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Macquarie Asset Management

PRI reporting framework 2019

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ESG incorporation in actively managed listed equities

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
5 %
Percentage of active listed equity to which the strategy is applied
90 %
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.

Macquarie Investment Management (MIM) is a division of Macquarie Asset Management (MAM).

MIM offers investment management capabilities across a number of asset classes including fixed income, currencies, equities, infrastructure securities, hedge funds and multi-asset allocation solutions.

Our specialized, independent investment teams are focused on delivering long-term, consistent results for our clients.  Each team has autonomy to execute on its own investment philosophy.  All of our equity teams share several traits: independent thinking, global perspectives and conviction in their specialized investment philosophies.

Many of our teams also recognize that ESG factors may provide additional insight into investment risk.  Each team differs in the extent of their coverage and review of these factors.

The majority of our US-based equity investment teams employ a fundamental approach towards identifying and assessing securities.  Inherent to their investment process is an in-depth analysis of economic, competitive and other factors that may influence future revenues and earnings of the issuer of the securities, including factors that have been identified as material from an ESG perspective.       

Following are highlights regarding specific ESG practices of some of our investment teams:

For our Hong Kong-based Asian Equities team, ESG is embedded into their detailed research of each company as they believe that there is a direct correlation between ESG factors and financial performance and investment returns. ESG analysis is a first step in the team’s fundamental research of a target company.  The team also manages certain investment screens to exclude particular types of companies that are based on broad investor feedback as well as restrictions placed on investment vehicles in certain regulatory jurisdictions.

Our Sydney-based Systematic Investment Equities team incorporates ESG scores as one of the components of a company’s quality aggregate score.  They have also developed customized screens which exclude tobacco-associated companies in their global portfolios and offer clients the ability to restrict investments in other areas such as coal and uranium.

MIM US offers a specialized portfolio of US large-cap equities which incorporates ESG analysis and norms-based screens. A systematic incorporation of ESG issues is part of the investment research framework. Qualitative and quantitative ESG factors are incorporated. Norms-based screens identify companies with corporate activities in socially unacceptable businesses. Flagged companies are further analyzed to determine the materiality of the activity and its financial impact.

MIM US also offers a specialized portfolio of US small- and mid-cap value companies which is negatively screened to exclude companies which are among the largest coal, oil, and gas reserve owners ranked by the carbon emissions embedded in their reserves.

 

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

Integration is the primary ESG incorporation strategy that our teams use.  This is  part of their regular investment process of identifying material factors that may impact the future revenue and earnings of a company.  Screening may also be used by some teams to identify certain risk factors and screens are also selectively used to exclude securities based on client imposed restrictions.


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 

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

02.4. Additional information.[Optional]

The responses provided above represent an aggregate of different practices employed by our independent investment teams and do not necessarily indicate that each team employs all of these practices.

Our independent equity investment teams utilize a variety of sources in order to gather information to be used for analysis in their investment process.  We have contracted with an outside organization to provide us with ESG-specific opinions and insights, but the majority of our information is obtained via our teams’ own independent research.  While not necessarily seeking ESG-specific information, the research that our teams conduct oftentimes focuses on issues that may also be relevant from an ESG perspective.

Our Systematic Investment Equities team utilizes information from our outside ESG data provider in order to consider the intersection between carbon emissions and a company’s risk management initiatives.  Stocks that score poorly on both measures are excluded from consideration for certain portfolios.  The team also conducts research regarding areas such as management quality and the correlation of incentives and performance.


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]

Our independent investment teams have their own processes for disseminating information to their team members.  These oftentimes consist of regularly scheduled team meetings in which information gleaned from engagements with company managements is shared with the rest of the team.  Factors that may be considered material from an ESG perspective may be discussed during these meetings.

The proxy voting service that our US-based teams utilize provides our investment teams with the option of being notified if there is a conflict between their recommended vote in accordance with our overall voting guidelines and their recommended vote based on ESG guidelines.


(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

Formal exclusion lists are based on specific industry classification or product involvement. Informal exclusion lists are applied within the team from a broader ESG perspective, this limits investments in certain companies until  sufficient improvement in company practices are observed.

 

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

The responses provided above represent an aggregate of different practices employed by our independent investment teams and do not necessarily indicate that each team employs all of these practices.


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.

05.5. Additional information. [Optional]

The responses provided above represent an aggregate of different practices employed by our independent investment teams and do not necessarily indicate that each team employs all of these practices.


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.

For our Asian Equities team, Investments in all companies are vetted at the Investment Committee level and via automated IT systems which restrict investments in excluded stocks, which limits the potential for breaches. In the event of a potential breach the situation, including the classification of the investee company, will be reviewed to confirm the breach is correct and any corrective actions, such as divestment, will be managed appropriately and in the best interest of clients. Any incidents (operational incidents, exceptions and breaches) identified from monitoring programs (or as identified as part of the day to day business processes) are logged promptly onto a breach database.  Each incident is assigned to a relevant staff member to ensure it is resolved.

For our Systematic Investment Equities team, breaches would be identified by Compliance or Portfolio Management personnel and trades would be placed to correct the positions.  An investigation of the cause of the breach would be conducted and the outcome and corrective actions would be documented.

MSCI KLD Social restricted lists are loaded into MIM America’s trading system on a monthly basis.  Traders entering trades in prohibited securities will receive a notification that the security is restricted for those specific accounts with restrictions.

 

 

06.3. Additional information.[Optional]

The responses provided above represent an aggregate of different practices employed by our independent investment teams and do not necessarily indicate that each team employs all of these practices.


(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]

Our specialized, independent investment teams are focused on delivering long-term, consistent results for our clients.  Each team has autonomy to execute on its own investment philosophy.  All of our teams share several traits: independent thinking, global perspectives and conviction in their specialized investment philosophies.

The majority of our equity investment teams employ a fundamental approach towards identifying and assessing securities.  Inherent to their investment process is an in-depth analysis of economic, competitive and other factors that may influence future revenues and earnings, including factors that have been identified as material from an ESG perspective.


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.

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

09.6. Additional information.[Optional]

The responses provided above represent an aggregate of different practices employed by our independent investment teams and do not necessarily indicate that each team employs all of these practices.

Each investment team has access to ESG-specific opinions and insights from our third-party provider, but the majority of our information is obtained via our teams’ own independent research.  While not necessarily seeking ESG-specific information, the research that our teams conduct oftentimes focuses on issues that may also be relevant from an ESG perspective.

MIM’s ESG Oversight Committee is responsible for assessing the quality of research produced by our third-party provider.  This entails consultations with the provider and review of their research process.  The Committee also periodically assesses other research providers in order to provide a basis of comparison as well as a source for potential replacements or complements to our existing provider.

MIM’s Quantitative Research team is able to provide the majority of our teams with a risk profile that compares the ESG ratings of the team’s portfolio against its respective benchmark as well as an attribution that assesses the positive or negative contribution to investment performance from each ESG ratings group.


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.

Each of our independent investment teams employ their own methods of integrating ESG information into portfolio weighting and the integration of ESG information into portfolio weighting varies by teams. 

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

Income forecast/valuation tools vary by team, but in many instances material factors that may affect future earnings are incorporated into the process.  Often times factors that are considered by teams in the forecasting and valuation processes are also considered to be material ESG factors.

10.6. Additional information. [OPTIONAL]


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