companies from the investment universe.   This back test showed that the carbon intensity of the portfolio could be brought in line with the carbon intensity of the benchmark with limited impact on investment performance if the 3% most carbon intensive stocks in the investment universe were screened out.  This change to the investment universe will be  implemented in 2018.

ESG統合後の効果を記載してください。

12.2. 補足情報 [任意]


LEI 13. Measurement of financial and ESG outcomes of ESG incorporation

13.1. 上場株式への責任投資アプローチがポートフォリオ(財務業績やESGパフォーマンス)に及ぼす影響を測定しているかどうかを記載してください。

以下への影響を説明してください: 
影響を説明してください:​
どの戦略を分析しましたか?
Funds' ESG performance

13.2. こうした結果を決定する方法について説明してください。

USS is an active fund manager.  The Equity portfolio managers make stock picking decisions based on bottom up analysis.   A range of factors are taken into consideration when valuing a stock and assessing the future prospects of the company including ESG risks and opportunities, macroeconomics, business cycle and industry trends.  The decision to invest or sell, and the analysis underpinning this decision, is assessed in its entirety (with the aid of performance and investment risk teams).  We believe that this is what integration should be. 

We consider that it would be very difficult to attribute portfolio performance to ESG factors.   It may  be easier to identify the impact on portfolio performance when screening out sectors (but this is not our approach) but return differentials are unlikely to be solely due to ESG performance as many factors influence portfolio returns.

We assess ESG performance at stock level rather than portfolio level.  The exception to this is the carbon footprinting analysis we have undertaken which identifies carbon risk embedded in the active equity portfolios and compares aggregate risk exposure to the benchmark.  However this precedes a deeper dive into the companies in the portfolio that are the most carbon intensive and comparison with industry peers is conducted.  Carbon foot printing  facilitates a year on year analysis of the carbon intensity of the portfolio. 

We used to take a more general approach to analysing ESG performance of the portfolio and comparing this to the performance benchmark.  However we found that this provided limited insights.   We do not necessarily agree with all of the analysis and rankings produced by our external research providers.  We find it much more useful to analyse the detail behind the rankings and scores and form our own view based a wide variety of inputs.  This is consistent with our detailed bottom up approach to stock analysis.


LEI 14. Examples of ESG issues that affected your investment view / performance

14.1. 組織の投資見解や報告年度のパフォーマンスに影響を与えたESG問題の例を挙げてください。

ESG問題および説明

Further to papers and discussions on ESG matters at the Investment Committee's away day in 2017 (highlighted in SG10.2 and SG13.3), the scheme explored investment risks and opportunities arising from the transition to a lower carbon economy and in particular the transition from (ICE) internal combustion engines to (EV) electrical vehicles, and the demand for extra battery storage associated with the growth in renewable energy.   

The RI team worked closely with colleagues in the equity team to identify potential bottlenecks in the copper and cobalt supply chains as well as ethical issues associated with both commodities.  This analysis suggested that there was a concerted effort by industry and government to address the ethical issues (child labour, modern slavery and health & safety) identified.

 

投資決定やパフォーマンスへの影響

Increased exposure to cobalt and copper via the additional purchase of shares in an integrated mining company producing both commodities. 

ESG問題および説明

Pollution in China resulting in the tightening of regulation around power production and structural weaknesses in the sector generally.

 

 

投資決定やパフォーマンスへの影響

Analysis of changing regulations around pollution in China and the general overcapacity in the sector resulted in the  emerging markets team selling out of a large Chinese utility company that was heavily reliant on coal for power production and purchased an energy infrastructure company with specific exposure to gas infrastructure.

ESG問題および説明

Corporate Governance Board Independence and Composition.

投資決定やパフォーマンスへの影響

Family domination of the board raised concerns around the lack of independent challenge and the potential for conflicts to arise between the interests of minority shareholders and the interests of the owning family.  As a result a decision not to invest was taken despite favourable fundamentals.  

ESG問題および説明

The transition to a lower carbon economy and in particular the growth in renewable energy within the utilities sector in North America.  The RI team conducted analysis into the impact of the Trump administration's policies on the growth of renewable energy and the impact on demand for Coal and other fossil fuels.  The RI team also analysed the ongoing support for and implementation of the Paris Agreement below federal level and the implications for renewable energy.

投資決定やパフォーマンスへの影響

USS took a position in a Californian utilities company.   State commitments to renewable energy and carbon reduction and the company's relatively high utilisation of renewable energy for power generation were significant factors in the investment decision. 

ESG問題および説明

Corporate Governance: Board expertise and strategy following departure of CEO.

投資決定やパフォーマンスへの影響

The North America team decided to sell a large health care company domiciled in the US. Changes to the board that resulted in a lack of relevant experience/ expertise and concerns around over-boarding, independent challenge and the circumstances surrounding the CEO’s departure were significant factors in the decision. 

14.2. 補足情報 [任意]

Other Examples:

 

Example 6:

ESG issue and explanation

The transition to a lower carbon economy in the utilities sector.

ESG incorporation strategy applied

Integration

Impact on investment decision or performance

A decision was taken to sell a utility company with heavy reliance on coal for power generation.  Carbon exposure was a factor in the decision and may have been a factor in why the stock prices did not rise as expected after an earnings recovery. 

 

 

Example 7:

ESG issue and explanation

The transition to a lower carbon economy in the autos sector and the development of disruptive technologies such autonomous driving.

ESG incorporation strategy applied

Integration

Impact on investment decision or performance

Opened a position in a lighting equipment manufacturer which was well positioned to take advantage of the upgrade from halogen to LED.  This trend is  being driven by demands for more energy efficient solutions lighting and adaptive lighting for the transition to autonomous driving 

 

 

Example 8:

ESG issue and explanation

The transition to a lower carbon economy in the autos sector in particular the shift from internal combustion engines to electric vehicles.

ESG incorporation strategy applied

Integration

Impact on investment decision or performance

Exited our position in two conventional auto manufacturers because of the likely disruption in the sector associated with the shift from ICE (internal combustion engine) to EV (electric vehicle) powertrains and advent of autonomous driving.  Stock price indicates modest upside with fundamental risks skewed to the downside.  Both companies were viewed as potential value traps.



Example 9:

ESG issue and explanation

The transition to a lower carbon economy in the autos sector in particular the shift from internal combustion engines to electric vehicles.

ESG incorporation strategy applied

Integration

Impact on investment decision or performance

Decision to maintain significant overweight position in a manufacturer and seller of applied electronic components.  Decision was supported by potential upside associated with the transition from ICE to EV which promises to support demand over the longer term. .  


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