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PRI reporting framework 2020

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Innovation

SG 18. Innovative features of approach to RI

18.1. Indicate whether any specific features of your approach to responsible investment are particularly innovative.

18.2. Describe any specific features of your approach to responsible investment that you believe are particularly innovative.

The LGS Board has always had a long-term commitment to responsible investment which commenced in 2001 when it divested tobacco stocks. LGS has long held the view that management of ESG risks in its investment portfolios is fundamental to fulfilling its fiduciary duties to members - acting in the best interest to generate strong long-term retirement savings.

The LGS RI Policy requires the addressing of ESG risks across the entire investment portfolio with multiple asset classes. As a long-term institutional asset owner, it can be difficult to address these risks, however, as we have built internal staffing resources, LGS has attempted to do so with some innovative product and mandate designs, including the following examples:

  • LGS Sustainable Global Government bonds - LGS introduced an innovative approach across our entire allocation to global government bond securities. The process integrates data on the countries' exposure to ESG issues as part of the investment approach. It also allocates up to 20% of the portfolio to green bonds issued by supranational agencies such as the IFC and European Investment bank. These AAA rated bonds offer similar yields to other bonds however the funds raised are devoted to climate change adaptation and mitigation projects in developing countries.
  • ESG enhanced passive international equities - LGS developed an ESG-integrated enhanced-passive international equities mandate managed by Hermes Funds Management, a group known for their capabilities in ESG and responsible investment. This is one of the first quantitative international equities mandates globally that explicitly integrates ESG signals into the investment process. The manager is also able to attribute investment out-performance to ESG issues.
  • Thematic - LGS has exhibited leadership by investing in thematic investments (mainly addressing climate change risks) across a number of asset classes.
  • Strategic Asset Allocation - LGS work in integrating climate change risks into our Strategic Asset Allocation process, which to our knowledge, is one of the first examples globally.
  • Property - As evident in the section on Property investments, LGS' efforts in reducing our energy consumption on our property portfolio through use of energy efficient technologies is another example of innovation and leadership which results in the following achievements in 2019.
    • Achieved Carbon Neutral status for all NABERS rated buildings, certified by the Government’s Climate Active Carbon Neutral Standard in May 2019
    • Portfolio Average NABERS Energy rating of 5.1 stars without GreenPower (6 stars with GreenPower)
    • Portfolio Average NABERS Water rating of 3.7 stars
    • Achieved a 4 Star rating for the 2019 Global Real Estate Sustainability Benchmark (GRESB)
    • Achieved a 5 Star GBCA Green Star – Performance Portfolio Certified Rating, which represents
    • Australian Excellence’ in sustainable building operations. Certified in November 2017, valid until June 2020. (renewal underway)
    • 89% of tenants signed up to 100% GreenPower
  • Over the past 3 years LGS has developed proprietary methodology to assess ESG risk across all asset classes. We correlate this with investment performance over time to prove our hypothesis that high grade ESG integration can indeed lead to long term sustainable outperformance for our members. 

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