This report shows public data only. Is this your organisation? If so, login here to view your full report.

Active Super

PRI reporting framework 2020

Export Public Responses
Pdf-img

You are in Strategy and Governance » ESG issues in asset allocation

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 consider climate change to be the greatest risk facing our investment portfolio. We are committed to managing the risks and taking advantage of the opportunities associated with climate change. The fund performed scenario analysis a few years ago. Our asset consultant is performing this review again this year.

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]

As per the LGS investment restrictions, the fund will not actively invest in companies that derive any revenue from controversial weapons and tobacco. LGS will not actively invest in companies that derive 10% or more of their revenue from armaments, gambling and old growth logging or more than 33% of revenue from high carbon activities including coal mining, oil tar sands mining and coal-fired electricity generation. The fund will also not invest in companies that display high ESG risk. While these restrictions formally cover listed Australian and international equities, where possible LGS will endeavour to extend these restrictions across other asset classes including fixed income, credit and unlisted assets.  These investment restrictions alter LGS' sector weightings.


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 fund performed scenario analysis a few years ago. Currently our asset consultant is performing this again for the board with results to inform SAA decisions. 

We also apply latest research both from Mercer and UNPRI in looking at valuation effects for example. in 'high' risk sectors such as oil and gas. 

Due to screening which has been in place for many years, exposure to companies where coal is a principal operation is negligible. 

We analysed our listed equities portfolio holdings against the results of the Forecast Policy Scenario (FPS), part of the Inevitable Policy Response (IPR) Framework and performed an initial assessment of our climate-related policy and regulatory risks to determine if any further analysis would be required.  

Describe

LGS has used research from asset consultants and PRI to stress test the LGS portfolio for high risk sectors. Given our investment practice and screening which has been in place for many years, the risks are considered low. 

Given we also invest in positive thematics, we participate in opportunistic investing in positive thematics both via listed and unlisted investments. 

Carbon investment restrictions. Manage exposure to carbon in the longer term for listed equities and fixed income.  Future plans to extend restrictions across other asset classes including credit and unlisted assets. 

We analysed our portfolio holdings across both listed equities and fixed income against numerous scenarios including the IEA's 2 degree scenario and the 2 degree investing initiative to see how we can improve our approach to managing climate risks and opportunities.

Describe

LGS reviews each resolution on case by case basis and generally votes in favour of increasing responsibility for and disclosure on climate change related risk. The results of scenario analysis produced internally, received from industry groups and external research providers are considered for incorporation into these decisions on a case by case basis.

We have a strong focus on engaging with companies to ensure they have a plan to transition their business activities away from high carbon intensive activities and ensure they can participate in a low carbon economy.

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

We analysed our portfolio holdings across both listed equities and fixed income against numerous scenarios including the IEA's 2 degree scenario and the 2 degree investing initiative to see how we can improve our approach to managing climate risks and opportunities.

We also analysed our listed equities portfolio holdings against the results of the Forecast Policy Scenario (FPS), part of the Inevitable Policy Response Framework and assessed our climate-related policy and regulatory risks. 

Further work will be considered in climate scenario analysis in the upcoming year.

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 (1) please specify:

          2 degree investing initiative.
        
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.

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

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

10% of the entire fund invested in low carbon assets in five assets classes including Australian and emerging market renewable energy, infrastructure, green bonds, listed equities, and private equity.

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

other description

          We engage with companies in the energy, resources and banking sectors to ensure they are incorporating climate change risks and opportunities into their business strategies.
        

14.4. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

  • Carbon portfolio audits by MSCI ESG Research
    • Every six months we assess our listed equity managers on the carbon performance of the companies in their portfolios and publish the results on our website. We monitor our exposure to fossil fuel intensive companies to better understand carbon risks and opportunities and determine future restriction thresholds and engagement priorities. These reports focus on our total carbon footprint based on ownership of companies (i.e. tonnes CO2e/$ million invested and total CO2e), but also provide intensity measures (i.e. tonnes CO2e/$ million sales) to enable us to compare companies within the same or similar sectors. A summary of the results of these audits is published on the LGS website at https://www.lgsuper.com.au/investments/sustainable-investment/sustainable-investment-reports-and-policies/.
  • ESG Portfolio audits by MSCI ESG Research
    • ​​Every six months we assess our domestic and international listed equities portfolios on the ESG performance of the companies in their portfolios and publish the results on our website. We monitor our portfolio's ESG Quality Score which provides an indication of constituent companies' abilitiy to manage risk and opportunities arrsing from ESG exposures as well as the score of each individual 'E','S','G' pillar to better understand opportunities and determine future restriction thresholds and engagement priorities. 
    • The latest ESG report for December 2019 can be found at https://www.lgsuper.com.au/investments/responsible-investment/sustainable-investment-reports-and-policies/lgs-esg-report-december-2019/.
  • Taskforce for Climate-related Financial Disclosure 
    • We have disclosed our approach to managing climate risks and opportunities via the PRI annual reporting process, in line with TCFD recommendations.
    • Our half yearly Carbon Emissions Report is reported broadly inline with TCFD guidelines and assesses LGS' Portfolio Carbon Footprint for our listed equities using the (WACI) Weighted Average Carbon Intensity (t CO2e / $M Revenue) measure recommended by the TCFD.
    • The latest Carbon Emissions report for December 2019 can be found at https://www.lgsuper.com.au/investments/responsible-investment/sustainable-investment-reports-and-policies/carbon-emissions-report-december-2019/.

