The purpose of the Responsible Investment policy is to formally outline HESTA's principles and commitments in relation to the incorporation of Environmental, Social and Governance (ESG) considerations into investment processes and decision-making.
The Responsible Investment Policy applies to all of HESTA's investments including:
- All types including direct, mandated and pooled
- All styles including active and passive
- All classes including Australian and international shares, property, unlisted and listed infrastructure, private equity, global bonds, timber and alternatives
- All geographic locations.
The way in which HESTA incorporates ESG considerations into investment processes and decision-making will differ depending on these investment characteristics.
Variations or exceptions
In general, HESTA's Responsible Investment Policy applies to all of HESTA's investments and HESTA does not seek to restrict investment through the use of exclusions based on ESG considerations. However, HESTA does have the following restrictions:
Portfolio-wide investment restrictions and exclusions
HESTA excludes investment in any company that produces whole weapon systems or components developed for exclusive use in cluster munitions, anti-personnel mines, biological or chemical weapons.
HESTA excludes investment in any company that produces and/or manufactures tobacco and other tobacco products.
HESTA applies the following restrictions on new investment in:
- Any unlisted company that derives more than 15% of revenue or net asset value from exploration, new or expanded production, or transportation of thermal coal.
- Any newly listed company, from listing onwards, that derives more than 15% of revenue or net asset value from exploration, or new or expanded production of thermal coal.
- The provision of direct funding to any listed company, via rights issues or share placements, for any of these activities.
Investment restrictions and exclusions specific to Eco Pool (member choice sustainable investment option):
In addition to the portfolio-wide tobacco exclusion, Eco Pool excludes investment in companies that derive more than 15% of revenue from the manufacture and supply of key products necessary for the production and/or manufacture of tobacco products, or the distribution or retail of tobacco products (consistent with the MSCI Global Socially Responsible Indices Methodology).
Eco Pool has a more extensive exclusion on companies involved in fossil fuel than the thermal coal exclusion in the broader portfolio. Eco Pool excludes investment in any company that derives any revenue from the mining of thermal coal, or the extraction, production or refining of conventional and unconventional oil and gas; or derives more than 15% of revenue from the generation of electricity from fossil fuels or the transportation, distribution or retail of conventional and unconventional oil and gas; or more than 15% of revenue from the supply of equipment or services for the exploration and production of conventional and unconventional oil and gas activities.
Eco Pool does not allow any investments in companies involved in the mining or processing of uranium.
HESTA will incorporate ESG issues into investment processes and decision-making including:
- Implementing the United Nation Principles for Responsible Investment (PRI).
- Considering ESG in the asset allocation, portfolio structuring and diversification of the portfolio.
- Considering ESG in the selection of external fund managers appointed to manage money on behalf of HESTA and its members - and incorporate ESG into the agreements (Investment Management Agreements) HESTA has with external fund managers.
- Being an active owner by voting all of the shares that it is able to and engage with companies to improve their corporate governance.
- Being active in public policy in relation to ESG matters - either directly or via like-minded organisations - on issues that are of market-wide significance and material in terms of the economic interests of our members.
- Understanding the impact of key ESG issues such as climate change and carbon-related risks and opportunities within each of the major asset classes and across the portfolio as a whole, and Collaborating with other organisations to achieve these objectives.
- HESTA will prioritise activities to implement this policy in accordance with the asset allocations, the importance of the ESG issue and the potential for HESTA to influence change (affected by investment types and styles).
Varying levels of implementation
While HESTA's Responsible Investment Policy applies to all of HESTA's investments, the extent to which it is implemented across all asset classes is dependent on the relevance of ESG issues to that asset class. We are working towards comprehensive implementation across all our key asset classes including equities, infrastructure, property, private equity, timber and alternatives. However, even within these asset classes, implementation varies depending on the type and style of the investment e.g. active vs passive, mandated vs pooled vehicles.
In several asset classes the extent to which we can meaningfully implement the Responsible Investment Policy is limited. This includes some fixed income investments e.g. mortgage backed securities and some of the opportunistic growth investments, liquid alternatives and insurance linked securities. Further we have not identified any way in which we can meaningfully incorporate ESG issues into our investment processes and decision making in relation to cash.
The Responsible Investment Policy was first approved by HESTA's Board in April 2010. The most recent revisions to this policy were approved by the Board in February 2020, but for the purpose of this reporting period the most recent version dates from July 2018.
The Responsible Investment Policy will be reviewed every three years in line with HESTA's strategic review process. In addition, this policy is required to be updated as necessary to reflect changes in:
- The legal or regulatory environment as it relates to ESG.
- The asset classes in which HESTA invests.
- The investment processes including asset allocation, portfolio structuring and diversification, asset consultant and investment manager selection and management and investment analysis.
- Strategic or operational changes to HESTA.
- Member or community expectations.
HESTA's Responsible Investment Policy Framework also includes two subordinate policies:
- Active Ownership Policy
- Climate Change Policy