General Comments on Frontier Advisors
Frontier Advisors have also developed a module on their PRISM (Frontier's proprietary portfolio analytics system) platform specifically for climate change where it enables clients to access a range of analytical and compliance, scenario tools and research. They are constantly looking at how they can improve the module and enhance their model ling around financial impacts of climate change. The Climate change module is included in the Service Level Agreement with Frontier.
Frontier's research teams specifically look at ESG/Green elements as part of overall manager evaluations. Frontier's GARDS team provides specific advice and research on investment governance and decision making structures.
Frontier Advisors became a service provider signatory to the PRI in October 2006. As outlined within their Responsible Investment Policy, they are committed to encouraging investment managers have consideration to ESG issues on behalf their client's and consistent with their fiduciary obligations.
Frontier Advisors is also a signatory to the Paris Pledge and also a member of IGCC.
Frontier's input around the TCFD requirements to this point have been limited as they do not engage directly with listed companies and as such their ability to influence here is rather limited. Despite this, they are evaluating how they can best assist with manager selections and monitoring as part of this obligation. It may be the case that they interact with investment managers to have them engage with companies in order for therm to provide the relevant data as per the TCFD requirements.
Further Items relating to items SG 12.4:
Investment Policy Development
Frontier acknowledges that each of its clients will approach responsible investment (RI) considerations in a different way, depending on its unique set of objectives, constraints and values. Frontier therefore works closely with clients to understand and clarify their ESG investment beliefs and objectives in order to help define matters that are most important to them and assist with the development of their ESG/RI philosophy and policies. Emphasis is placed on ensuring the client’s RI philosophy is fully integrated into their broader investment philosophy
Frontier draws on its experience as an adviser to superannuation funds and other institutional investors to inform its dialogue with clients on developing RI policy. Specialists from Frontier's Responsible Investment Group, and Governance, Advice, Risk, Decisions and Strategy team work with directly clients to assist them in developing an investment governance philosophy and framework, including an ESG/RI policy.
Strategic Asset Allocation
In advising clients on integrating responsible investment into their strategic asset allocation, Frontier is primarily guided by the client’s responsible investment beliefs and policy. Frontier firstly seeks to ensure that responsible investment factors deemed most material to the client are appropriately reflected in their overall objectives, which ultimately define the parameters within which the strategic asset allocation process operates.
Frontier’s Capital Markets and Asset Allocation Team (CMAAT) integrates ESG considerations into the development of its long-term capital market assumptions on an annual basis. The CMAAT draws on ESG research from across the broader business including Frontier’s sector Research Teams. ESG factors deemed material by the CMAAT, e.g. transition to a lower-carbon economy, are considered alongside traditional factors, e.g. macroeconomic drivers, in determining the long-term expected returns, risk, correlations etc of major asset classes. These metrics are the key inputs into the optimisation process which forms a core component in determining a client’s strategic asset allocation. In 2019, the CMAAT reduced its long-term, “equilibrium” return assumption for cash, partly based on its base case expectation for the impact of climate change on economic activity. This resulted in Frontier’s capital market assumptions declining across all asset classes.
To assist its clients considering climate change factors as part of determining long-term investment strategy, Frontier has incorporated a Climate Change Module into Prism, its proprietary portfolio analytics system. The objective of the Climate Change Module is to permit clients a better understanding of the potential impacts of climate change on investment portfolio outcome under different but plausible climate transition scenarios.
The consideration of and research into ESG factors are formally integrated into Frontier’s broader investment research efforts. Frontier’s clients are asset owners with highly diversified, long-term portfolios and therefore considered “universal owners”. Such asset owners are reliant on a sustainable real economy, as well as predictable and reliable global systems, to achieve their performance objectives. As such, the objective of Frontier’s responsible investment research effort is to positively impact long-term investment outcomes by identifying, assessing and communicating relevant and material investment risks and opportunities arising from ESG factors.
At the delegation of Frontier’s Investment Committee, Frontier’s Responsible Investment Group has primary responsibility to formulate and drive the firm’s responsible investment research agenda. This process is continually informed by Frontier’s interactions on responsible investment issues with a broad range of industry stakeholders including clients, investment managers and responsible investment advocacy groups.
Given the large number and wide variety of ESG factors, the formulation of Frontier’s responsible investment research agenda also considers the materiality of these factors. ESG factors expected to have a material impact on the long-term performance of client portfolios are prioritised for research.
Frontier is further directed by the UN Sustainable Development Goals which in aggregate are viewed as providing tangible and detailed guidance on the likely evolution of development-related policies and capital funding requirements to achieve them. Frontier focusses on those goals where it believes it can materially influence the outcomes on behalf of clients.
Each Research Team formally reports on material responsible investment matters across all major asset classes/capital markets on at least an annual basis. More generally, where deemed material, asset class/capital markets research reports will include consideration and analysis of relevant responsible investment issues. Where relevant, a Research Team may draw on externally-produced responsible investment intelligence to supplement its proprietary analysis.
Responsible investment research is primarily undertaken by Frontier’s Research Teams, reflecting the domain expertise required to effectively analyse ESG factors within specific asset classes/capital markets.