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Vision Super

PRI reporting framework 2020

You are in Strategy and Governance » Outsourcing to fiduciary managers and investment consultants

Outsourcing to fiduciary managers and investment consultants

SG 12. Role of investment consultants/fiduciary managers

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

12.1. Indicate whether your organisation uses investment consultants.

12.2. Indicate how your organisation uses investment consultants in the selection, appointment and/or monitoring of external managers.

Asset class

Asset class

12.3. Indicate if your organisation considers responsible investment in the selection, appointment and/or review processes for investment consultants.

12.4. Indicate whether you use investment consultants for any the following services. Describe the responsible investment components of these services.

Describe how responsible investment is incorporated

          Through our master custodian "National Asset Services" via Sustainalytics, we receive carbon reporting annually for all our listed equity shareholding exposures at a portfolio and asset class level.
        

Describe how responsible investment is incorporated

          Our investment consultant Frontier Advisors recognises there is no "one size fits all" approach to ESG and that there is general diversity in the ESG philosophy and level of specialisation of investors. The first step they undertake is to establish with Vision Super what our core ESG investment beliefs, investment philosphy and governance framework.
        

Describe how responsible investment is incorporated

          Frontier Advisors formally conducts research and reports on ESG matters across all major asset classes on an annual basis. Their sector research reports include observations from their sector specialists on ESG development and in turn this evaluation turns into portfolio construction advice to Vision Super.
        

Describe how responsible investment is incorporated

          Frontier's investment research aims to analyse and evaluate new and current ESG trends. They have also undertaken surveys of Australian, international equities and infrastructure managers to establish the state of their understanding of ESG and how this has evolved. Furthermore, Frontier has also written white papers on governance issues along with research on ESG matters across all relevant strategic sector configurations.
Frontier highlights that many ESG issues (supply chain, bribery/corruption, executive remuneration and water security as example) are also well covered by specialist researchers from the funds management industry, industry associations and broking houses to name a few where Frontier Advisors will also leverage from this research and consider within their internal evaluations.
        

Describe how responsible investment is incorporated

          Manager Research: Frontier has a strong preference for fund managers that have already integrated ESG within their investment philosophy and process.
Frontier has a strong view that they need to distinguish between managers who have ESG DNA embodied within their investment process versus investment managers who say what you want to hear.
Furthermore, an investment manager's approach to ESG is a core element of Frontier's due diligence which is completed by each sector-based research team. This is conducted as part of initial manager assessment and then on a ongoing regular basis. As part of this assessment, investment managers are rated taking into account a wide variety of factors (i.e. ESG culture, ESG integration into investment process, ESG risk consideration and level of engagement with company management).
        

Describe how responsible investment is incorporated

          The ESG approach for portfolios in different asset classes (i.e. equities, fixed income, property, infrastructure, private equity) will vary and Frontier Advisors takes these factors into account with specific determinants for each.
        

Describe how responsible investment is incorporated

          Each Research Team at Frontier Advisors 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.
Responsible investment considerations are also formally integrated into Frontier’s investment manager assessment, monitoring and engagement processes.  The objective of integrating responsible investment in Frontier’s investment manager research effort is to identify, assess and communicate the relative credibility and capabilities between investment products with respect to ESG.  
Consistent with the broader investment product rating process, the responsible investment assessment process is multi-faceted, drawing on a range of quantitative and qualitative inputs determined as being material by the relevant Research Team.  Such inputs are sourced variously as needed, although direct discussions and case studies with the investment manager are a standing element of the process as these support a greater depth of understanding relative to sole reliance on manager-supplied documentation.
Typical areas of assessment include the following, with individual Research Teams determining the materiality of each with respect to the specific product.  Emphasis is placed more on the appropriateness and suitability of the investment manager’s responsible investment approach in the context of its overall strategy rather than on strict and potentially arbitrary metrics.
1.	Responsible Investment/ESG Philosophy, Policy and Culture 
2.	Responsible Investment Resourcing 
3.	Integration of Responsible Investment into the Investment Process
4.	Stewardship 
5.	Collective Activity
6.	Climate Change
7.	Reporting and Client Service 
Responsible investment considerations are formally incorporated into annual reviews of investment products.  The objective is to review, update (as required) and/or re-confirm the Research Team’s current assessment of the investment manager’s responsible investment capability with respect to the product.
Research Teams actively engage with investment managers on an ongoing basis to encourage improvement across all facets of their operations.  This formally includes the integration of responsible investment considerations.  The objective is to have investment managers continually deliver progressively better services to Frontier’s clients over time.
        

12.5. Indicate whether your organisation considers any of the following responsible investment factors in the monitoring of fiduciary managers

12.6. Describe the approach you take to monitoring your fiduciary managers and the reason(s) for this approach [Optional].

Monitoring and Reporting of Investment Managers

Vision Super policy for monitoring Investments is set out in detail in the Investment Governance Framework policy, including;

Performance monitoring:

  • At the portfolio, asset class and Investment option level
  • Daily, monthly and annual (sector reviews)

Manager monitoring:

  • Mandate compliance
  • Regular onsite interviews and calls
  • Review of Investment Advisor notes
  • Regular Operational due diligence review
  • Annual outsourced material business activity attestation
  • Annual ESG Fund Manager questionnaire

Sector (asset class) reviews

All portfolios have specific mandates detailing information such as authorised investments, reporting and exposure limits. The Custodian provides a monthly report on mandate compliance for both internal and external, which is reviewed by the Investment team.

The Investment Advisor (Frontier Advisors) review the performance of all internal and external managed portfolios and their quarterly report is reviewed by the Investment Committee as part the annual work program.

The internal cash portfolio and any direct investments are not monitored by the Investment Advisor. The Investment team directly monitors these investments, using external advice where appropriate.

In addition, the Investment team:

  • Conducts regular onsite interviews and calls with both domestic and off-shore managers
  • Attends annual general meetings for domestic managers
  • Reviews meeting notes provided by the Investment Advisor.

The Investment team and Investment Advisor conduct regular sector reviews (annual for the major sectors, at least biennially for other sectors).

Risk monitoring

Investment risks captured in the Risk Management Strategy are subject to ongoing monitoring and reporting under the Vision Super risk management framework. The policy now also includes ESG as a key risk factor as part of our framework.

The Investment team monitors the asset allocations of the Investment options (including liquidity and currency exposures) and economic market on a weekly basis (at a minimum).

The Investment team also monitors exposure to liquidity, currency and credit risk in accordance with the relevant policies.

The investment risks of the Fund’s Investment options are formally reviewed each year as part of the annual review of investment strategy.

 

12.7. Additional information [Optional].

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.

Investment Research

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.


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