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Australian Ethical Investment Ltd.

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

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
30 %
Percentage of active listed equity to which the strategy is applied
70 %
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.

We invest in companies aligned with our Ethical Charter (www.australianethical.com.au/australian-ethical-charter). The 23 Charter principles guide us to investments which support people, animals and the environment (positive screening) and which do not cause them unnecessary harm (negative screening).

The consistent, rigorous application of our Charter principles defines a sustainable investment universe which we believe produces good outcomes for both the planet and the financial interests of our clients.

Our Ethical Charter requires us to assess the impacts on people, animals and the environment of a company's products and services (including impacts from the way those products and services are produced, supplied, consumed and disposed of). This process draws on data and analysis from company, industry, government, responsible investment, scientific and civil society sources. This broad and deep research of short and long term social and environmental impacts of companies and sectors builds a more complete understanding of the prospects and risks of the companies and sectors in our universe. As well as defining a sustainable investment universe, this enables more impactful engagement with companies. For our ‘active-fundamental’ equities portfolios, this research also contributes to the way that ESG considerations are integrated into our financial evaluation or portfolio weighting of companies.

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


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 

Indicate who provides this information 

Indicate who provides this information 

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

02.3. Describe how you incentivise brokers.

In selecting brokers, we have regard to the ESG research they provide, as well as the other research and services they provide. 

02.4. Additional information.[Optional]


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]


(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

Australian Ethical will only invest where making the investment is assessed to be aligned with our Ethical Charter (www.australianethical.com.au/australian-ethical-charter). The 23 Charter principles specify twelve things we invest to support and eleven harms we invest to minimise. These principles guide us to investments which support people, animals and the environment (positive screening) and which do not cause them unnecessary harm (negative screening). This requires us to assess the positive and negative impacts on people, animals and the environment of a company's products and services, including impacts from the way those products and services are produced, supplied, consumed and disposed of.

Our negative screen leads us to avoid, for example, tobacco, weapons, fossil fuels, discriminatory and exploitative business practices and other unsustainable products, services and companies.

Screened by

Description

Australian Ethical will only invest where making the investment is assessed to be aligned with our Ethical Charter (www.australianethical.com.au/australian-ethical-charter). The 23 Charter principles specify twelve things we invest to support and eleven harms we invest to minimise. These principles guide us to investments which support people, animals and the environment (positive screening) and which do not cause them unnecessary harm (negative screening). This requires us to assess the positive and negative impacts on people, animals and the environment of a company's products and services, including impacts from the way those products and services are produced, supplied, consumed and disposed of.

Our positive screen leads us to support sustainable and positive impact businesses including energy efficiency and energy storage technologies, renewable energy, medical breakthroughs, recycling, efficient transport and other sustainable products and services.

Screened by

Description

As well as considering the impacts of the products and services produced by a company, we also consider the way those products and services are produced. International norms are an important guide in our assessment of this, particularly where companies based in developed countries also operate in less developed markets or source goods and services from those markets. For example, we will avoid companies which systematically ignore their responsibilities under the UN Guiding Principles on Business and Human Rights.

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

We communicate with clients via letters, emails, our Good Money magazine and the Company's website and social media. This includes explaining how we apply our Ethical Charter to different companies, industry sectors and ethical issues. We also list the companies we invest in on our website. We summarise our analysis of key issues and update developments on our website (https://www.australianethical.com.au/super/our-position-on-topical-issues/; https://www.australianethical.com.au/good-money/). 


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]

We regularly approach companies to obtain additional information to assist our analysis of their environmental and social impacts and management of those impacts. This includes approaching companies to confirm specific analysis and conclusions in important cases. However, we do not give companies the opportunity to review our ESG research on them and correct inaccuracies in all cases. Some of our external research and data providers do provide details of their analysis to companies which gives them the opportunity to correct inaccuracies.

We conduct a periodic review of our company ethical assessments every 2 years. Reviews will occur more frequently where significant ESG incidents occur. If an ESG incident is identified or the activities or circumstances of an investee company changes such that the company's activities may breach a principle of our Ethical Charter, our ethics team will consult with the investment analyst and investigate and assess the significance of the breach (including its impact on the ethical assessment of the company under the Charter) and the prospects for engagement with the company to take action which would remedy the breach.

Our external ESG research provider updates their company ESG ratings and other ESG data annually or more frequently in response to significant incidents.


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.

As all our listed equities are internally managed, there are systems and procedures in place to avoid breaches of fund screening criteria. The CIO only approves a limit for a company after it is assessed for alignment with the Ethical Charter. Investments may only be made once the limit is approved. The spreadsheet which records the investment limits is linked to our spreadsheet record of companies’ ethical alignment status. This enables automated verification that all companies with limits meet our screening criteria.

If we identified that an investment had been made without the required ethical assessment, then either:

- the investment would be sold as soon as practical; or

- if there is a reasonable prospect that the investment would be assessed as investable under the Ethical Charter, we may conduct an assessment of the investment as soon as practical. If the investment was approved under the Charter it could be retained; if it was not approved it would be sold as soon as practical.

Where an investment has passed our ethical assessment process but new information emerges that a company's activities may breach a principle of our Ethical Charter, our ethics team will consult with the investment analyst and investigate and assess the significance of the breach (including its impact on the ethical assessment of the company under the Charter) and the prospects for engagement with the company to take action which would remedy the breach. If the issue cannot be resolved and is sufficiently serious we will divest.

06.3. Additional information.[Optional]


(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]


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.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

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

09.6. Additional information.[Optional]


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

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

          ESG considerations can affect earnings prospects and valuation multiples.
        

10.3. Describe how you integrate ESG information into portfolio weighting.

In some equities portfolios our internal ethical grade for companies affects their weighting in the portfolio. ESG considerations can also affect weightings by impacting judgements about earnings prospects and valuation multiples. 

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

The analyst makes adjustments on a case by case basis, ultimately approved by the CIO.

10.6. Additional information. [OPTIONAL]


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