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Macquarie Asset Management

PRI reporting framework 2019

Export Public Responses

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Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

Our Systematic Investment Equities team’s investable universe has been reduced by 2-5%

Specify the percentage reduction (+/- 5%)

5 %

Select which of these effects followed your ESG integration:

Describe the influence on composition or other effects

The benchmark was adjusted to remove the screened stocks.

12.2. 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 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG issues that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

MIM’s Global Listed Infrastructure (GLI) team investigated the practices of an energy pipeline company in respect to the company’s treatment of indigenous people on land where new pipelines would be built.

After their investigation, the GLI team reached the conclusion that the company was satisfactorily integrating Indigenous sensitivities into their internal processes for investment review. This conclusion was based on a review of the company’s Indigenous Peoples Policy and Implementation Framework as well as a review of the company’s practices in regards to past and current projects.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Confidence was increased in the processes and procedures in place at the company which alleviated concerns regarding the treatment of key local stakeholders involved in the development of incremental pipeline capacity. The position was maintained.

ESG factor and explanation

MIM’s US Small-Mid Cap Value Equity team (USSMCV) became concerned over the governance practices of a company whose common stock is owned in a portfolio that the team manages. The company is a provider of equipment for communications networks. The company announced plans to issue convertible preferred notes, to a private equity firm, which would pay a dividend, while the company does not pay a dividend to common stock shareholders. This raised two concerns from a governance perspective for the team. First, the team would prefer that the company use its cash to pay a dividend to common stock shareholders as well as preferred shareholders, as this would not show the company favouring one class of shareholders over another. Second, if the private equity firm were to convert its preferred to common equity, it would substantially dilute existing common shareholders, which we are one of.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Because of these governance practices, the USSMCV team’s investment view changed, and the team elected to reduce its position size in the company’s common stock.

ESG factor and explanation

MIM’s US Core team became concerned with the drug pricing strategies of pharmaceutical companies, which is seen as a major problem for US consumers and is facing increasing public scrutiny.  During several meetings with the senior management of Allergan, the Core team raised the pricing issue in the course of their fundamental analysis of the risks and opportunities associated with the company.  Allergan has been a leading advocate within the pharmaceutical industry for greater accountability on pricing decisions made by drug companies for the social impact they have.  They are particularly focused on the need for the industry to show restraint on the size of annual price increases taken and for them to recognize the adverse financial impact they can have on patients and their families. Indeed, their argument that single digit percentage annual gross price increases should become the norm (after years of double-digit increases) appears to have been widely adopted by the industry. Allergan has continued to keep its drug price increases below the level of many competitors. We expressed our continued support for this advocacy within the framework of the wider debate about US healthcare costs.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

The Core team has maintained their position in Allergan as the company’s approach to these issues is positive.

ESG factor and explanation

MIM’s Asian Equities team conducted research of a Taiwanese manufacturer of dietary and skin care products that included a review of the level of progress on their 2030 initiative, whereby 100% of their electricity consumption will be from renewable sources at this date. The progress made and initiative itself has positively influenced the company’s branding and corporate reputation.

The team’s analysis indicated that the company’s initiative has helped contribute to their market share gains and rapid revenue growth as well as cementing strong government relations facilitating the smoother expansion of their capacity.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

The team decided to increase the weight of this position in light of, what they believe, is a strong, sustainable growth path.

13.2. Additional information.[Optional]