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CCLA

PRI reporting framework 2019

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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 negatively alter diversified oil and gas companies’ valuations to reflect amendments to the projected energy demand during the low carbon transition. This is informed by the IEA Energy Scenarios. We stress tested our multi-asset fund portfolios through the 2 Degree Investing Initiative/PRI scenario analysis tool.

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]

Due, in part, to uncertainties about future demand, regulation and legislation we continue to be significantly underweight the diversified oil and gas sector. This is informed by our Climate Change and Investment Policy that is available at https://www.ccla.co.uk/our-policies/climate-change-and-investment-policy


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

Addressing the risks and opportunities associated with climate change and the associated transition to a low carbon economy is our highest responsible investment priority. We recognise that different companies and sectors will be impacted at different times and to different extents. To identify the assets most at risk, we conduct an annual review of the impacts of climate change on the performance of 67 GICs Industry Sectors. Our current focus is on the impact of prospective regulation, legislation and litigation (with a particular focus on the ability to create ‘Stranded Assets’) and the physical effects of climate change  (such as an increased regularity of extreme weather events and impacts on the availability of water) upon companies’ ability to deliver strong and sustainable returns to investors.

The risk awarded to a sector determines whether an asset is an eligible investment and/or the level of due-diligence that is necessary to complete prior to a stock entering a CCLA portfolio. We also seek to control the aggregate levels of climate risk within our clients’ portfolios. We implement strict rules to ensure that the aggregate Carbon Footprint of all CCLA equity portfolio is not higher than that of the MSCI World Index and stress test our portfolios against IEA scenarios bi-annually.

Describe

Whilst most of the financial impacts of climate change will be felt in the future, on the back of our most recent annual review, we take a number of steps to make our clients’ portfolios more resilient.

In regards to asset selection, we have adopted a rigorous process for considering companies in the sectors most exposed to climate risk. As part of this approach:

We do not invest our clients’ assets in companies that have been identified by our third party data provider, MSCI, as generating more than 5% of their returns from the extraction of energy coal or tar sands. This currently restricts investment in companies like BHP or Anglo American.


We negatively alter diversified oil and gas companies’ valuations to reflect amendments to the projected energy demand during the low carbon transition. This amendment is informed by the International Energy Agency’s (IEA) Sustainable Development Scenario and the Beyond Two Degrees Scenario and makes the sector, and specifically oil intensive businesses, less attractive in our investment model.


In addition to the above, prior to purchase, we conduct an in-house assessment of oil and gas and electrical utility companies’ alignment with the Paris Agreement and associated measures. Investee companies that are not in line with the Agreement require approval from the Chief Investment Officer and Head of Ethical and Responsible Investment prior to purchase, are reported regularly to CCLA’s bi-annual Ethical and Responsible Investment Committee. Once purchased such businesses are prioritised for active stewardship.


We conduct analysis on the resilience of other exposed companies’ (such as those within the financial sector) to climate related events and take appropriate action.

Describe

We recognise that the transition to a low carbon economy will be complex and take place over multiple decades. We also recognise that active ownership by investors can play a significant role in the management of climate related risk management. For this reason, we have an active climate stewardship programme.

As part of this approach, investment in companies in the most exposed sectors (such as those involved in the extraction or in the generation of electricity from ‘fossil fuels’) or where we have identified significant concerns about the management of climate related risk is subject to ongoing productive engagement. Our highest climate engagement priorities are currently Chevron, Royal Dutch Shell, Total, Rio Tinto, Duke Energy and SSE.

We also conduct routine engagement with companies operating in other sectors identified by the recent Taskforce on Climate Related Financial Disclosures.

All engagement activity is monitored by CCLA’s Ethical and Responsible Investment Committee and poor corporate responses can, in extremis, lead to us reconsidering continued investment.

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

We continue to believe that the biggest risk to long-term shareholder value is a failure to limit temperature rises to a level that is significantly below two degrees celcius above pre-industrial levels. 

