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UniSuper Management Pty Limited

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
90 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
8 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
2 %
Total actively managed listed equities 102%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

Screening:

> We screen out tobacco across the entire fund (i.e. equity and fixed income) - have not counted this screen as a screening strategy for the purpose of most of our portfolio

> Our sustainable options have a range of screens that are applied to them in addition to the fund wide tobacco screen, these include alcohol, weapons, gaming and fossil fuel producers and explorers. In addition to this, we seek to invest in only those companies that are the better sustainability performers as compared to their peers.  We manage the entire Australian equities component (and a proportion of the international equities allocation) of the sustainable options internally (~5% of the fund).

Integration:

> We seek to integrate ESG considerations across all investments. We are a mainstream investor (therefore we are not focused on narrow ESG thematics) and seek to ensure that we understand all risks (including ESG risks) facing our investments. We seek to do this across the entire fund (i.e. across 100% of the fund).

>This goes to ensuring well informed, reasoned investment decisions and enables us to engage with companies regarding issues of significance or concern.

Thematic:

> we offer a Global Environmental Opportunities option for our members to invest in. This portfolio invests in companies with a focus on delivering environmental solutions / benefits.  This portfolio also has tobacco/weapons/fossil fuel/alcohol and gambling screened out and we apply our active ownership / integration strategies to this portfolio.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

We apply the screen/s to determine the investable universe and we then seek to ensure that we integrate ESG into the investment decision making process.  At all times, we seek to identify, understand and where necessary manage ESG investment risks. This is an ongoing iterative process. 

In our investment process ESG integration serves two key functions - firstly, it acts as a risk mitigant and secondly, as a means by which we can assess the quality of the companies / assets (and management teams) that we are investing in.

For our sustainable portfolios, we apply the negative screens and we then seek to positively screen in better ESG performers. 

- International portfolios, this is achieved using a quant process whereby we seek to optimise the ESG score of the entire portfolio within sector constraints, with minimum ESG score criteria (at a company level). This is followed by a qualitative overlay seeking to ensure that no companies that may appear anomalous to the objectives of the sustainable options are included.  

- domestic portfolio, an active portfolio construction process is used - due to the size of the investable universe (following exclusions) and greater knowledge of underlying stocks

 


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

          NGOs, media feeds, academic research
        

Indicate who provides this information 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

> We tag brokerage specifically noting that it is in relation to ESG research

> We are a founding member of ESG Research Australia and actively support its activities and mandate/ We participate in judging the ESG Research Australia awards

02.4. Additional information. [Optional]

We rely on a range of information sources and data points.

The investments team at UniSuper is highly integrated and focused on ESG. Consequently, ESG related information is disseminated quickly and investigated where deemed necessary. Likewise, we also maintain close relationships with our peers, fund managers, industry groups, specialist analysts and sell side brokers who pro-actively provide us with ESG related information in a timely manner.


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate whether your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

> We conduct engagement activities on a regular basis (across equities, infrastructure, property, timber) , and we share the information / findings / learnings across the investment team. This occurs on a structured basis and it ensures that the investment team as a whole remains abreast of key ESG issues. Furthermore, often the relevant portfolio manager will attend ESG related engagement meetings, and vice versa the ESG team will frequently attend more general investment related company meetings and briefings. This ensures ESG matters are elevated to being of key focus.

> We do not make investment decisions based on proxy voting. We look at the investment implications of a particular resolution and we then vote accordingly having regard to investment and governance considerations.Proxy voting decisions and information do not drive the investment decision making process. However, that said, information gleaned as an output from the proxy voting process (e.g. information regarding how disengaged, or unwilling to change, or on the contrary – aware and willing to change, a company is) is disseminated to the relevant portfolio managers and aids us in forming an overall view of the company and its approach to shareholders.


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

> We screen out tobacco across the entire fund.

> We don't invest in frontier markets.

> We also screen out alcohol, gaming, weapons and fossil fuel producers and explorers from our sustainable options.

> Our Global Environmental Opportunities portfolio screens out poor ESG performers

> We use an ESG research provider to identify companies in breach of the UN Global Compact (for our Sustainable Options)

Screened by

Description

> With the equities component of our sustainable options, we also adopt a positive screening process whereby we seek to only include those companies that rate well from an ESG perspective (and therefore exclude those companies with poor ESG ratings)

> Our GEO option screens in companies that receive more than 50% of their revenues from environmental themes - renewable energy, energy efficency, water and waste management, and green buildings. 

