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*Responsible Investment Leaders
ESG oversight for AMP Capital's RIL range of funds is the responsibility of the RIL Ethics Committee. This includes overseeing our underlying managers' compliance with the RIL Charter, ensuring portfolio holdings continue to fit the RIL Charter, and guiding managers on company engagements. Regular (monthly or quarterly) ESG reporting is also required on areas including:
- Confirmation the portfolio does not invest in any company with material exposure to areas of high social impact
- A summary of the proportion of the portfolio invested in companies characterised as industry 'Leaders', 'Sustainers' and 'Unengaged' companies, in absolute terms and compared to the relevant Index.
- An outline of any ESG engagement with portfolio companies
- A summary of any other ESG-related issues
- Voting statistics including the number of resolutions where the manager voted for and against company management, and abstained from voting
- Reasons why the manager abstained from voting or voted against company management.
Provide additional information relevant to your organisation's monitoring processes of external managers.
AMP Capital may monitor and review FDF and ipac managers ESG practices through periodic surveys and or one on discussions, which may cover:
• Policies relating to the manager's approach to assessing ESG performance of investee companies
• Whether the firm is a signatory to the PRI. (If not, we ask for what the firm thinks about the PRI initiative.)
• Summaries of their PRI assessments (if they are prepared to provide them)
• Whether the manager is a signatory to other collaborative organisations or principles on ESG
• How the firm integrates the consideration of ESG information into the investment process, how ESG is considered in research and analysis, and impact on portfolio construction
• Primary internal and external sources of ESG information and research (e.g. analysts, internal specialists, brokers), how that data is incorporated into the investment process, and any proposed future changes
• How the manager encourages companies to improve ESG disclosure
• Proxy voting policies, including who has approved it and is responsible for implementation
• Whether the manager receives external or independent advice on voting, from whom and to what extent they follow the service provider's advice
• Processes for lodging proxy votes (e.g. via third parties)
• An overview of voting activity and direction of votes cast (% of votes exercised, for, against, abstain, not voted)
• Proportion of engagements considered successful and a list of ESG topics engaged on, and
• Public policy engagement including collaborative engagements and any actions taken.
In addition, AMP Capital has undertaken a review of specific voting practices of external equities managers. We also held extensive engagements with a selection of external equities managers to discuss in detail their ESG integration and company engagement practices as well as AMP Capital's intention to introduce firm-wide exclusions as part of our ESG policy.
Manager review process
Markets and their participants are dynamic and constantly evolving. Accordingly, the strategies underlying each single sector fund are continually refined to ensure the right blend of managers is in place. The ongoing review process incorporates:
• Managing the managers. Strong lines of communication between the investment team and each underlying manager are vital. Members of the investment team regularly meet with the investment team of each underlying manager. Additionally, each underlying manager is subject to a formal onsite review on an annual basis.
• Monitoring risk at both manager and fund levels and ensuring diversification. The team has visibility of the portfolio holdings of all managers in each fund. These positions are also run through the risk evaluation and style analysis systems (BARRA and Style Research) for equity portfolios. This risk analysis provides valuable insight into whether the individual manager’s portfolios and the total portfolio are operating as expected. Risks such as the commonality of active positions across managers and other correlation factors are monitored in this way. This process is useful in ascertaining whether any unintended risks are arising in the portfolio. In addition, we use scenario testing to establish sensitivity of our equities funds to certain types of market conditions. All risk analysis is conducted by our Global Investment Reporting & Analytics Team which operates independently from the investment team. The Global Investment Reporting & Analytics Team presents this analysis quarterly to portfolio managers and to other internal parties at formal risk review forums. Independent Mandate Monitoring and Exposure Management teams ensure that the underlying strategies are within their allowable trading ranges and mandate. The investment team is immediately notified if and when there is a breach of the mandate terms and contact is made with the external managers to determine if further actions are warranted.
The managers within the RIL funds are monitored by the asset class specialists, the AMP Capital Single Sector Investment Committee and the RIL Ethics Committee. These groups are charged with maintaining the Fund’s responsible investment integrity and overseeing the overall operation of the Fund. Specific tasks include analysing the ongoing performance and style of the underlying managers (from a financial perspective) as well as the stock listings and governance and engagement initiatives (from a responsible investment perspective).
The RIL Ethics Committee is accountable for responsible investment integrity, corporate governance and engagement. The RIL Ethics Committee meets three times a year and performs two key tasks:
• Overseeing the RIL Balanced Fund’s investments to ensure they reflect the relevant responsible investment objectives; and
• Providing input on matters of priority for corporate engagement and governance, where environmental, social, ethical or labour standard issues are relevant using research from AMP Capital and external providers.
In performing its key tasks, the RIL Ethics Committee refers to the guidelines outlined in the Responsible Investment Leaders Charter of Operation. Its membership includes sustainable investment professionals from within AMP Capital and client representatives.
If a company fails to meet AMP Capital’s responsible investment standards, internal policy dictates that the relevant manager must sell its investment in the particular company within six months. This policy is closely monitored and enforced. If there is a breach of the policy, the services of the relevant underlying manager may be terminated. If there are major changes to companies such as takeovers or serious environmental incidents, the policy provides that managers may review individual companies. A company may also be sold at any time for financial reasons.
The RIL Ethics Committee reviews approximately 60 stocks every year held by the managers to make sure the stocks they hold are consistent with the RIL Charter. Any inconsistencies or requests for further information are then raised with the manager by the portfolio managers of the RIL funds, which leads to further discussion about the way ESG is incorporated in each managers’ mandate. The RIL Ethics Committee also reviews every managers’ approach to ESG integration on a rolling basis.
For example, if you require your external managers to undertake carbon portfolio monitoring, you are strongly encouraged to report this here.