This could lead to changes to sea levels, damage to eco-systems, mass-migration and exacerbated extreme weather patterns. This would have a negative impact upon company supply chains, access to resources such as water – critical in many industries such as the extractives sector – and impact upon real estate assets.

For this reason, we seek to play a positive role in promoting the transition to a low carbon economy. This is done through engagement, both with companies and policy makers, but also through the allocation of capital to climate positive investments. This includes significant investments in renewable energy infrastructure, energy efficency initiatives, sustainable technology and forestry.

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.

We have disclosed based upon the definition set by our Ethical Fund Advisory Committee. This only counts an asset as being 'positive' if:

- it meets the criteria set out by the Global Investor Coalition's Low Carbon Investor Registry (with the exception of energy efficient buildings). These criteria are available at https://globalinvestorcoalition.org/wp-content/uploads/2015/10/LCI-Registry-Taxonomy_3rd-Release_211015.pdf

- all of the companies'/investment vehicle is dedicated to delivering the positive benefit

We recognise that this is a strict definition and is bespoke to CCLA's portfolios. To provide our clients with a directly comparable measure we also analyse our multi-asset portfolios through MSCI's Sustainable Impact Calculator. This suggests that c15% of the capital value of our main, multi-asset, investment funds is dedicated to activities that is promoting one of the UN's Sustainable Development Goals. 

 

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 MSCI's Carbon Footprint tool. We believe that this is the most widely used footprinting tool and, as a consequene, it directly allows our clients to compare our portfolios with those offered by different investment managers.

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
          To control aggregate climate risk we have set a maximum portolio footprint
        
          tonsCO2/$m invested
        
          As per MSCI's Methodology
        
Weighted average carbon intensity
          To measure the carbon footprint of our equity and fixed interest holdings
        
          
        
          As per MSCI's Methodology
        
Carbon footprint (scope 1 and 2)
          To measure the carbon footprint of our equity and fixed interest holdings
        
          tonsCO2/$m invested
        
          As per MSCI's Methodology
        
Portfolio carbon footprint
          To implement a portfolio-wide max carbon footprint cap
        
          tonsCO2/$m invested
        
          As per MSCI's Methodology
        
Total carbon emissions
          To implement a portfolio-wide max carbon intensity cap
        
          tons CO2
        
          As per MSCI's Methodology
        
Carbon intensity
          To implement a portfolio-wide max carbon intensity cap
        
          tons CO2/$m sales
        
          As per MSCI's Methodology
        
Exposure to carbon-related assets
          To identify companies with high exposure to climate related risk
        
          tons CO2/$m invested
        
          As per MSCI's methodology
        

14.7 CC. Describe in further detail the key targets.

Target type
Time Frame
Description
Attachments
          Ongoing
        
          Manage equity portfolios within a fixed carbon budget
        

          
        
          
        

          
        
          
        

          
        
          
        

          
        
          
        

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

As investors we have a duty to manage our financial exposure to climate related risk and to maximise the opportunities arising from the low carbon transition for our clients. We do this in five ways.

First, informed by scenario analysis and qualitative investigation by our investment analysts and ESG experts, we conduct an annual review of the major risks and opportunities associated with climate change.

Second, informed by this analysis we seek to avoid investing in the companies, in the most exposed sectors, who are not properly preparing, or are not able to prepare, for the transition to a low carbon economy.

Third, we engage with our holdings to support them in addressing and mitigating the risks that the low carbon economy poses to their business.

Fourth, we seek to promote proactive climate regulation and legislation through interaction with public policy makers.

Finally, we seek to identify investments that meet our risk and return objectives and dedicate capital to accelerating the low carbon economy.

 

 

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

Please describe

We recognise that the transition to a low carbon economy will be complex and take place over multiple decades. We also recognise that active ownership by investors can play a significant role in climate related risk management. For this reason, we have an active climate stewardship programme.

