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

Boston Common Asset Management

PRI reporting framework 2019

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation undertakes scenario analysis and/or modelling and provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe We believe markets typically mis-value the risks and opportunities presented by environmental, social, and governance factors, both in terms of the timing and the magnitude of outcomes. Therefore our in-house ESG team is an invaluable resource for testing ideas regarding the impacts of macro-economic shifts.
Describe We measure & disclose the carbon footprint of all of our strategies since 2015 and as a result of our comprehensive ESG framework all our products can be described as 'low-carbon.' Our strategies produce fewer emissions than their respective benchmarks primarily due to stock selection.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]

As investors we believe ESG risks and opportunities can influence expected portfolio returns.  Factoring these issues into our investment process addresses our dual objectives of (potentially) enhancing investment returns and aligning our clients' investments with broader sustainability objectives.

 

We are a fundamental, stock-selection driven investment manager aiming to provide for society’s transition to a low carbon economy over a manageable time horizon by investing selectively in more carbon-efficient fossil fuels, by preferring firms with energy efficient products and processes over those with more resource-intensive alternatives, and by engaging the companies we own to improve their energy use.

We employ shareowner engagement to increase our positive ESG impacts and reduce ESG risks on issues such as climate change and human rights.


SG 13 CC.

13.4 CC. Describe how the organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, the results and any future plans.

Describe

We do both top-down and bottom-up assessments of companies regarding key environment and climate change risks and/or opportunities for each sector. Preparedness and ability to address climate change and other environmental risks are embedded within this analysis and lead us to identify leaders and laggards within sector, industry and sub-industry. We use this research to drive critical assessment of management quality in all sectors.

In high environmental risk commodity end-markets we search for companies that could be beneficiaries of a trend toward pricing in externalities. Within the Materials sector, we invest in metal recyclers instead of miners because they should both rise in periods of scarcity of raw materials, but incorporating the cost of environmental degradation would hurt miners' profitability. Based on our deep probe of the building materials industry, we believe cement manufacturing is one of the most exposed businesses to climate change considerations. However, we found distributors of plumbing equipment that should grow alongside construction materials companies albeit without the risk of economic pressure from rising carbon-related costs.

In assessment at the stock level, we model three scenarios for the company's future revenues and profitability and valuation:- a base case, an optimistic and a pessimistic case.  These take into account the operating environment, regulatory changes including climate regulations, disruption from other models of product/market strategy, consumer preferences for more sustainable products/services, pricing and cost pressures caused by climate and other societal changes.  They enable us to model and estimate the probabilities of potential return and risk.  Our scenarios differ by product, service industry and sector considerations.  We can model more favorable or proximal positive outcomes for solutions providers, allowing us to reflect the changing mix of a company's products or favorable market conditions.  Scenarios differ by magnitude and direction of outcomes.  Over the years, our timelines, probabilities, and discount rates have to change, as the cumulative effects of climate change become clearer.  Regulations, and opportunities will likely change, and we try to model these in our thinking.  Such developments may move the base case in more favorable or unfavorable directions, with greater disparity between best and worst cases, changing the risk/reward for our investment opportunity set.

 

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether the organisation has evaluated the impacts of climate-related risk, beyond the investment time-horizon, on the organisations investment strategy.

Describe

We believe that our engagement activities, will over the long-term improve the ESG fundamentals of companies we invest in. Improving the sustainability profiles of our portfolio companies may lead to improved financial performance via increased efficiency, lower staff turnover or shorter regulatory approvals due to compliance approaches embedded in management systems.  We seek to create some “momentum” on the ESG side, and improve fundamentals of portfolio companies. Insights into possible engagement initiatives arise out of our Research into material risks, and opportunities available to an industry, and to companies in our portfolios.

In some of our more recent climate-themed engagements for example, we prioritized those banks that are the largest financiers of carbon intensive industries to leverage their role in financing energy efficiency and renewable energy innovation, and portfolio companies with the highest GHG emissions on eco-resource efficiency investments at the operational level.

We periodically re-evaluate the subject of carbon risk, update our expectations for this rapidly changing systemic risk,  and accordingly modify our guidelines for responsible investing and our engagement priorities.  This type of planning has led us to take on a broad swathe of engagement efforts relating to measuring, monitoring and modifying carbon-related activities at the systemic level.  While product design and process efficiencies remain important, we have stepped up our efforts to address banks and systemically important financial institutions.  We have also taken on several initiatives on political contributions and lobbying disclosure to assertively address the thorny issues of corporate control of policy, in a time of deregulation and rapid growth of climate-related risks.

