This report shows public data only. Is this your organisation? If so, login here to view your full report.

AMP Capital Investors

PRI reporting framework 2019

Export Public Responses
Pdf-img

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
95 %
Percentage of active listed equity to which the strategy is applied
5 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

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

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

The AMP Capital Sustainable Share Fund uses a combined ESG screen and ESG integration approach to define its investible universe from its primary investment universe, the S&P/ASX200. The Fund places more emphasis on sustainability factors in scoring companies in the stock ranking model. Companies in industries with high sustainability risks need to demonstrate strong ESG risk management to be considered investment grade.  If the risks are extreme the stock will not be considered investment grade.

ESG screening applies if 10% or more of the company's earnings are derived from alcohol, tobacco, gambling, pornography, nuclear (including uranium mining) or armament activities. The Fund has no exposure to companies with material involvement in the production or transportation of fossil fuels and has a carbon footprint meaningfully lower than the benchmark index (<30% of the ASX200).

ESG integration is based on AMP Capital's proprietary in-house ESG research. Companies are scored and ranked by a variety of factors including analyst conviction, total shareholder return, momentum, sustainability of the business model and a combined ESG Score. The ESG Score for each company reflects a unique SWOT analysis of key ESG-related risks and opportunities, including strengths and weaknesses in the company's internal ESG risk management capabilities.


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

          Other key stakeholders: for example labour (employee) unions, various non-government organisations
        

Indicate who provides this information 

02.2. Indicate if you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

AMP Capital's primary source of ESG information and analysis is via AMP Capital's in house ESG Research Team. AMP Capital also pays broker commissions for specific sell-side ESG research or company access. The ESG Research Team has an annual budget for provision of ESG research from external providers (sell side).

02.4. Additional information.[Optional]

 

AMP Capital's Sustainable Investments Team supplements proprietary in-house research with data from external providers, to secure ESG information coverage for 6,000+ companies and accounting and governance ratings (AGR) on 18,000+ companies. This information is applied across all ESG incorporation strategies. The use and weighting of information varies depending on style and characteristics of particular funds.
AMP Capital was one of the first investment managers to genuinely integrate ESG factors into traditional financial analysis. This has given us the time to develop, test and improve our proprietary approaches, and build the data sets and relationships that allow richer understanding of ESG issues.
Our research is focussed on information and insights into stock valuation and future earnings expectations, to generate information advantages and exploitable investment ideas. Additional insights are derived from:
• Over 600 one-on-one meetings with companies annually
• In-house research covering 200+ ESG metrics, drawn from company meetings, ESG disclosures, and other stakeholders
• Insights and screening from the Australia Systematic Equities team
ESG data from service providers for international stocks
• Non-consensus sources including suppliers, customers and industry bodies
• Insights from Investment Strategy& Economics, and Credit Markets.
• Investment team meetings
 


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

AMP Capital engages with companies on sector-wide and company-specific issues, with the nature of that engagement often reflected in our proxy voting. Insights from engagement and proxy voting can directly inform our investment decisions. Communication of ESG information to our investment teams is constant, and we maintain systems and databases for all ESG engagement and proxy voting activity. Annual company engagement plans are developed for particular funds.

Our proxy voting flows from our company engagement and is undertaken through AMP Capital's Corporate Governance Manager. Regular Corporate Governance Reports, Engagement Reports, and ESG Insights inform our clients and the public about our ESG research and engagement efforts, and how ESG influences our overall investment thinking.

Company engagement meetings are typically attended by both industry and ESG analysts, so that any discussion on material ESG factors is directly shared with and reviewed by the broader investment teams. Information from engagement is also shared with all equity investment teams through meeting notes and weekly ESG updates. This information also influences our ESG research priorities.

More detail is provided elsewhere in this survey (other modules) or can be found at www.ampcapital.com.au/esg


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

The AMP Capital Sustainable Share Fund avoids companies operating within sectors that have high negative social impacts. The fund avoids exposure (directly or indirectly) to companies with material exposure to production or manufacture of tobacco, nuclear power (including uranium), armaments, gambling, alcohol and pornography. A company deriving more than 10% of total revenue from these industries constitutes material exposure.

For companies involved in the production of tobacco or “controversial weapons”, or essential components of them, a zero revenue materiality test applies. Controversial weapons include land mines, cluster munitions, biological or chemical weapons.

