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Australian Ethical Investment Ltd.

PRI reporting framework 2019

You are in Direct - Fixed Income » Outputs and outcomes

Outputs and outcomes

FI 17. Financial/ESG performance

17.1. Indicate whether your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or performance.

Select all that apply
SSA
Corporate (financial)
We measure whether incorporating ESG impacts portfolio risk.
We measure whether incorporating ESG impacts portfolio returns.
We measure the ESG performance/profile of portfolios (relative to the benchmark).
None of the above

17.2. Describe how your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or ESG performance. [OPTIONAL]

We have not undertaken attribution analysis of the impact of our Ethical Charter on financial performance of our funds. However, more generally we monitor the long term performance of our funds relative to benchmarks, to provide an indication of the impact of the Charter. Gross returns (excluding fees) for the Fixed Income Fund over the reporting year were in line with the benchmark (https://www.australianethical.com.au/wp-content/uploads/2018/07/Fixed-Interest-June-2018.pdf).

17.3. Additional information.[OPTIONAL]


FI 18. Examples - ESG incorporation or engagement

18.1. Provide examples of how your incorporation of ESG analysis and/or your engagement of issuers has affected your fixed income investment outcomes during the reporting year.

ESG issue and explanation

We engaged with Australian banks on climate both independently and as part of an international collaboration seeking climate action from over 60 banks globally.

With a nominal advocacy holding we supported Market Forces shareholder resolutions calling for the Commonwealth Bank (CBA) to align its business with limiting global warming in accordance with the Paris Agreement. 

 

Impact on investment decision or performance

The CBA resolution received only 3% support in November 2017, but the CBA Chair acknowledged concerns about the bank’s fossil fuel lending and said she expected the downward trend in their coal funding to continue. Our ethical assessment of banks considers a broad range of factors, including how they take into account climate and other environmental and social impacts in their lending decisions. We also consider how a bank develops, markets and manages their financial products and services in the interests of customers and the broader community. We continue to exclude CBA with relevant factors including their record and commitments on fossil fuel lending and the serious and varied scandals that have affected their customers and businesses.

National Australia Bank announced that it will not lend to any new thermal coal projects. 

 

ESG issue and explanation

We made a submission to government supporting strong Australian Modern Slavery legislation to protect against forced labour. We called for the new disclosure requirements to have teeth i.e. penalties for non-compliance. We asked for companies to be obliged to not only disclose, but also to proactively act to safeguard against human rights breaches in their supply chains.

We also called for targeted action to deal with forced labour and exploitation issues created by rogue operators in the labour hire sector. In particular we supported a national licensing scheme to regulate labour hire operators.

Impact on investment decision or performance

At the end of June 2018, the Modern Slavery Bill 2018 was introduced into the House of Representatives. The law contains a reporting requirement for large companies, without penalties for non-compliance. Whilst the legislation has shortcomings, we see it's introduction as an important signal of increasing expectations for companies to pay greater attention to worker exploitation in their supply chains, and that it is likely to lead to improved practices.

There was also some support for a national scheme for licensing of labour hire contractors. Although we haven’t seen federal legislation yet, Queensland introduced a state labour hire licensing scheme.

18.2. Additional information.


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