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
          Used to measure and assess the degree of reliance of our portfolios' revenue on carbon emission.
        
          328 t CO2e / $M Revenue
        
          Weighted Average Carbon Intensity is calculated by using the carbon intensity (Scope 1 + 2 Emissions / $M Sales) for each portfolio company and calculating the weighted average by portfolio weight.
        
Carbon footprint (scope 1 and 2)
          Used to track energy efficiency and carbon performance over time to ensure we are reducing emissions
        
          Scope 1 = nil 
Scope 2 = nil due to the purchase of renewable energy (100% GreenPower)
        
          Australian national Greenhouse Account Factors 2016
        
Portfolio carbon footprint
          Used to enable comparison with other factors
        
          250.4 t CO2e / $M Invested
        
          Sum of all emissions in the portfolio divided by the amount invested.
        
Total carbon emissions
          Allows us to understand our total carbon exposure (and track it over times with a view to reduce it) and identify potential high emitting companies for engagement
        
          640,540 tonnes CO2e
        
          Sum of all emissions in the portfolio based on our ownership share
        
Carbon intensity
          useful to compare like for like companies within the same/similar sectors
        
          430.4 tonnes CO2e/$m sales
        
          The ratio of portfolio carbon emissions normalised by the investor's claims on sales
        
Exposure to carbon-related assets
          to understand our exposure to carbon related assets relative to a 2 degree scenario
        
          Renewable power capacity, Gas power capacity, Coal power capacity, oil production, gas production, coal production, ICE vehicles, Hybrid vehicles, Electric vehicles
        
          n/a
        

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

LGS considers Climate Change Risk as one of the most important issues facing the fund. We address this in the Sustainable and Responsible Investment Policy February October 2019, Sustainable and Responsible Investment Guidelines October 2019 and the Active Ownership Policy October 2019.

LGS assesses and monitors this risk across our entire portfolio in all asset classes via Annual Reviews.  We assess ESG integration and correlation with investment performance using proprietary methodology which has been developed in house. This method is utilised for on-boarding, monitoring & maintenance as well as the removal of fund managers.   The results are contained within our Investment Committee Papers as well as in public reporting. Publicly we do this via our website in the form of i) ESG quality reports for all domestic and international equity fund managers ii) Carbon Emissions reports for all domestic and international equity managers.  We are committed to reporting in line with the TCFD (Task Force for Climate related Financial Disclosure). We measure Weighted Average Carbon Intensity (a recommendation of the TCFD) but do not as yet publicly report this data.  

Another public document, the “LGS Responsible Investment Snapshot 2019” outlines in detail how we address climate risk (amongst other ESG risks).  This is implemented via the application of Negative Screens (or our Restrictions List), Positive Screens and the SRI Overlay.  We actively address Climate Change via our Active Ownership Policy which includes i) Voting for specific climate related resolutions ii) Direct Engagement with corporates and iii) Industry Collaboration with the UN Principles for Responsible Investment, Australian Council of Superannuation Investors, Investor Group on Climate Change and the Responsible Investment Association of Australasia.

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

We engage with the listed companies in which we invest through a variety of channels, including direct engagement with company board members and senior executives, via fund managers and through our involvement in industry groups and associations such as ACSI and the IGCC.
As part of annual reviews of all our assets classes, we engage with external managers about TCFD disclosure and adoption. We follow ACSI recommendations and ask clients to address
direct engagement and direct active ownership work.  We generally vote for all annual general meeting resolutions in favour of TCFD reporting and climate change related disclosure including the AGMs for Origin Energy.

LGS' half yearly Carbon Emissions Report is reported broadly inline with TCFD guidelines and assesses LGS' Portfolio Carbon Footprint for our listed equities using the (WACI) Weighted Average Carbon Intensity (t CO2e / $M Revenue) measure recommended by the TCFD. We believe adopting TCFD within our Carbon Emissions Report will promote awareness and encourage industry peers to follow suit. 
The latest Carbon Emissions report for December 2019 can be found at https://www.lgsuper.com.au/investments/responsible-investment/sustainable-investment-reports-and-policies/carbon-emissions-report-december-2019/.

