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Australian Ethical Investment Ltd.

PRI reporting framework 2019

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

We invest in companies aligned with our public 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.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

Positive and negative investment screening

Australian Ethical will only invest where making the investment is assessed to be aligned with our 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). 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).

Investment management

Within Australian Ethical’s screened universe of investments, our assessment of investment opportunity and risk and our decisions to buy and sell individual investments and to otherwise manage our investment portfolios is informed by our ethical assessment of companies and industry sectors (including their positive and negative impacts on people, animals and the environment).

Company engagement and advocacy

Australian Ethical influences better management by companies of their impacts on people, animals and the environment i.e. to increase positive and reduce negative impacts. This may include influencing through private engagement, voting, public praise or criticism, shareholder resolutions and divestment.

Investment industry influence

Australian Ethical pursues opportunities to increase the capacity and motivation of other investors to also act to advance the interests of people, animals and the environment. This includes exercising influence as member, office holder and working group participant of industry associations and initiatives, as well as independent advocacy for responsible investment.

Public policy advocacy

Australian Ethical uses its investor influence to promote government policies and public attitudes which advance the interests of people, animals and the environment. This includes submissions for government policy consultations and the exercise of a responsible public investment voice on important issues.

Measurement and transparency

Australian Ethical pursues opportunities to measure and report on the impact of its action to further the aims of the Ethical Charter. This is important as a tool both for increasing impact and for demonstrating impact to Australian Ethical members and other clients and stakeholders. Australian Ethical reports in accordance with standards and guidelines of the Global Reporting Initiative (GRI), and current channels for impact reporting include annual Australian Ethical group sustainability reporting, member communications, social media, Good Money magazine and the Australian Ethical website.

Impact priorities

Australian Ethical regularly reviews its priority actions in the above areas, taking into account current social, animal and environmental needs and opportunities for us to make the biggest difference.

Collaboration

In the above areas Australian Ethical acts both independently and collaboratively with other investors as well as with non-investment companies and groups. We are an active participant in a number of investor organisations including the UN Principles for Responsible Investment, Responsible Investment Association of Australasia, Investor Group on Climate Change, Portfolio Decarbonisation Coalition, Financial Services Council and Association of Superannuation Funds of Australia Limited.

External investment services

Australian Ethical only uses external investment services where the provision of those services is assessed to be aligned with the Ethical Charter. For example, we may appoint an external investment manager for some investments where we are satisfied that those investments will be managed in accordance with the Ethical Charter, having regard to the investment mandate and external manager’s capabilities.

01.6. Additional information [Optional].

          
        
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SG 01 CC. Climate risk

01.6 CC. Indicate the climate-related risks and opportunities that have been identified and factored into the investment strategies and products, within the organisation's investment time horizon.

The prospects and value of the businesses and assets we invest in are exposed to risks and opportunities arising from the many effects of climate change, including from:

  • the diverse physical impacts of temperature increase such as increases in sea level and extreme weather)
  • secondary effects of these physical impacts including technological, agricultural and supply chain disruption
  • changing government energy and climate policies such as tougher emissions standards and carbon pricing
  • changes in customer demand due to their evolving expectations for climate action by business
  • social, political and economic disorder from climate harm suffered by people (including their displacement) and from the increased inequality arising from differences in the amount of harm suffered by different groups and countries
  • the disrupting effect of potential and actual conflict between countries.

Our Ethical Charter (www.australianethical.com.au/australian-ethical-charter) guides us to invest in sectors and companies which are aligning their businesses with the urgent transition needed to limit global warming to well below 2 degrees. This means that as well as supporting a lower warming outcome, these sectors and companies are better able to manage some climate-related risks than non-aligned sectors and companies. However, the effects of climate change will be felt across the economy and society. The effects of global warming may also systemically disrupt trade and financial and investment markets, both locally and globally. This brings significant risk of volatility and loss to all investment portfolios.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

01.8 CC. Indicate the associated timescales linked to these risks and opportunities.

Short term 0-3 years 
Nearer term physical impacts of temperature increase such as more extreme weather and fires, and flow-on effects on climate sensitive sectors such as agriculture. 
Changes in customer demand due to evolving expectations for climate action by business.
Changing government energy and climate policies and regulation such as tougher emissions standards and carbon pricing.

