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

Australian Ethical Investment Ltd.

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 used analytic tools from the European 2° Investing Initiative (2ii) to assess whether our share investment in power generation is aligned with the massive shift to renewables that is needed to limit warming to 2 degrees.

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]


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 used analytic tools from the European 2° Investing Initiative (2ii) to assess whether our share investment in power generation is aligned with the massive shift to renewables that is needed to limit warming to 2 degrees. Our analysis showed that (1) Our share investment in renewable power generation is proportionately about six times that of the global sharemarket; and (2) The growth in renewable power generation capacity, represented by our current share investments and projected over the next five years, is aligned with what is required to limit warming to below 2 degrees (under the SDS and B2DS scenarios discussed below).The 2ii tools look at the current power generation capacity of companies as well as their projected new capacity over the next five years. We applied the 2ii tools to our shareholdings at the end of 2017. We assessed the projected increase in renewable power generation (including solar, wind and hydro) over the next five years against the International Energy Agency Sustainable Development Scenario (SDS) and Beyond 2 degrees Scenario (B2DS). The SDS is a scenario of transformation of the global energy system to limit global warming to well below 2 degrees; to provide universal access to modern energy by 2030; and to dramatically reduce premature deaths from air pollution. The B2DS is a more aggressive energy emissions reduction scenario, with the energy sector reaching carbon neutrality by 2060 to limit future temperature increases to 1.75°C by 2100.

This analysis helps us to test whether our Ethical Charter and energy sector framework is effective to direct investment to companies aligned to the transition to net zero emissions in accordance with the Paris Agreement.

We do not model the impact of different emissions and temperature increase scenarios on the value of our investment portfolios. Our ethical investment approach recognises the power which investors have to help positively shape the future. If investors only choose companies with strategies aligned to a 1.5-degree future, then investors will proactively help to bring about a world which effectively limits warming. By shifting capital from fossil fuels to renewables, investors help to bring down the price of renewable energy, they encourage investment in more flexible electricity grids and energy storage, and they contribute constructively to a sensible public discussion about energy policy. These investors, particularly universal investors like super funds, are also acting in the financial interests of their clients because we believe that risk-adjusted returns will be better in a low-warming world than a high-warming one.

Describe

Our analysis using climate scenarios informs our active ownership by providing insight into (1) renewable energy investment plans of the companies we invest in, which informs our engagement with them; and (2) transition pathways for the broader energy sector, which informs our public advocacy and our engagement with companies which are screened out by our Ethical Charter.

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

In applying our Ethical Charter we evaluate climate change impacts, risks and opportunities for people, animals and the environment, independently of our financial investment analysis.

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.

Our Ethical Charter (https://www.australianethical.com.au/australian-ethical-charter/) requires us to assess short, medium and long term impacts on people, animals and the environment. This guides us to invest in a way which minimises dangerous climate change:

Negative screening: We don't invest in fossil fuel companies or other companies assessed to be obstructing the action needed to limit warming to well below 2 degrees. When we invest in the energy sector, for example, we require a positive contribution to the transition to a renewable energy system, and any fossil fuel revenue of a company must be below our thresholds (5% to 33%). In the banking sector, we exclude banks if they are not aligning their lending activities with the transition needed to limit warming in accordance with the Paris Agreement.

Positive screening: We invest in companies producing renewable energy and increasing energy efficiency, and otherwise supporting the urgent economic transition needed to limit warming in line with the Paris Agreement. These include investment in wind, solar, hydro and geothermal energy, battery storage, LED lighting, insulation, sustainable buildings and clean energy technology start-ups (through the Artesian Clean Energy Seed Fund).

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 use:

  • Trucost portfolio and company footprinting of our equities investments, covering scope 1 and some scope 2 emissions
  • MSCI ESG Research carbon emissions performance metrics and analysis
  • 2 Degree Investing Initiative online analytic tools
  • Company CDP disclosures and companies' other climate and carbon reporting.

14.5. Additional information [Optional]


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
Climate-related targets
          Help assess alignment with Paris Agreement transition.
        
          Zero emissions target (tCO2e)
        
          Scope 1, 2 and 3 emissions, apportioned to prevent double counting.
        