As part of this approach, investment in companies in the most exposed sectors (such as those involved in the extraction or in the generation of electricity from ‘fossil fuels’) or where we have identified significant concerns about the management of climate related risk is subject to ongoing productive engagement.

We also conduct routine engagement with companies operating in other sectors identified by the recent Taskforce on Climate Related Financial Disclosures. This includes promoting support for TCFD at relevant companies who are yet to do so.

All engagement activity is monitored by CCLA’s Ethical and Responsible Investment Committee and poor corporate responses can, in extremis, lead to us reconsidering continued investment.


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.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

5.2 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

0.24 % of AUM

Brief description and measures of investment

We were seed investors in Sustainable Development Capital Limited’s UK Energy Limited Partnership. The Fund provided finance for a low carbon combined chilling/heating and power (CCHP) solution at the St Barts’ Hospital in London. CCHP is an optimal approach to generating lower carbon electricity and heat under the recent EU Energy Efficiency Directive. The project has provided significant carbon emission reductions and an 8% return per annum for CCLA's investors. 

Asset class invested

1.67 % of AUM

Brief description and measures of investment

We have various investments including the following:

Bluefield Solar Income Fund

Foresight Solar Fund

Gresham House Energy Efficiency

John Laing Environmental Assets

Reneweables Infrastructure Group

Greencoat UK Wind

By way of example, we were seed funders in the Bluefield Solar Income Fund Limited (BSIF). This is an investment company, which focuses on the acquisition and management of a portfolio of solar energy in the United Kingdom. The Company targets utility scale assets and portfolios on greenfield, industrial and/or commercial sites with the objective of delivering long term stable yield. The Company's properties include Sheppey Kent, Pentylands Wiltshire, Goosewillow Oxfordshire, Durrants Isle of Wight, Hardingham Norfolk, Hill Farm Oxfordshire, North Beer Cornwall, Hall Farm Norfolk, Saxley Hampshire, Betingau Glamorgan, Hoback Hertfordshire, Capelands Devon, Redlands Somerset, Goshawk Surrey and Oxford shire & Suffolk, among others.

Asset class invested

0.05 % of AUM

Brief description and measures of investment

We hold an investment in the Forest Company. the Fund invests in forestry assets that are managed according to best-practice standards with regard to environmental conservation and socio-economic sustainability. 

Asset class invested

0.06 % of AUM

Brief description and measures of investment

We have a small investment in a Triodos Microfinance Fund. The Fund has a specific focus on reaching out to those traditionally excluded from access to affordable, effective and transparent financial products and services. It focusses on small and medium-sized enterprises, renewable energy, sustainable agriculture, and fulfilment of basic needs, such as housing, education and healthcare.

Asset class invested

0.8 % of AUM

Brief description and measures of investment

CCLA hold various investments that provide social housing. These include:

Civitas Social Housing

Triple Point Social Housing

Places for People Bond

By way of example Civitas Social Housing works in partnership with Housing Associations and Local Authorities (together “Registered Providers” ) to help them unlock capital held in existing social homes for new development and to promote the delivery of new social homes. Civitas does not develop or manage social homes directly but works in close collaboration with Registered Providers and others who provide these services. Civitas’ investment activity supports housing providers with the provision of permanent capital to facilitate their objective of delivering more social homes and offers investors the potential for sensible, risk adjusted real returns with regular dividend distributions.

Asset class invested

0.9 % of AUM

Brief description and measures of investment

CCLA hold a number of investments in student housing funds. These include: Euro Student Housing, GCP Student Living and Empiric Student Property.

Asset class invested

1.6 % of AUM

Brief description and measures of investment

CCLA hold various investments that provide state of the art healthcare facilities. these include: Impact Healthcare, KMG Wren Retirement Fund, Montreaux Healthcare Fund, Medicx Fund, Primary Healthcare Properties and Target Healthcare.

 

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



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