Further to comments relating to "Other (2) [as defined in Organizational Overview module]" ARMS:
Invesco Wholesale Global Targeted Returns Fund (GTR)
Economic analysis automatically incorporates an analysis of factors considered as ESG. This is reviewed monthly with a view that each idea has the potential to provide a positive outcome against the broad market. As part of this process, numerous potential ESG considerations are reviewed. As example, a view on inflation will form part of the Economic analysis and this could include the impacts of social inequality and the minimum wage.
Invesco also undertakes at least bi-annually a consideration of potential scenarios that could impact financial markets which is part of their risk management process where ESG is also incorporated within this process. As an example, Invesco evaluated the impact of social inequalities might have and the need for stronger inflation and economic growth forecasts. They also undertook a climate scenario analysis of the GTR strategy by shocking the portfolio to a 2 degree trajectory of warming based on energy and transport system changes to 2030. Invesco states that this is not an exact science and that the Biogest caviet is that sector indices are heavily equity weighted and that this will introduce more risk within the portfolio in any correlation-based shock analysis.
Its also worth noting that six of Invesco's current ideas replicate the holdings of Invesco strategies across both equities and fixed income (credit) which are bottom-up ESG integration and active ownership across the funds they manage. For fixed income (credit) Invesco takes into account ESG factors where relevant on an individual issuer perspective and with the equity sleeve, this takes into account ESG integration and stewardship process across their teams and actively exercise their voting rights for these shareholdings.
Invesco ESG case studies;
- Russian Ruble vs Chilean Peso
- Analysed the country risk of both Russia and Chile which included reviewing the political and human rights issues (civil unrest in Chile) in both countries whilst Invesco held these positions. This consisted of Invesco reviewing the the situation, understanding the policy response form the Central Bank, government and President, and monitor how these were received by the Chilean population and the global financial markets. The unrest combined with the twin deficit led the Chilean peso to fall more than 10% and also during Invesco's holding period, there was a seismic change in the political landscape in Russia. These political reforms under the Putin government were needed to reviewed for implications around civil rights and flow on effects impact with respect to country risk associated with Russia. These considerations were made because the financial implications in both Chile and Russia's social and governance factors are major contributors to the value of the relevant currencies as part of Invesco's approach.
- Japanese & Chinese Equities
- Invesco had view that Japan's corporate reform will continue to lead to higher ROE's over time, and in turn will ensure the increase of Japanese equities' returns on an absolute basis. Invesco has also reviewed the role that demographics have had in the Japanese economy and how its has impacted long-term savings and consumption patterns. These factors are extremely relevant as in the case of China, where they added exposure.
Invesco also considers regulatory aspects where companies may be engaged in controversial weapons and or support type services. Invesco has secured the support of a third party, ISS-ESG, who provide ongoing advice and research.
With strategies such as TRH and ARMS it may not be possible or cost effective to adequately screen directly for ESG issues. However, the tail risk protection strategy was implemented partly with the increased tail risk that climate change and other human induced risks that impact our world.
Further to comments above relating to Hedge Funds above (Bridgewater Associates - Pure Alpha Fund):
Pure Alpha is equally likely to be short or long in a given market over time. For the portfolio, this essentially meas that trades do not consistently provide capital to any particular asset class or market. These trades would generally be allocated over a period of 6-18 months.
Lastly, Vision Super's ESG policy, when searching for new investment managers, our due diligence includes a demonstration of how an assessment of ESG risks is incorporated into the investment process including the use of positive screens if any. The investment manager should also specify the resources available to analyze ESG risks, including personnel and their expertise, and external research services used.