With combustion of fossil-fuels being the main source of global greenhouse gas emissions, the AMP Capital Sustainable Share Fund limits exposure to companies which have a material exposure to the most carbon intensive fossil fuels, excluding any company with more than a 20% exposure (measured by percentage of market capitalisation, or other financial metric) to one, or a combination of, mining thermal coal, exploration and development of oil sands, brown-coal (lignite) coal-fired power generation, transportation oil from oil sands or conversion of coal to liquid fuels/feedstock.

The Fund aims to have a carbon footprint at least 30% less than the Fund’s performance benchmark.

Screened by

Description

AMP Capital recognises that some sectors pose considerably greater ESG risks than others, and so the long-term opportunities and threats to the sector are considered in the company SWOT analysis. Companies in industries with high sustainability risks or poor governance practices need to demonstrate strong ESG risk management to be considered investment grade. If the risks are extreme and the business constitutes a material part of the firm's operations, the stock will not be considered investment-grade – including those excluded by the ESG screen. Conversely, companies and industry sectors may be well positioned to prosper from longer-term social and sustainability drivers (e.g. healthcare and renewable energy sectors).

Screened by

Description

International norms such as International Labour Organisation (ILO) standards and Human Rights Conventions are also considered.  

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

The AMP Capital Sustainable Share Fund uses a combined ESG screen and ESG integration approach to define its investible universe from its primary investment universe, the S&P/ASX200. The screening and best-in-class combination creates a bias (tilt) toward a portfolio of companies with stronger ESG practices, relative to the relevant benchmark and a lower carbon footprint exposure. It also reflects our clients' overall investment objectives and the mandate for the Fund, as clients invested in the Fund seek to limit their exposure to the screened sectors.

ESG screening applies if 10% or more of the company's earnings are derived from alcohol, tobacco, gambling, pornography, nuclear (including uranium mining) or armament activities. AMP Capital's ESG Research Team closely liaises with the portfolio manager to highlight which stocks (if any) are close to the 10% threshold, and these stocks are actively monitored during reporting season. For those companies involved in the production of tobacco or “controversial weapons”, or essential components of them, a zero revenue materiality test applies. Controversial weapons are considered to be land mines, cluster munitions, nuclear weapons and biological or chemical weapons. If the threshold is breached, the portfolio manager must divest the stock within 6 months

Regular reporting on these issues is provided to our clients in accordance with the Fund's mandate. Additional relevant information including ESG investment insights, corporate governance (proxy voting) statistics, and company engagement reports are publicly available via AMP Capital's website at www.ampcapital.com/esg.

Further information on AMP Capital's recently announced ethical decision-making framework are available at www.ampcapital.com.au/esg

*AMP Capital Funds Management Limited (AMP Capital) ABN 15159557721, AFSL 426455 is the responsible entity of the AMP Capital 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 relevant Fund.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

AMP Capital engages with companies on sector-wide and company-specific issues, with the nature of that engagement often reflected in our proxy voting. Insights from engagement and proxy voting can directly inform our investment decisions. Communication of ESG information to our investment teams is constant, and we maintain systems and databases for all ESG engagement and proxy voting activity. Annual company engagement plans are developed for particular funds.

Our proxy voting flows from our company engagement and is undertaken through AMP Capital's Corporate Governance Manager. Regular Corporate Governance Reports, Engagement Reports, and ESG Insights inform our clients and the public about our ESG research and engagement efforts, and how ESG influences our overall investment thinking.

Company engagement meetings are typically attended by both industry and ESG analysts, so that any discussion on material ESG factors is directly shared with and reviewed by the broader investment teams. Information from engagement is also shared with all equity investment teams through meeting notes and weekly ESG updates. This information also influences our ESG research priorities.

More detail is provided elsewhere in this survey (other modules) or can be found at www.ampcapital.com.au/esg


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

AMP Capital's Sustainable Investments Team notify Enterprise Risk Management of any stock that may become non-investment grade due to established screening criteria. This is acknowledged by Enterprise Risk Management and IT systems then prevent portfolio managers from buying the particular stock.

All stocks that are close to the (screening) materiality thresholds are monitored regularly during the reporting season. For example, a particular company may be close to the 10% earnings restriction threshold for a number of years and each reporting season AMP Capital calculates the alcohol and tobacco exposure. If this then eventually reached 10% the stock would become excluded from the investable universe.

