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PRI reporting framework 2020

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Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

Investment Beliefs:

ESG factors and sustainability are important considerations in driving both long-term investments returns and reducing risk, and these factors are likely to become more important in all investment decisions. The Sustainable and Responsible Investment (SRI) Policy recognises that LGS is long-term in nature, and that the long-term prosperity of the economy and the wellbeing of members depends on a healthy environment, social cohesion and good governance of LGS and the companies in which it invests. As a universal investor with index holdings, LGS has an interest in all major companies in Australia and overseas.

Strategy:

Mission - With a focus on local government and sustainability, we provide personalised, high quality service and solutions to our members representing good value.

Vision - To enhance the retirement income of our members.

Goals - LGS has four key strategic goals covering growth, brand, investments and capability. ESG is incorporated into the underlying targets for each of these.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

LGS invests on behalf of our members using a responsible investment approach. We believe that this approach minimises risk, generates better long term returns and is in line with our members' interests. A responsible investment approach means integrating ESG considerations into investment decision making processes.

LGS is the largest whole of fund certified responsible investor in Australia having been externally certified by the Responsible Investment Association Australasia (RIAA) https://www.lgsuper.com.au/about-us/riaa/ with investments across Australian and international shares, property, infrastructure, fixed income, private equity and absolute return asset classes.

The LGS Sustainable and Responsible Investment (SRI) Policy provides a formal framework for integrating ESG considerations into all of our investments. Reviewed annually, the LGS SRI Policy details our internal processes for assessing and undertaking investments. It is available online at https://www.lgsuper.com.au/assets/Documents/LGS-Sustainable-and-Responsible-Invest-Policy.pdf. This Policy sets down the sustainability principles by which LGS will be managed and the requirements for all investments made by LGS. It covers the total investment portfolio, with specific policies for public and private equity investments and direct property. It includes the following strategies:

ESG integration:

We aim to integrate, monitor and manage ESG risks throughout the investment process to ensure we are safeguarding our members' interests. Key ESG integration strategies we use include:

  • Negative screens - We will not invest in controversial industries and limit our exposure to activities which we view as long term investment risks. LGS' negative screens exclude approximately 272 companies globally involved in tobacco, controversial weapons, gambling, coal mining, coal fired electricity and oil tar sands. 
  • Positive screens - We seek investment opportunities that have a positive social and/or environmental impact on society e.g. renewable energy generation, recycling plants, waste management, schools, hospitals and sustainable agriculture. We currently have approximately AU$4.7 Billion invested in sustainable and low carbon investments.
  • SRI Overlay - We short sell or replace stocks when our fund managers are unable to direct funds away from controversial or high risk companies through investments in co-mingled trusts.
  • Investment practices - We monitor our investments for ESG risks and engage with our fund managers and advisors on how to integrate ESG considerations into the investment process. To ensure that external managers are fulfilling our fiduciary duty, we integrate responsible investment parameters into the selection, appointment and monitoring processes.

Active ownership:

We are committed to being an active owner of our investments and believe that by working with the superannuation industry and engaging with companies on ESG issues, we can minimise potential risks across our investment portfolio, maximise member returns and make a difference to society. Engagement strategies we use to influence change include:

  • Company engagement - We actively engage with companies about ESG issues through one-on-one meetings, briefings, phone calls and letters.
  • Proxy voting - We undertake voting at shareholder meetings for the companies we invest in and publish our decisions before meetings to ensure transparent voting practices.
    • LGS' latest proxy voting report can be found at https://www.lgsuper.com.au/assets/Documents/Proxy-Reports/Proxy-Voting-Report-Dec-2019.pdf
  • Industry collaboration - We work with the superannuation industry to advocate for change on environmental, social and/or governance risks across industries.
  • Transparency - We disclose comprehensive information about our sustainable and responsible investment practices to raise awareness about how we manage our members' retirement savings.
    • LGS' latest carbon emissions report can be found at https://www.lgsuper.com.au/investments/responsible-investment/sustainable-investment-reports-and-policies/carbon-emissions-report-december-2019/
    • LGS' latest ESG risk report can be found at https://www.lgsuper.com.au/investments/responsible-investment/sustainable-investment-reports-and-policies/lgs-esg-report-december-2019/.

