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Ninety One

PRI reporting framework 2020

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation carries out scenario analysis and/or modelling, and if it does, provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe We believe that long-term climate-related scenario analysis is exceptionally challenging and the outputs are of questionable benefit to the investment industry today. We continue to assess and explore the scenarios and models that are available, in collaboration with a number of partners across science, academia and the investment industry.
Describe We believe that long-term climate-related scenario analysis is exceptionally challenging and the outputs are of questionable benefit to the investment industry today. We continue to assess and explore the scenarios and models that are available, in collaboration with a number of partners across science, academia and the investment industry.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]


SG 13 CC.

13.4 CC. Describe how your organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, its results, and any future plans.

Describe

The investment industry has become very preoccupied with scenario analysis and we note that there are now a significant number of available models and scenarios which endeavour to allow an organization such as ours to develop an understanding of how the physical and transition risks and opportunities of climate change might plausibly impact the business over time.

We have looked extensively at a number of different modelling tools, and we remain sceptical of their ability at this stage to inform our long-term decision-making in a consistently accurate and reliable fashion. We believe that long-term climate-related scenario analysis is exceptionally challenging and the outputs are of questionable benefit to the investment industry at the moment. In terms of transition risk, we find that the interconnected nature of our economic system is frequently underestimated and that second and third derivative impacts – often in the form of supply chains – are missed.

We would also observe that the interplay between physical and transition risk can be extremely difficult to capture; this can often be attributed to a widespread underestimation of the impact of physical risk. Macroeconomic models which focus on the impact of temperature increases on agricultural yields and the productivity of the human workforce tend to forecast unrealistically small GDP impacts for the long term, whereas we believe that the real damage to the economy from a failure to control global temperatures will be much greater. 

In general, we find that it is extremely difficult to quantify climate risk precisely in a numeric way; it is unrealistic to expect that the millions of potential pathways and variables can be distilled down to one metric – be it the ‘temperature’ of an investment portfolio or the long-term decrease in GDP or indeed the annualised performance impact on different asset classes  which can be expected from a range of climate change scenarios. What we can do is use scenarios to guide our thinking, to prioritise our analysis, and to manage risk.  We see climate risk as holistic, multi-dimensional and non-linear; data and metrics are helpful signposts but they are not answers in themselves.

We will continue to explore and assess these scenarios and models. We have dedicated a huge amount of time and resource to it from the Board level down through the management team and across all of our investment teams. This is appropriate given the systemic nature of climate risk and the importance we attribute to it.  We are collaborating with a number of partners across science, academia and the investment industry. We recognise that many of these scenarios and tools were developed for policy-makers and scientists rather than investment organisations and hence we are not surprised that the bottom-up granular detail and linkage is sometimes missing.  There is a significant pressure now on companies across all industries to disclose not only better data but also to collaborate and develop their own pathways and frameworks; this should lead to more accurate modelling in aggregate.

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether your organisation has evaluated the potential impact of climate-related risks, beyond the investment time horizon, on its investment strategy.

Describe

Ninety One is a multi-specialist investment manager with a number of different investment teams across Equity, Fixed Income, Multi Asset and Alternatives. For this reason we have a diversified mix of investment strategies across different time horizons and asset classes. The potential impact of climate-related risks will be different across all of them, and their approach to evaluating those risks will also vary. However, across all of our investment teams and strategies, climate-related risks have been identified as one of the greatest single long-term investment risks, and the one on which we are the most focussed at this point in time.

While we are in no doubt about the importance of climate-related risks beyond the investment time horizon, we find that the scenarios and tools available at present are not capable of measuring these risks with any consistent accuracy. In general, we find that it is extremely difficult to quantify climate risk precisely in a numeric way; it is unrealistic to expect that the millions of potential pathways and variables can be distilled down to one metric – be it the ‘temperature’ of an investment portfolio or the long-term decrease in GDP or indeed the annualised performance impact on different asset classes  which can be expected from a range of climate change scenarios. What we can do is use scenarios to guide our thinking, to prioritise our analysis, and to manage risk.  We see climate risk as holistic, multi-dimensional and non-linear; data and metrics are helpful signposts but they are not answers in themselves.

13.7 CC. Indicate whether a range of climate scenarios is used.

13.8 CC. Indicate the climate scenarios your organisation uses.

Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

other description (1)

          Changing regulation
        

other description (2)

          Consumer behaviour
        

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

14.5. Additional information [Optional]


SG 14 CC.

