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Vision Super

PRI reporting framework 2020

You are in Strategy and Governance » Asset class implementation not reported in other modules

Asset class implementation not reported in other modules

SG 16. ESG issues for internally managed assets not reported in framework

Describe how you address ESG issues for internally managed assets for which a specific PRI asset class module has yet to be developed or for which you are not required to report because your assets are below the minimum threshold.

Asset Class

Describe what processes are in place and the outputs or outcomes achieved

Cash

The internal credit committee focusses on a range of factors, including ESG, given that ESG impacts the longer term credit metrics of an issuer. Although the range of issuers used by the fund is small, credit monitoring will lead to a reduction on the limitation for a particular issuer if the credit monitoring shows that a particular issuer has a an inadequate approach to ESG related issues.

The credit committee will consider ESG issues, such as the recent governance issue with Westpac Banking Corporation. Here, as example am potential new purchases were suspended, until clarity around corporate governance is resolved and rectified. Over time, we are also looking to build this framework more thoroughly with our ESG Research provider via MSCI with respect to governance ratings.  Furthermore, our issuer selection is quite limited to major banks like Macquarie and some regionals,

Given the need for issuer diversification, we cannot vary weights a lot, but they will be adjusted with MSCI ratings, over time.

During the course of 2020, we are aiming to evaluate the MSCI ratings into our credit review papers, and then try to adjust weighting towards those ratings.

16.2. Additional information [Optional].

The cash portfolio is managed in-house based on an investment objective to invest in a range of money market securities, short dated fixed income securities or equivalents. All investments will generally be invested for a maturity generally no longer the 12 months which is dependent on the outlook and interest rate environment, although the maturity may extend further at some time. If the circumstances are attractive and an opportunity presents itself, a longer dated investment will be considered, which will not have any significant detrimental impact on the liquidity of the portfolio. Enhanced credit monitoring of the portfolio has recently been established, which focusses on a range of factors, including ESG, given that ESG impacts the longer term credit metrics of an issuer. Although the range of issuers used by the fund is small, credit monitoring will lead to a reduction on the limitation for a particular issuer if the credit monitoring shows that a particular issuer has a an inadequate approach to ESG related issues. Some of the security types in the portfolio are as follows:

All trading must be with an approved counterparty/issuer who are an Authorized Deposit-taking Institution (ADI) under the Bank Act 1959,
Commonwealth or State Government of Australia, A Public Statutory Body, Corporation or Authority constituted under a law of the Commonwealth or a State and guaranteed by the Commonwealth or a Sate without limit, and Corporations with a short-term rating A1 or better by S&P Australian Rating agencies. The portfolio is not permitted to invest in instruments with a credit rating below S&P's A2 credit rating equivalent.

Investments in the cash portfolio are generally held to maturity and not actively traded. The cash portfolio is based on an investment policy with specific guidelines which is reviewed annually, and Vision is considering the integration of ESG scores into the credit procedure. More specifically, the cash pool of money serves to provide liquidly across all pre-mixed investment options allocated across the following specific cash instruments:

Term Deposits,
Floating Rate Notes.
Negotiable Certificate of Deposits.
11AM Overnight deposits with major Australian banks,
Other Approved Products,
Commonwealth of Australia issued or Guaranteed Debt Instruments, and
State issued/guaranteed debt Instruments.


SG 17. ESG issues for externally managed assets not reported in framework

17.1. Describe how you address ESG issues for externally managed assets for which a specific PRI asset class module has yet to be developed or for which you are not required to report because your assets are below the minimum threshold.

Asset Class

Describe what processes are in place and the outputs or outcomes achieved

Hedge funds - DDQ

Select whether you use the PRI Hedge Fund DDQ

Hedge funds

Alternative Growth (Hedge Fund)

Bridgewater Associates - Pure Alpha Fund (PAF)

Bridgewater is the sole manager within the Alternative Growth asset class which is configured to the Defined Benefit Plan for the Fund. As a macro-focused, multi-asset investment house, they make a number of company-specific ESG-related considerations less applicable to Thiers strategies. For example, the PAF strategy including their equity positions, are based on the fundamental linkages between asset classes and macro-economic conditions, not the evaluation of specific companies or stocks. As a result of this approach, company-specific issues are not significant inputs into its investment decisions.

The PAF strategy invests in asset classes at the country level (or in some cases, the sector level), not the company level. These sector views, which make up a small part of PAF, are also selected in line with their macro expertise and not basad on company-specific views.

Bridgewater implements their county-level and sector-level views for their equity exposures using the cheapest and most efficient methods available, including ETF's, futures, swaps, and Basek of individual equities that replicate country and sector exposure.

Bridgewater as it pertains to their asset holdings and exclusion lists, ensure that they are compliant will all applicable sanctions.  

Other (1) [as defined in Organisational Overview module]

PIMCO Tail Risk Hedge (TRH) Protection Strategy

The Vision Super TRH portfolio is not an ESG-dedicated portfolio and primarily invests in derivative instruments. However, in a world which humans are increasingly putting under strain, this program will benefit from the increasing risk in our environment. The current pandemic is a textbook example of this.

As an allocator of capital, PIMCO’s goal is to understand the sustainability-related linkages that underpin economic growth, those results, and, ultimately, the impact on the long-term health of companies and capital markets. As such, PIMCO's firm-wide investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) in a process that encompasses all of our assets under management, including the account.

PIMCO’s portfolios incorporate ESG factors into traditional credit or sovereign analysis.

PIMCO currently have proprietary stand-alone ESG scoring in place for corporate issuers, sovereigns, securitized issuers and municipal issuers, with the latest category still being built out. They use MSCI and other data providers for reference but make our own assessment based on our own, independent analysis of the industry and relevant ESG factors.

Within corporate credit, as example, PIMCO have developed a proprietary ESG scoring system.

Other (2) [as defined in Organisational Overview module]

ARMS Sector

Vision Super's investment portfolio within the Invesco Wholesale Global Targeted Returns Fund (GTR) is managed by the multi-asset team who undertakes a top-down multi asset strategy that focuses on good long-term investment ideas, based on broad macro economic themes. Invesco has recently highlighted that that several macro economic ESG elements can be relevant for macro-economic research. These factors have been identified as relevant based on considerations of global frameworks and external ESG research providers in conjunction with Invesco's internal ESG resources.

ESG issues may or may not be determining factors for their economic analysis, but could influence their overall evaluation

Invesco's multi asset view of relevant macro ESG factors consider the following:

  • Macro governance elements (i.e. political rights & trading practices)
  • Macro social elements (i.e. human rights, inequality, urbanization and demographic shifts)
  • Macro environmental elements (i.e. climate change, air pollution, natural disasters, water management and land use/biodiversity)

SouthPeak Investment Management (Real Diversification Fund) invests in derivatives which are linked to indices or whole market level. As such the manager does not involve research into single stocks or industries. If they did, it would be as part of a strategy that seeks to replicate an index like the ASX200.

17.2. Additional information.

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.


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