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Vision Super

PRI reporting framework 2020

You are in Organisational Overview » Asset class implementation gateway indicators

Asset class implementation gateway indicators

OO 10. Active ownership practices for listed assets

10.1. Select the active ownership activities your organisation implemented in the reporting year.

Listed equity – engagement

Listed equity – voting

Fixed income SSA – engagement

Fixed income Corporate (financial) – engagement

Fixed income Corporate (non-financial) – engagement

Fixed income Corporate (securitised) – engagement


OO 11. ESG incorporation practices for all assets

11.1. Select the internally managed asset classes in which you addressed ESG incorporation into your investment decisions and/or your active ownership practices (during the reporting year).

Cash

Select the externally managed assets classes in which you and/or your investment consultants address ESG incorporation in your external manager selection, appointment and/or monitoring processes.
Asset class
ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes
Listed equity

Listed equity - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - SSA

Fixed income - SSA - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - corporate (financial)

Fixed income - corporate (financial) - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - corporate (non-financial)

Fixed income - corporate (non-financial) - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - securitised

Fixed income - securitised - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Private equity

Private equity - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Property

Property - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Infrastructure

Infrastructure - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Hedge funds

Hedge funds - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Other (1)

Other (1) - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Other (2)

Other (2) - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

11.4. Provide a brief description of how your organisation includes responsible investment considerations in your investment manager selection, appointment and monitoring processes.

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. If the circumstances are attractive and an opportunity presents itself, a longer dated investment will be looked at which will not have any significant detrimental impact on the liquidity of the portfolio.

Credit monitoring of the portfolio has recently been established, which focusses on a range of factors that may present potential significant impact on the credit matrixes of an issuer. This also include of ESG factors. Potential litigation, earnings impact and credit rating outlook change of an particular issuer are being considered in the monitoring and decision is formed to adjust the exposure limitation of a particular issuer in accordance to the severity.

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.

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.

Our philosophy is that ESG issues can affect the performance of all asset classes. The short-term time horizon of some investors can lead to ESG factors being overlooked, and this may result in losses or missed investment opportunities for these investors over the long-term. However, we strive to quantitatively assess these ESG risks and understand the long-term ramifications on investment markets.

That is why ESG factors and climate change risks are analysed as part of our due diligence process when selecting our external 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. Investment managers must have an integrated ESG approach within their investment policy and framework and have the capability to assess ESG risks within a portfolio. Investment managers are also required to specify the resources they have available to analyse ESG risks, by providing details of internal staff and their expertise, as well as any external research services that are employed. We conduct annual reviews of each investment manager that includes a consideration of ESG initiatives that have been conducted and the level of engagement with company executives and directors. An assessment of each investment manager’s performance against responsible investment strategies and objectives forms part of these reviews.

Investment managers are encouraged to discuss ESG and other risks in their investment reports to the Trustee. We monitor the investment portfolios of the underlying investment managers and analyse the exposure to significant specific risks such as climate change risk. We require our fund managers to consider our ESG Policy and the PRI’s six principles within their company evaluations. Investment managers are also encouraged to discuss ESG and other risks in their investment reports to Vision Super. We directly monitor all investment managers by conducting regular onsite meetings and teleconference calls. Our asset consultant also holds regular meetings with investment managers and all meeting notes are reviewed by our Investments team.

Where possible, agreements with investment managers will specify the ESG evaluation process. All portfolios have specific mandates detailing information such as authorised investments, reporting and exposure limits. Compliance reporting is performed on all mandates daily.

The Trustee has a specific Investment Manager Appointments and Terminations Policy with all selections and appointments consistent with the below overarching frameworks:

- The Investment Beliefs set by the Board and documented in the Investment Governance Framework Policy

- The Investment Objectives and long-term (SAA) strategy set by the Board and documented in the Investment Policy Statement

- The Asset Class objectives and strategies set by the Investment Committee

- Vision Super's Investment governance risk appetite

- Vision Super's Conflict Management Framework

Appointments

The over-riding principle is that appropriately detailed diligence is conducted, aligned to the complexity and risk profile of the investment with consideration of ESG risks when making a portfolio appointment as set out within Vision's ESG Policy.

In addition, alpha expectations, tracking error, investment style and impact of the investment approach on tax, ESG risk and fees are considered as part of the manager selection and portfolio construction process. The Trustee also assesses each managers’ ESG Policies as part of Vision Super's Manager assessment process.

When making investment decisions, Vision's investment managers must consider the expected return and performance of investments. When making these decisions, The Trustee encourages the consideration of ESG issues which may impact on the long-term performance of companies with the portfolio from time to time where these may materially impact on the performance objectives of the Fund. Often the short term time horizon of investors' means that ESG factors are overlooked, which may result in losses or missed investment opportunities for investors over the medium term. Quantitatively assessing these risks is difficult as the ramifications can take time to work through and spread widely.

We note that while external managers are asked for input, we vote all our shares utilising advise from Glass Lewis and ACSI.  We will override these advisors on ocasion when we believe it is in the best interest of our members.  All such decisions are reviewed by the Board annually.