The AMP Capital Sustainable Investments Team closely liaises with portfolio managers to highlight which stocks (if any) are close to the established materiality thresholds. The experience of the team which has covered the stocks for several years and regular stock reviews, mean there have been no cases of materiality breaches identified. If such breaches were to occur and a non-investable grade stock was held within the portfolio, the portfolio manager is required to divest from the stock within 6 months.

Similar process requirements are also being developed to facilitate the implementation of AMP Capital's recently announced ethical decision-making framework (ethical exclusions) which will apply across the business.

06.3. Additional information.[Optional]

AMP Capital's proxy voting activities are regularly reviewed by AMP Capital's internal audit function.


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

AMP Capital has invested in the ESG resources needed to comprehensively review the significance and materiality of a broad range of ESG factors. Our approach in reviewing material ESG issues is detailed in our public research papers and reports.

ESG issues covered:  ESG factors encompass a broad range of issues that may, in isolation or in combination, have a material impact on the risk/return characteristics of our investments. They may be driven by regulations, reflect issues of significant societal concern, or pose potential operational, financial, strategic, reputational or systemic risks. ESG issues we systematically investigate include:

  • Environmental: Natural resource use and degradation (e.g. water scarcity), waste, pollution, greenhouse gas emissions, climate change, clean technology products and services, environmental management practices.
  • Social: Human capital, workplace health and safety, labour relations and standards, human rights, demographic changes, supply-chain and community impacts.
  • Governance: Board composition and independence, executive remuneration and incentive plans, corporate accountability structures, compliance, negligence, bribery and corruption, conflicts of interest and related-party transactions, shareholder rights, accounting and audit quality.

Published ESG insights: The diversity of AMP Capital's ESG research and analysis is demonstrated by our regular Corporate Governance Reports (twice per year) and ESG Insights available at www.ampcapital.com.au/esg.


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]

Example of specific issue review and integration: We continue to consider the implications of climate change on our portfolios. In this process, we analyse the potential impact of climate change on the funds' portfolio mix, qualitatively assess risks and opportunities, and conduct a quantitative scenario analysis of the potential impact on the portfolio. The process is informed by our regular analysis of climate change impacts on sector, stock and portfolio risks and opportunities, taking into account policy, technology, physical impacts, carbon intensity and potential liabilities. This includes independent and collaborative engagement with policy-makers and companies on regional and international frameworks and on emerging carbon markets.


LEI 10. Aspects of analysis ESG information is integrated into

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

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.3. Describe how you integrate ESG information into portfolio weighting.

ESG at the portfolio level: Portfolio managers are responsible for converting our ESG and fundamental research into the most appropriate client portfolio. Proprietary portfolio risk management tools (e.g. holdings, carbon risk etc) are also used to monitor exposure and benchmark ESG-related investment performance.

10.4. Describe the methods you have used to adjust the income forecast / valuation tool

Factors considered include liquidity, macro themes, sector exposure and specific stocks. AMP Capital applies standard risk management processes which allow us to manage unintended risk exposures and biases. Peer review is a key element of the process with questions encouraged, challenge welcomed and numbers debated.

10.6. Additional information. [OPTIONAL]

AMP Capital considers the company or asset, the industry sector, and market or economy in which it operates. ESG analysis adds insights at each of these levels.

AMP Capital is a 'whole of universe' investor and asset manager. We have a stake in the sustainable operation of the global economy, the integrity and transparency of markets, and in good governance and business conduct. At this macro level, sustainability drivers influence a company's sector, operating or competitive environment. We assess growth and risk factors, the impact of new technologies, consumer preferences, resource constraints, demographic changes, new regulation or systemic issues such as climate change.

Our process includes:

  • Macro review: Weekly / fortnightly ESG wraps investment insights; and regular meetings with investment teams to develop conviction and idea generation.
  • Systematic review: Regular meetings with the Systematic Australian Equities team on screening methods and enhancements.
  • Sector review: Detailed sector reports, including analysis of ESG growth and risk drivers.
  • Stock selection: ESG SWOT analysis, reviews of high ESG risk companies and IPOs; ESG database (200 metrics) summarising stock ratings; and scores combining industry sustainability scores with ESG performance scores.
  • Portfolio review: Risk management tools to monitor exposure and benchmark ESG-related investment performance.

Top