Carbon footprint (scope 1 and 2)
          Help assess alignment with Paris Agreement transition.
        
          tCO2e/AU$ revenue or sales
        
          GHG Protocol; Trucost assessment of direct emissions and first tier indirect emissions ('supply chain impacts'); MSCI ESG platform  carbon emissions performance metrics (scopes 1, 2 and some 3).
        
Portfolio carbon footprint
          Help assess alignment with Paris Agreement transition.
        
          tCO2e/AU$ revenue
        
          GHG Protocol; Trucost assessment of direct emissions and first tier indirect emissions ('supply chain impacts').
        
Total carbon emissions
          Help assess alignment with Paris Agreement transition.
        
          tCO2e
        
          GHG Protocol; Trucost assessment of direct emissions and first tier indirect emissions ('supply chain impacts'); MSCI ESG platform  carbon emissions performance metrics (scopes 1, 2 and some 3).
        
Carbon intensity
          Help assess alignment with Paris Agreement transition.
        
          tCO2e/AU$ mn revenue; tCO2e/MWh
        
          GHG Protocol; Trucost assessment of direct emissions and first tier indirect emissions ('supply chain impacts'); MSCI ESG platform  carbon emissions performance metrics (scopes 1, 2 and some 3).
        
Exposure to carbon-related assets
          Help assess alignment with Paris Agreement transition.
        
          $ revenue
        
          Screen out companies with fossil fuel related revenue or reserves exceeding applicable thresholds (e.g. fossil fuel mining, power generation and transport).
        
Other emissions metrics
          
        
          
        
          
        

14.7 CC. Describe in further detail the key targets.

Target type
Time Frame
Description
Attachments
          By 2050
        
          Absolute zero portfolio emissions target (t CO2e scope 1, 2 and 3 emissions, apportioned to prevent double counting). Carbon intensity (tCO2e/AU$ 
mn revenue) metric used to assess and promote progress to target.
        

          
        
          
        

          
        
          
        

          
        
          
        

          
        
          
        

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

We identify, assess and manage material climate-related risks through the processes described in SG 01.10 CC, 07.6 CC, 07.7 CC, 13.4 CC and 14.6 CC. For example, our investment screening and company engagement guides us to sectors and companies which are aligning their businesses with the transition needed to limit global warming to well below 2 degrees. Aligned companies are better positioned than non-aligned companies to manage many climate-related risks, such as the risk of introduction or increase in carbon pricing. However, the effects of climate change will be felt across the economy and society. Higher global warming threatens to disrupt trade and financial markets and carries significant risk of loss to all investment portfolios.

The work of our ethics research team monitors developments in:

  • scientific understanding of the rate and impacts of global warming
  • domestic and international climate policy and regulation
  • technological innovation in climate mitigation and adaptation.

Developments in these areas are factored into ongoing review of our ethical screening frameworks for different industry sectors. Reviews consider direct and indirect emissions (scopes 1, 2 and 3) for the sector; susceptibility to the impacts of global warming; and facilitation of climate action and inaction. Climate risk is investigated in more detail for high risk/opportunity sectors, including energy, food, transport, real estate and banking. Banking is assessed to be high risk because of the huge shifts in capital needed for climate change mitigation and adaptation, and the risks of climate harm from bank lending which is not aligned with the 2 degree transition.

As an example of this process, our periodic ethical review of a carbon intensive sector like the energy sector takes into account changes in renewable energy and energy efficiency and storage technologies and their social and environmental impacts; changes in levels of atmospheric carbon; changes in scientific understanding of the pace, extent and impacts of global warming; changes in energy infrastructure such as the grid; and changes in energy market supply and demand. Consequential changes to our ethical framework for the energy sector and engagement and advocacy objectives are prepared by the ethics research team and reviewed and approved by the Ethical Advisory Group (EAG). These changes may include additional investment exclusions or inclusions (e.g. a change in our screening of biofuels), or a change in our engagement and advocacy objectives and priorities for companies in the sector or related sectors. The changes to our energy sector framework may then have flow on effects to other frameworks (e.g. to the way we assess the 2 degree alignment of banks' lending under our banking framework).

We use climate performance data from a variety of sources to assess the alignment of company businesses with a 2-degree transition, which in turn is a key component of our investment screening and engagement and advocacy.

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

Please describe

Support for climate shareholder resolutions seeking improved climate disclosure.

Participation in the Climate Action 100+.

Support for the CDP 2018 ‘Non-Discloser campaign’ 

 


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.

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



Top