Furthermore, we disclose all our proxy voting on a regular basis which is made available on our website after the conclusion of an AGM. As part of our active ownership, the fund also discloses its reporting and assessments in which it participates in as a signatory, member or affiliation with various ESG organisations. See below link to our website under active owenship:

https://www.visionsuper.com.au/investments/active-ownership

 


OO 12. Modules and sections required to complete

12.1. Below are all applicable modules or sections you may report on. Those which are mandatory to report (asset classes representing 10% or more of your AUM) are already ticked and read-only. Those which are voluntary to report on can be opted into by ticking the box.

Core modules

RI implementation directly or via service providers

Direct - Listed Equity active ownership

RI implementation via external managers

Indirect - Selection, Appointment and Monitoring of External Managers

Closing module

12.2. Additional information. [Optional]

The Vision Super Investment Manager Appointments, Terminations and Monitoring Policy covers the general selection and monitoring of managers. While discrete portfolios have specific mandates where Vision Super can stipulate ESG-related terms and conditions, for Pooled Trusts we have less of an influence due to the structure of these investment vehicles.

The Fund's infrastructure allocations via fund/trust investments are to real assets where there are meaningful opportunities for managers to demonstrate their ESG credentials. The long-term nature and time horizon of these assets/portfolios generally creates a natural alignment with the concept of sustainability and long-term value. We find that there is generally a strong interdependence between the infrastructure assets and the community, environment and other stakeholders. However, there needs to be a greater awareness of Scope 3 carbon emissions across some assets such as airports. We have raised this issue with the investment managers, and we are seeing that this is gradually taking place, but progress is slow.

Vision Super's private equity asset class which now is also inclusive of a very small property opportunistic component, is a very mature program with most portfolios nearing the end of their life cycle. The exception being commitments to venture capital sub-allocations via VenCap and Greenspring Associates General Partners. Vencap and Greenspring Associates aim to invest in leading venture names and underlying funds to allow them to identify the best opportunities from new and emerging technologies. These managers are focusing on venture capital funds who are investing in start-up companies. Generally, these types of companies do not concentrate on climate-related issues at that stage of development. However, we are seeing a trend where these managers are increasingly backing companies that are offering new technology based ESG solutions.

Most of the private equity allocations are based on a Fund of Fund (FoF) model approach with the majority of our private equity managers having a formal element of ESG assessment incorporated within their investment frameworks and processes whereby managers implicitly consider ESG issues when making investment decisions. It is not a straight forward exercise to evaluate the extent of ESG undertakings across FoF models who have different strategies, such as secondary partnership interests.

Our smaller commitment to LGT Capital Partners (European Private Equity) takes a holistic approach to ESG considerations, which largely avoids formal screens and concentrates instead on selecting the best managers that share the managers commitment to high standards on ESG issues. LGT's due diligence process seeks to assess managers' overall commitment to ESG and the sophistication of their approach, so they examine whether the manager has institutionalized ESG processes in place and whether they have a willingness or plans to improve in this area.

One exception to this, however, is LGT's approach to controversial weapons, where they apply guidelines from Sustainalytics to avoid exposure to companies involved in the manufacture, storage or transportation of controversial weapons. This includes land mines, cluster bombs/munitions and biological, nuclear and chemical weapons. The partnership enables them to develop portfolios that comply with international conventions on these weapons.

In addition, LGT Group has recently introduced a group-wide exclusion of exposure to thermal coal production (above certain revenue thresholds). For private equity, this will entail encouraging managers to adopt the coal exclusion in their sourcing of new investments. In practice, few managers invest in the coal industry, so it will not have a significant impact on how they build up portfolios.

LGT also monitor over 6,000 portfolio companies for ESG controversies as part of their portfolio management. They work with RepRisk, which has a proprietary platform for tracking more than 80,000 online information sources in 20 languages. Monitoring these sources helps to flag controversial ESG issues, ranging from allegations of environmental or social harm caused by a company to claims of corruption or other governance issues.

As a result, LGT identified 56 ESG incidents over the reporting period that they deemed to be material, either from a reputational risk perspective or in terms of a potential threat to company value. The incidents were concentrated in three sectors: consumer discretionary, financials and health care. The incidents included, amongst others, various accidents, environmental damage and workplace harassment.

Our property managers explicitly incorporate ESG considerations within their model approach to create positive environmental and social changes in conjunction with positive financial returns. Property managers also consider and evaluate market-wide improvements through ratings surveys like NABERS in Australia and GRESB internationally, which assist managers to understand and assess changes to ESG performance in markets across the globe.

Out largest property exposure is to the ISPT Core Fund, which considers industry benchmarks and standards such as the Property Council of Australia Guide to Building Quality, Green Star and NABERS ratings. Climate change risk is also evaluated through ISPT's asset acquisition phase, including considerations around the location of buildings, materials used for construction and the services available for these buildings.

IPST recently announced that the Core Fund has maintained its GRESB 5 Star Rating in the 2019 GRESB Real Estate Assessment with the Fund being ranked in the top 10% globally.

We will continue to engage with our unlisted managers and encourage the consideration of ESG issues which may impact the long-term performance of these investment vehicles.

 


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