AMP Capital's longstanding investment in ESG resources, integration and stewardship has secured proprietary data and capabilities that help deliver deeper investment insights for our clients. Our integration of ESG is guided by our investment philosophy, but varies according to each fund mandate. Our large and experienced ESG team is able to manage those variations within a unified investment house culture.
ESG investment philosophy: AMP Capital aims to deliver globally-competitive outcomes for the assets and products we manage. ESG analysis contributes to those outcomes. There are links between an organisation's environmental and social impacts, the quality of its corporate governance and its long-term business success. Those environmental, social and governance (ESG) factors provide us with greater insight into areas of potential risk and opportunity for our investments and our clients. ESG integration ensures we take these factors into account.
Whenever we invest, we consider the specific company or asset, the industry sector in which it lies, and the market or economy in which it operates. ESG analysis, both qualitative and quantitative, adds insights at each of these three levels. At the highest level, AMP Capital is a 'whole of universe' investor and asset manager, and so we have a stake in the sustainable operation of the global economy and the societies it serves, in the integrity and transparency of markets, and in good governance and business conduct.
At the investment level, our analysis identifies clear links between an individual company or asset's environmental (E) and social (S) exposures and impacts, the quality of its governance (G), and its short, medium and long-term performance. These ESG factors may have a direct impact on performance by imposing costs or driving revenue. They may also affect a company's intangible assets such as its reputation and relationships and, through them, the company's value and performance. Our analysis shows that approximately 75% of a typical company's market value may be derived from these intangible assets.
Exploring ESG factors therefore provides us with greater insight into the risk and growth trajectories of our investments, and identifies new investment opportunities. We assess and price material ESG issues in the same balanced way we assess any other material growth and risk factors. Doing so helps to deliver stronger investment performance for our clients, and to minimise the reputational risks of their investment.
The AMP Capital ESG and Responsible Investment Philosophy is available at www.ampcapital.com/esg, or directly at: http://www.ampcapital.com/AMPCapitalGlobal/media/contents/Articles/ESG/esg-and-responsible-investment-philosophy.pdf
Scope of ESG integration: ESG insights are integrated into all of our investment portfolios. Because of our size, geographical coverage, multi-asset class mix and variety of client mandates, we need flexibility in the way we approach responsible investment and integrate material ESG factors. To the extent our clients seek specific bias toward ESG factors, AMP Capital can accommodate such mandates within Funds that carry higher performance hurdles, negative screening and conviction toward ESG issues.
AMP Capital also considers market, social and environmental trends that may make an industry sector or company business model unsustainable. To ignore those trends is to risk a diminished return relative to the market. If those ESG trends pose risks to our client's interests we will typically engage the investee to understand how those risks are managed and, as a large universal investor, communicate our views to investors.
ESG team integration: AMP Capital was one of the first global investment managers to genuinely integrate ESG factors into traditional financial analysis. That has given us the time to develop, test and improve our proprietary approaches, to build the data sets and relationships that allow a richer understanding of ESG issues, and to build the team to act on those insights. Our team is one of the largest and most experienced of its kind in the Asia-Pacific, with 16 professionals and the bandwidth to develop proprietary tools and analyses.
Our ESG professionals are disbursed through our investment teams, and both ESG and mainstream analysts share insights in investment meetings. Our cross-asset ESG insights are applied both in product development and investment decisions. ESG is therefore bedded deep within our investment practices and, likewise, investment disciplines and realities are ingrained in our ESG practices.
ESG in investment analysis and decisions: AMP Capital's investment teams integrate ESG factors by:
- using ESG techniques that reflect client requirements, investment styles and time horizons
- developing guidelines on how material ESG factors are assessed within their investment processes
- drawing on our specialist ESG resources and research capabilities
- analysing data and research on the impact that material ESG factors may have on individual investments and portfolios, including future cash flows, valuations, price, growth and risk
- integrating material ESG considerations into portfolio construction and management strategies
- considering material ESG issues in seeking investment approvals, and
- sharing ESG research and knowledge among analysts and portfolio managers and across teams.
Using its proprietary databases of over 200 ESG metrics, the ESG team ranks company performance on measures of sustainability, environmental and social responsibility and corporate governance. The ESG research is then shared across all investment teams, who consider it when developing company value (or target price) and call conviction. Conviction, valuation, ESG and momentum inputs are then converted into our stock ranking models to produce a universe ranking. This score and ranking then influences stock selection decisions for the portfolio.
Integrating the ESG Research into the shared AMP Capital assessment of the company, as reflected in the company score, is a key differentiator in our process. By overlaying fundamental financial analysis with our in-depth analysis of complex sustainability and intangible drivers, we believe we can identify investment risks and opportunities that might be mispriced by the market.
Further information on AMP Capital's ESG integration approach and investment insights can be found at www.ampcapital.com.au/about-us/esg-and-responsible-investment/esg-resources and www.ampcapital.com.au/esg