 

13.7 CC. Indicate whether a range of climate scenarios is used.

Indicate the climate scenarios the organisation uses.
Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

Boston Common aims to provide for society’s transition to a low carbon economy over a manageable time horizon by investing selectively in more carbon-efficient fossil fuels, by preferring firms with energy efficient products and processes over those with more resource-intensive alternatives, and by engaging the companies we own to improve their energy use.

 

We do both top down and bottom up assessments of companies regarding key environment and climate change risks and/or opportunities for each sector. Preparedness and ability to address climate change and other environmental risks are embedded within this analysis and lead us to identify leaders and laggards within sector, industry and sub-industry. We use this research to drive critical assessment of Management Quality in all sectors.

other description

          Developed Sustainable Climate (Fossil Fuel Free options) strategies to respond to client demand.
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

14.4. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

We are Montreal Carbon Pledge ambassadors and have publicly disclosed the carbon footprint of 4 of our key portfolio strategies in 2017 against their respective benchmarks.  We have not yet completed analysis of our portfolios for 2018 but once completed our public report will be made available on our website.

14.5. Additional information [Optional]

Assessing our portfolios' carbon footprints further informs our integrated ESG investment decision-making process and our engagement with portfolio companies. 


SG 14 CC.

14.6 CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Weighted average carbon intensity
          Carbon Intensity expresses the carbon efficiency of the portfolio and allows institutional 
investors to measure the volume of carbon emissions per dollar of sales generated by portfolio 
companies over a specified time frame.
        
          per $1 MM invested
        
          How efficient is my portfolio in terms of emissions per unit of output?
        
Carbon footprint (scope 1 and 2)
          Total Carbon Emissions measures the absolute tons of CO2e (Scope 1 + 2) 
for which an investor 
is responsible.
        
          tons of CO2
        
          
        
Portfolio carbon footprint
          Most literal carbon 
footprint from GHG 
accounting 
perspective 
 Absolute number can 
be used for carbon 
offsetting
        
          tons of CO2
        
          
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risks management processes for identifying, assessing, and managing climate-related risks.

Please describe

Supporting the transition to a low carbon future is an integral theme in the way we manage our portfolios and stock selection, engage with companies and industries, and support public policy advocacy in collaboration with other investors.

In addition to our portfolio level approach, we consider the carbon efficiency of one security versus another. Examples include high carbon industries e.g. oil & gas producers and refiners, building materials, electric utilities, automobiles, and chemicals. For all industries we consider trends in GHG emissions as part of our environmental review of companies and seek companies that help other companies be more carbon efficient such as via energy efficiency or renewable energy.

Since 2003 Boston Common has actively engaged companies on climate change issues across the portfolio including oil & gas, electric and gas utilities, banking and finance, technology, pharmaceuticals, retail, automobiles and transportation, and real estate.
Boston Common staff co-chaired ICCR’s Global Warming Working Group for three years and we are active in climate related shareholder engagements by Investor Network on Climate Risk, Principles for Responsible Investment, Carbon Action and CDP.

14.9 CC. Indicate whether the organisation undertakes active ownership activities to encourage TCFD adoption.

Please describe

Continuing our leadership on this multi-year, global initiative launched in 2014 and backed by over 100 investors with $2 Trillion in assets Boston Common benchmarked 59 of the world's largest banks, on their alignment with the Taskforce on Climate Related Financial Disclosures (TCFD).

We found 95% now have some governance for climate issues, with 71% implementing some level of restrictions to the most intensive high carbon sectors. 32 of the banks assessed also committed to support the TCFD at some level including our portfolio companies Barclays, Itau Unibanco, JP Morgan Chase, Standard Chartered and TD Bank.


SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

14.8 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

4.8 % of AUM

Brief description and measures of investment

Examples of our clean technology investments include a manufacturer of steam management systems and  pumps which offers sustainable solutions that help its customers improve process efficiency and achieve energy and water savings.   We also invest in a consumer cylical company which manufactures several environmentally beneficial products, such as energy-efficient roofing systems, LEED-certified coatings, 100% recyclable roofing tiles, and compostable dinnerware.

Asset class invested

1.8 % of AUM

Brief description and measures of investment

Portfolio holdings include Orsted,  a Danish company that is one of the world’s largest offshore wind energy developers, and  Orix Corporation which has established a wholly-owned subsidiary that operates, manages and maintains power plants using renewable energy. 

 

Asset class invested

1.7 % of AUM

Brief description and measures of investment

Investments in Microfinance include holdings in Indonesian  and Turkish commercial banks.  The Indonesian bank  is a leading provider of microfinance and small business financing (with a third of their business coming from this sector) while the Turkish bank  is a leader in lending to  small- and medium-enterprises (SMEs) and renewable energy funding.

15.4. Please attach any supporting information you wish to include. [OPTIONAL]


Top