Medium term 3-10 years 
In addition to the above: 
Progressive physical impacts of temperature increase such as increases in sea level, and consequential technological, supply chain and other business and social disruption, including impacts on human health and well-being.
Growing pressure on threatened species.
Disruption of global trade from international disagreements about climate action and inaction. And from changing patterns of production and demand and growth.

Long term 10-100+ years 
In addition to the above:
Social, political and economic disorder from climate harm suffered by people (including their displacement) and from increased inequality because different groups and countries suffer more harm than others.
Disrupting effect of potential and actual conflict between countries. 

01.9 CC. Indicate whether the organisation publicly supports the TCFD?

01.10 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Our Ethical Charter applies to all our investment strategies. It guides us to invest in a way which minimises dangerous climate change, including to invest in sectors and companies which are aligning their businesses with the urgent transition needed to limit warming to 1.5 degrees. Key features of our approach which are relevant to climate risk and opportunity include:

Negative screening

We don't invest in fossil fuel companies or other companies assessed to be obstructing the action needed to limit warming in accordance with the Paris Climate Agreement. When we invest in the energy sector 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%).

Positive screening

We invest in companies producing renewable energy and increasing energy efficiency, and otherwise supporting the urgent economic transition needed to limit warming to 1.5 degrees.

Investment management

Our assessment of investment opportunity and risk and our decisions to buy and sell individual investments and to otherwise manage our investment portfolios is informed by our ethical assessment of the climate impacts of companies and industry sectors - including impacts from the way products and services are produced, supplied, consumed and disposed of.

Targets

We have a zero emissions target for our investment portfolio, by 2050. This target date has been set in line with the recommendations of the Australian Climate Change Authority, but we will continue to work to move more quickly.

Influencing companies

We engage with companies to influence alignment of their businesses with the urgent transition needed to limit warming in line with the Paris Climate Agreement. This includes better management of the climate impacts of the way the company's products and services are produced, supplied, consumed and disposed of. We encourage, for example, better measurement and reporting of direct and indirect greenhouse gas emissions; emissions reduction target setting; and analysis of the resilience of the company's business strategy to different climate scenarios. Through our influence we aim to reduce companies' contribution to global warming as well as reducing climate-related harm to their business prospects.

We exercise positive influence on companies through private engagement, voting, public praise or criticism, shareholder resolutions and divestment.

Investment industry influence

We encourage other investors to use their influence to support the net zero emissions transition. We do this by sharing our experience of the opportunities and challenges presented by responsible investor climate action.

Public policy advocacy

Through policy submissions, consultation with government and our public voice we encourage more effective climate policy, including in relation to energy and other industry policy, carbon pricing and corporate climate disclosure.

Measurement and transparency

We measure and report our climate performance, including the emissions intensity of our share investments (carbon footprinting); the alignment of investments in the power and auto sector with the changes in power generation and car production needed to transition to net zero emissions; the emissions avoided by our investment in selected renewable and energy efficiency companies.

1.12 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.


SG 02. Publicly available RI policy or guidance documents

New selection options have been added to this indicator. Please review your prefilled responses carefully.

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

URL/Attachment

URL/Attachment

URL/Attachment

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

Our organisational Code of Conduct and Conflicts Management Framework extends to conflicts of interest arising in all our activities, including our investing activities. Any conflicts which arise are to be managed so that the interests of our clients and shareholders are not adversely affected by the conflict. The Conflicts Management Policy includes specific provisions relating to arrangements with service providers and advisors; related party dealings; personal investments; and gifts and benefits received by Australian Ethical or its employees.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within portfolio companies.

04.2. Describe your process on managing incidents

Incidents are identified from a variety of sources including monitoring of company announcements and other news sources; controversy monitoring services provided by third parties; research by civil society organisations; and communications from members and other stakeholders. For Australian and New Zealand stocks we have active investment analyst coverage, with access to real-time information through Factset and Bloomberg. 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 research 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. For serious incidents the Head of Ethics Research will consult with the CIO to determine the potential consequences of unsuccessful engagement, including the potential for divestment.


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