 

Screened by

Description

Our sustainable and GEO portfolios screen out companies that have breached the UN Global Compact

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

Formal screens are established infrequently.

  • tobacco manufacturers are screened out and have been since 2012. 
  • alcohol, gaming, weapons and fossil fuel exploration and production was screened out of the Sustainable options in 2014, with members notified both electronically and via letters of the changes to the options. 
  • The Global Environmental Opportunities option (positive/thematic investment) has had consistent themes/approach since inception. 

While there are many sectors/regions that UniSuper is not active in (i.e. hedge funds, frontier markets, emerging market debt, municipal bonds etc) we do not consider these to be screens, and reserve the ability to invest in these sectors if situations change. 

When making such changes, we make various disclosures within regulatory disclosure documentation, on our website and in CIO newsletters which are sent to our members on a monthly basis.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

The tobacco screen is based on an industry classification applied by the fund managers and monitored at the custodian level as part of the compliance monitoring processes. It is a hard coded screen / exclusion - the custodian would be automatically alerted if a breach of this screen occurred and would notify us in accordance with their contractual obligation to do so.

The additional screens that apply to the sustainable options are, per the above, also hard coded into the custodian's systems.There are additional checks that are done that consider revenue sources as identified from an external data provider. 

The screens applied to the equities component of the sustainable options (managed internally) are based on GICS codes, the MSCI ESG research tool and individual stock consideration - from this, a black list is prepared, and the companies on this list are then hardcoded into Bloomberg and the custodian's systems for compliance monitoring purposes. These lists are prepared by the ESG team and then reviewed by the PM and the appropriate Head (Australian or Global equities where appropriate) prior to the portfolio being constructed. Once the portfolio has been determined, a final review is conducted. 

Fund holdings are also manually reviewed on a periodic basis to ensure that they comply with the screens in place. 


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified, describe the process followed to correct those breaches.

The tobacco screen is monitored by the custodian and is hard wired into their systems. So, if a breach occurred and a screened company was held, the custodian would be notified and they in turn would notify us.

For our Sustainable options, the list of blacklisted (or whitelisted) stocks is loaded into our trading system and will alert and prevent the trader from executing a trade on a blacklisted stock. 

We would seek to identify why the the breach occurred and identify how to prevent any similar breach from occurring, and would remedy where appropriate.

We would also raise the issue with the fund manager in question as they would have committed a breach of the investment management agreement, and if relevant seek remediation should any losses to the fund have arisen

The funds Sustainable Options will be audited as part of the RIAA certification process. 

06.3. Additional information. [Optional]

Please note that all investment management agreements (IMA) prohibit investing in tobacco  (as applicable to the IMA in question).

Our custodian undertakes daily compliance checking for all portfolios.


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

UniSuper has a Global Environmental Opportunities option and manages the associated portfolio in house. This portfolio invests in companies that receive more than 50% of their revenues from products or services that meet an environmental need - Clean energy, energy efficency, green buildings, water and waste treatment. We currently use MSCI and Bloomberg data to identify appropriate stocks, and then apply a qualitative overlay in the portfolio construction process.


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

We integrate ESG into our investment decision making process using a qualitative overlay. It serves as risk mitigant and as a means by which to assess the quality of the companies and assets that we are investing in. It assists us in validating stock selection decisions.

> We constantly seek to remain abreast of key ESG issues and how they impact our portfolio

> In doing so, we are constantly reviewing a range of materials and information sources to identify ESG issues and risks that we need to look at further and consider as part of our investment decision making process

> When we identify issues we discuss these as a team and engage with the company in question, our external managers holding the stock and the sell side brokers researching the stock. 

> Some portfolios utilise quant models, and while larger holdings will have a comprehensive ESG review as part of the qualtitative overlay, with smaller stocks reliant on a ESG ratings screen and high level risk assessment


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on robust analysis.

          We talk to and engage with 
> a range of information sources
> our fund managers and sell side brokers
> our peers
> the company and its peers
        

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          > A range of reports, email updates and memos are stored on our electronic filing system.
> We include ESG in all stock research templates
        

09.6. Additional information. [Optional]

> We include detailed ESG notes in our stock templates

> ESG notes, briefings, research and email updates are send around by the internal ESG staff and are stored on our electronic filing system

> MSCI ESG research can be accessed by any investment staff.

> Our custodian, BNP, has portfolio specific ESG data and analysis specific to our fund available on our access platform.

>Our trading platform, Bloomberg, has ESG data and research available for all PMs and analysts


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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