14.6 CC. Provide further details on the key metric(s) used to assess climate-related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Weighted average carbon intensity
          We are currently analyzing carbon data and metrics to understand how best to contexualise carbon risk.
This metric is used as a relative measure to compare portfolios and benchmarks. It could be used in portfolio review discussions.
        
          Tonne of carbon dioxide equivalent per million USD sales
        
          We use reported and estimated carbon data and fundamentals data from third parties (Scope 1 and 2), and we use the Carbon Disclosure Project database for reported and modelled for Scope 3. To fill additional gaps, we use a simple sector based average intensity. Importantly, we continue to work with third parties to improve the datasets and models.
With the data we are building portfolio carbon profile tools that support investment teams and the risk function. The output of these tools can she shared with clients. While we do not yet systematically share this information with clients, we intend to do so in the near future.
Quality of data and coverage are the primary limitations. For scope 3 emissions we are also aware of material double counting across corporate value chains. We are working with third parties to improve the quality of data.
The data and tools above are used to calculate all metrics.
        
Carbon footprint (scope 1 and 2)
          We are currently analyzing carbon data and metrics to understand how best to contexualise carbon risk.
We believe it is important to consider emissions exposure across the value chain of companies and are looking to include Scope 3 emissions in the carbon footprint. The breakdown of the carbon footprint will allow us to identify the where in the value to focus our engagement efforts.
        
          Tonne carbon dioxide equivalent per million USD invested
        
          We use reported and estimated carbon data and fundamentals data from third parties (Scope 1 and 2), and we use the Carbon Disclosure Project database for reported and modelled for Scope 3. To fill additional gaps, we use a simple sector based average intensity. Importantly, we continue to work with third parties to improve the datasets and models.
With the data we are building portfolio carbon profile tools that support investment teams and the risk function. The output of these tools can she shared with clients. While we do not yet systematically share this information with clients, we intend to do so in the near future.
Quality of data and coverage are the primary limitations. For scope 3 emissions we are also aware of material double counting across corporate value chains. We are working with third parties to improve the quality of data.
The data and tools above are used to calculate all metrics.
        
Portfolio carbon footprint
          We are currently analyzing carbon data and metrics to understand how best to contexualise carbon risk. When including scope 3 emissions, this metric may give an indication of aggregate normalized exposure to particular areas of corporate value chains, and consider relative exposure compared with other portfolios and benchmarks.
        
          Tonne carbon dioxide equivalent per million USD invested
        
          We use reported and estimated carbon data and fundamentals data from third parties (Scope 1 and 2), and we use the Carbon Disclosure Project database for reported and modelled for Scope 3. To fill additional gaps, we use a simple sector based average intensity. Importantly, we continue to work with third parties to improve the datasets and models.
With the data we are building portfolio carbon profile tools that support investment teams and the risk function. The output of these tools can she shared with clients. While we do not yet systematically share this information with clients, we intend to do so in the near future.
Quality of data and coverage are the primary limitations. For scope 3 emissions we are also aware of material double counting across corporate value chains. We are working with third parties to improve the quality of data.
The data and tools above are used to calculate all metrics.
        
Total carbon emissions
          We are currently analyzing carbon data and metrics to understand how best to contexualise carbon risk.
This measure will be used to understand company and sector contribution to emissions, allowing us to consider engagement targets and/or reallocation where we may target a reduction in overall attributable emissions.
        
          Tonne of carbon dioxide equivalent
        
          We use reported and estimated carbon data and fundamentals data from third parties (Scope 1 and 2), and we use the Carbon Disclosure Project database for reported and modelled for Scope 3. To fill additional gaps, we use a simple sector based average intensity. Importantly, we continue to work with third parties to improve the datasets and models.
With the data we are building portfolio carbon profile tools that support investment teams and the risk function. The output of these tools can she shared with clients. While we do not yet systematically share this information with clients, we intend to do so in the near future.
Quality of data and coverage are the primary limitations. For scope 3 emissions we are also aware of material double counting across corporate value chains. We are working with third parties to improve the quality of data.
The data and tools above are used to calculate all metrics.
        
Carbon intensity
          We are currently analyzing carbon data and metrics to understand how best to contexualise carbon risk.
We will consider carbon intensity when comparing companies with sector peers, primarily to identify engagement targets.
        