Our external ESG provider, ACSI, uses company engagement and proxy voting advice for ASX-listed companies as tools for managing climate change risks and opportunities.

ACSI has been engaging with ASX companies for years on the disclosure and integration of climate-related risks and opportunities. ACSI engages with a broad range of companies on climate risk and also prioritises particular companies given their materiality and exposure. For 2019, there were 20 companies which ACSI focused on TCFD adoption as a primary concern.

ACSI is also actively supporting members’ efforts in the Climate Action 100+ initiative, directly engaging companies alongside members who are lead investors and providing other insights like briefing members on discussions to date. LGS is the lead investor for WOW as part of Climate Action 100+

ACSI also uses proxy voting advice as a mechanism to create engagement on climate-related resolutions and as a tool for signalling where improvement on climate-related issues can be made.


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.

10 %

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

Asset class invested

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

Brief description and measures of investment

Listed equity: Allocation to specific mandate to invest in companies generating at least 50% of revenues from renewable energy, water treatment, waste and recycling and resource efficiency. 8% of this mandate is invested in renewable and alternative energy generation.

Fixed income - SSA: Allocation to green bonds issued by supranational agencies such as the IFC and European Investment Bank.

Fixed income - corporate (financial and non-financial): Allocation to green bonds issued by Australian and international corporates.

Private equity: Two mandates in a well-diversified 'clean technology' private equity 'fund-of-fund' investing in early stage and growth technologies in the area of environmental, resource and low carbon products and services.

Property: We purchase 100% GreenPower for all base building electricity requirements across our direct property portfolio. We have also installed solar panel arrays at 4 of our properties, with plans to expand this where feasible.

Hedge funds: LGS has allocated investment to a fund that invests in the Australian electricity wholesale market and related derivatives including renewable energy certificates and/or any other environmental related markets.

Infrastructure: We invest in two renewable energy infrastructure funds that includes solar and wind generation. 

Asset class invested

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

Brief description and measures of investment

Listed equity: Allocation to specific mandate to invest in companies generating at least 50% of revenues from renewable energy, water treatment, waste and recycling and resource efficiency. 27.2% of this mandate is invested in building related energy efficiency activities.

Fixed income - SSA: Allocation to green bonds issued by supranational agencies such as the IFC and European Investment Bank.

Fixed income - corporate (financial and non-financial): Allocation to green bonds issued by Australian corporates.

Property: The LGS direct property portfolio achieves an average 6 star NABERS Energy rating with 100% GreenPower, and 5 star NABERS Energy rating without GreenPower as result of an extensive energy efficiency program for over 8 years.

Asset class invested

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

Brief description and measures of investment

Listed equity: Allocation to specific mandate to invest in companies generating at least 50% of revenues from renewable energy, water treatment, waste and recycling and resource efficiency. 18.7% of this mandate is invested in sustainable forestry, food and agriculture related activities.

Asset class invested

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

Brief description and measures of investment

Listed equity: Allocation to specific mandate to invest in companies generating at least 50% of revenues from renewable energy, water treatment, waste and recycling and resource efficiency. 18.7% of this mandate is invested in sustainable forestry, food and agriculture related activities.

Asset class invested

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

Brief description and measures of investment

Infrastructure: One of our infrastructure mandates is for community infrastructure, including owning and operating schools across Australia.

Private equity: primary and high schools in Indiapost-secondary school education institutions in Brazil, career training services in China, 

Asset class invested

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

Brief description and measures of investment

Private equity: Significant investments across multiple private equity funds include a hospital group in China, regional hospital and health centes in China, hospitals and related healthcare services in Finland, manufacture of medical devices including hearing aids, pharmaceuticals development and manufacture, behavioural health care management, low cost health insurance, health IT systems, eye care services, medical school/university in the United States, aged, disabled and veteran care in Australia and Germany and cancer treatment services.

Infrastructure: One of our infrastructure mandates is for community infrastructure, including owning and operating hospitals across Australia.

Asset class invested

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

Brief description and measures of investment

Listed equity: Allocation to specific mandate to invest in companies generating at least 50% of revenues from renewable energy, water treatment, waste and recycling and resource efficiency. 28.8% of this mandate is invested in water related activities including pollution control, infrastructure and treatment technologies.

Infrastructure: A small allocation within a large infrastructure fund to water filtration and treatment plants in NSW.

Private equity: One of our private equity funds invests in wastewater treatment in China.

          Waste and pollution control
        

Asset class invested

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

Brief description and measures of investment

Listed equity: Allocation to specific mandate to invest in companies generating at least 50% of revenues from renewable energy, water treatment, waste and recycling and resource efficiency. 22.4% of this mandate is invested in waste and recycling related activities. In addition, we have investments with a listed equity manager that relates to recycling plants and waste to energy plants. 

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



Top