 

 

 

01.6. Additional information [Optional].

          
        

SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

We assess and monitor this risk across our entire portfolio and in all asset classes using our own proprietary methodology. See SG 1.9CC for more information. Fund managers are required to consider and identify transition and physical risk as part of the investment process. 

We participated in the 'Just Transition' by adopting a positive thematic themed investment. Applied not only in listed equities but in fixed income and private assets. 

In the unlisted space we are encouraging our managers to provide case studies to evidence thought process in this regard. 

Our methodology incorporates scoring non fundamental ESG Risk (including climate change risk) and correlation with performance.

In 2020, we are initiating measurement of impacts via UNSDG mapping (Climate Action maybe one of these). 

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

Short, medium and long term.

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

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 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) and 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.

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          Portfolio Carbon Footprint biannual report published on the LGS Website. The latest Carbon Footprint report can be found at https://www.lgsuper.com.au/investments/responsible-investment/sustainable-investment-reports-and-policies/carbon-emissions-report-december-2019/
        

SG 02. Publicly available RI policy or guidance documents

 

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

URL/Attachment

URL/Attachment

URL/Attachment

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].

LGS is advised by ACSI for proxy voting recommendations in the Australian Equities market.

ACSI's proxy voting recommendations can be found at the below link.

https://acsi.org.au/images/stories/ACSIDocuments/ACSI-Governance-Guidelines-2019.pdf


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

The LGS Board has ultimate responsibility for the oversight of conflicts management and adopts a comprehensive approach to managing situations where a conflict may arise. The same approach is applied throughout the organisation. The Board retains overall responsibility for ensuring that arrangements, policies and processes for managing and monitoring conflicts are in place and Responsible Persons understand their obligations. 

The policy has identified a three stage approach as outlined below:

  1. Identify the conflict – what are potential or actual conflicts, and how they may arise in the Trustee’s normal business operations.
  2. Manage and assess the conflict – in accordance with the principles in this policy.
  3. Disclose the conflict – in accordance with the principles in this policy, including detailed registers. In some cases, conflicts may arise between different classes or types of Scheme members or beneficiaries.

The Conflicts of Management Framework requires that all members and beneficiaries be treated equitably. Conflicts are not limited to financial matters and care is taken to protect confidential information.

The latest Conflicts of Management Framework for LGS can be found at (https://www.lgsuper.com.au/assets/Trust-Deed-and-Trustee-documents/Conflicts-Management-Framework.pdf).

More information on LGS' corporate governance and the LGS Board can be found at (https://www.lgsuper.com.au/about-us/corporate-governance/).

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

We regularly review the ESG ratings and analyst coverage of portfolio companies to ensure they are managing relevant ESG issues and in turn, complying with our SRI Policy. We also monitor the news and engage with our external fund managers to ensure we are aware of any issues that are arising. Should a company be downgraded in their ratings or be subject to media enquiry, we will assess the severity of the issue and look to engage with the company to determine how they are managing the issue. If we feel that the issue/incident is not being managed appropriately, we may look to include the company on our restrictions list.

Our service provider ACSI, in addition to setting objectives for companies at the start of every year, also monitors incidents that emerge during the course of the year and set objectives around those as they occur. Examples of issues emerging throughout the year include tailings dam failures and wage fraud issues. In addition, other issues include lobbying associations inconsistent with Paris Agreement Goals and underpayment of wages at investee companies. ACSI’s process when these occur is to engage with the company to understand the issue, and then set objectives that we believe the company should work towards to rectify the issues and avoid a similar issues in future. 

This process is also applied to unlisted investments as we are regularly updated on ESG issues at portfolio companies.


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