          Tonne carbon dioxide equivalent per million USD sales
        
          We use reported and estimated carbon data and fundamentals data from third parties (Scope 1 and 2), and we use the Carbon Disclosure Project database for reported and modelled for Scope 3. To fill additional gaps, we use a simple sector based average intensity. Importantly, we continue to work with third parties to improve the datasets and models.
With the data we are building portfolio carbon profile tools that support investment teams and the risk function. The output of these tools can she shared with clients. While we do not yet systematically share this information with clients, we intend to do so in the near future.
Quality of data and coverage are the primary limitations. For scope 3 emissions we are also aware of material double counting across corporate value chains. We are working with third parties to improve the quality of data.
The data and tools above are used to calculate all metrics.
        
Exposure to carbon-related assets
          We are currently analyzing carbon data and metrics to understand how best to contexualise carbon risk.
We use this primarily to screen client mandates for exposure to carbon-related assets. This may additionally be used to integrate with our Global Risk function to consider concentration risk,
        
          % exposure to carbon-related assets
        
          We use a third party data provider to identify revenue exposure and production of carbon-related assets.
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risk management processes used for identifying, assessing and managing climate-related risks.

Please describe

Climate-related risks are fully integrated into overall risk management but at the same time we ensure that all of our investment staff are empowered to identify, assess and manage climate-related risks on an individual issuer basis. We believe that this top-down/bottom-up combination creates the most constructive and collaborative environment within which to manage these risks.

From a bottom-up perspective, all of our investment analysts and portfolio managers are equipped with the training and the on-desk tools to identify climate-related risks in their investment analysis, because the greatest risk to our business is a material destruction of value in the underlying companies to which we allocate our clients’ capital. We have been integrating broad ESG analysis across all of our investment teams since 2012 but have developed specific tools more recently to address climate risk. These include our Climate Risk Tool which aims to highlight portfolio companies whose value chains are exposed to the low carbon transition and to the physical risks of climate change. As with any investment or risk metric, the absolute and relative carbon numbers are not an end in themselves; they are a stimulus for further analysis. We have also developed a number of Macro Risk tools to help our investment professionals understand systemic climate risk more fully, particularly with regard to the impact on sovereigns.

The other vital risk tool for our analysts and portfolio managers is engagement: we engage with companies and sovereigns to understand their climate-related risks more fully and where we can to drive positive change. The overarching objective is that every analyst and portfolio manager integrates climate risk fully in the investment decision-making.

From the top-down, we have a number of key structures in place. At a Board level, the Sustainability, Social and Ethics Committee has responsibility for all aspects of responsible investing. Within the Executive Committee, the Internal Governance Committee is the custodian of Ninety One’s approach to Stewardship. The Committee ultimately bears the responsibility for the application of Ninety One’s across all of its investments.  

However, the main oversight function for climate-related risk in investment portfolios sits with our independent Risk team. Along with conventional measures of risk in portfolios such as liquidity, volatility and tracking error, the Risk team can monitor the absolute and relative carbon intensity of portfolios. While we recognise that these carbon intensity numbers are subject to data variability, consistency and coverage, they do enable the Risk team to prioritise and flag outliers and issuers for further analysis and interrogation. We believe that it is important that oversight and management of climate-related risk sits within the Risk team – this ensures that it is in the heart of the investment function and is considered alongside mainstream financial risk considerations.

14.9 CC. Indicate whether your organisation, and/or external investment manager or service providers acting on your behalf, undertake active ownership activities to encourage TCFD adoption.

Please describe

Climate change is a focus area within our engagement activities. Our objectives largely focus on improving disclosure so we can better understand the inherent risks and opportunities. We require investee companies, which are part of industries that generate high emissions, to participate in the Carbon Disclosure Project (CDP), alongside encouraging them to make use of the TCFD framework. This helps us to better understand how their strategy, governance, risk management and measurement systems are positioned to respond to the risks and opportunities of climate change. We are also a supporter of a number of climate related advocacy groups including the Climate Action 100+ and the IIGCC. We  have led on a number of Climate Action 100+ engagements.


SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

0.6 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

          Specific thematic funds: Emerging Africa Infrastructure Fund (EAIF) and Global Environment Fund
        

Asset class invested

0.6 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

EAIF

The Fund provides long-term debt on commercial terms to private sector companies building or expanding infrastructure in Africa.

EAIF projects have now benefited more than 140 million people in Africa, with many projects still to account for. More than half of our projects are in the energy sector, of which nearly half of those are renewable projects.

Global Environment

The Strategy invests in companies driving decarbonisation and that are helping the world’s economy transition to a more sustainable, lower emissions model. It makes a positive environmental impact by investing in businesses that are reducing the world's carbon footprint. It uses proprietary models to comprehensively quantify the carbon emissions saved by decarbonisation companies versus traditional businesses.

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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