AMP Capital is one of Australia’s first and largest managers of dedicated responsible investment funds. Over the past 15 years, we have developed several innovative approaches to integrating ESG factors into our investment decisions. Our innovations extend to the way in which we measure the impact of our ESG analysis on our investment performance.
Ethical Considerations: In early 2017 the Board of AMP Capital Holdings Limited approved a new ethical decision-making framework as part of a review of its ESG and Responsible Investment Philosophy. The new framework furthers AMP Capital's commitment to responsible investing whereby in exceptional circumstances, it may exclude companies or sectors on ethical grounds within its entire investment portfolio. Under the framework, AMP Capital considered all sectors in which it invests and has concluded that manufacturers of tobacco, cluster munitions, landmines, biological and chemical weapons do not meet the minimum ethical standards required and will be excluded from its investable universe going forward. These changes were publicly announced on 16 March 2017. In September 2018 AMP Capital announced the completion of the full divestment of approximately A$440 million worth of tobacco manufacturing-related equity and fixed income holdings in accordance with the policy changes. This is the largest divestment of tobacco securities to date by a fund manager in Australia. A further A$130 million has been divested from cluster munitions, landmines, biological and chemical weapons securities. Further details are available at www.ampcapital.com.au/esg.
Long-term ESG investment: AMP Capital has been able to exploit synergies in our ESG and traditional research across our businesses, in line with our PRI commitments. We have a clear ESG philosophy, supported by policies, guidelines and governance structures to oversee our ESG integration. This includes the accountability structures needed to review priorities, set goals and monitor our ESG progress.
Our strong in-house ESG research capability has expanded our ESG knowledge base across our investment teams, delivering deeper insights and stronger conviction in our decision-making, and identifying hidden value and investment opportunities across the major asset classes (equity and corporate fixed income).
Innovative approaches: Several innovative approaches are used to embed our ESG research into decision making for all our domestic equities funds. We integrate ESG research through company-specific scores, ESG SWOT analyses and additional ESG insights, which our investment analysts use for their fundamental stock analysis. ESG insights are circulated through fortnightly domestic and international ESG wraps, joint meetings with portfolio management teams, and engagement with the board and management of investee companies.
Other proprietary tools include a portfolio and holdings ESG risk tool developed for AMP Capital's equities portfolios; a tool to assess carbon risk and intensity; and a multi-manager/multi-asset fund whose responsible investment charter insists on ESG criteria being applied and monitored by an oversight committee. Further detail on these tools is provided in the LEI module below.
Demonstrated performance: Demonstrating the value that ESG adds to investment performance is a challenge across the industry. AMP Capital has therefore undertaken its own proprietary research to quantify the contribution of ESG integration to investment performance.
Our AMP Capital Australian Sustainable Share Fund* is an example of this approach. Our in-house ESG investment research team divides stocks into investment grade (IG) and non- investment grade (NIG). The pool of stocks deemed IG constitutes the investable universe for the Fund.
Since 2007, the team has tracked the performance of this investable universe (within the ASX200) through a proprietary "ESG Index". Our analysis shows the ESG Index has outperformed in the short, medium and long term. It demonstrates that excluding companies with poor ESG profiles may result in a better quality pool of stocks to invest in and that a low-turnover, active ESG fund may provide interesting long-term investment opportunities for equity investors.
* AMP Capital Funds Management Limited ABN 15159557721, AFSL 426455 is the responsible entity of the AMP Capital Australian Sustainable Share Fund and issuer of the Product Disclosure Statement (PDS) for the Fund. To invest, investors will need to obtain the current PDS from AMP Capital before making a decision to acquire, continue to hold or dispose of units in the Fund.