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Aeon Investment Management (Pty) Ltd

PRI reporting framework 2020

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 Aeon has recently incorporated scenario analysis and/or modelling into its investment philosophy to analyse current and potential ESG risk factors through the use of quantitative tools such as The Paris Agreement Capital Transition Assessment (“PACTA”) tool, The Transition Pathway Initiative (“TPI”), 2 Degrees Scenario Analysis.
Describe Aeon has just recently incorporated scenario analysis and/or modelling into its investment philosophy using PACTA, TPI and 2 Degrees Scenario Analysis to analyse current and potential exposure in comparison to the market and to test its funds’ performance and position under transition scenarios. The tools have limitations.

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]

We have recently started utilising several quantitative tools such as The Paris Agreement Capital Transition Assessment (“PACTA”) tool, The Transition Pathway Initiative (“TPI”), 2 Degrees Scenario Analysis etc. It should be noted that these PRI-recommended tools do however have limitations. Aeon Investment Management is mainly invested in South African stocks. The recommended tools do not cover a significant number of companies in developing markets e.g. South African-based companies and thus we are only able to obtain a limited amount of information on the analysis of these companies. Companies also only disclose a limited amount of environmental metrics to the public thus further increasing the limitations to the analysis. Aeon Investment Management has raised these issues with the research providers.

Aeon Investment Management practices responsible investing, this does not, however, mean we do not invest in fossil fuel assets. We instead analyse the current and potential risks (severity) associated with investing in these assets using data, research tools and available company filings. Depending on the outcome of our risk assessment, we then apply an appropriate ESG risk premium to our final investment case/valuation.


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

Aeon Investment Management has just recently incorporated scenario analysis and/or modelling into its investment philosophy to analyse current and potential exposure in comparison to the market and to test its funds’ performance and positions under transition scenarios.

We utilise several quantitative tools such as The Paris Agreement Capital Transition Assessment (“PACTA”) tool, The Transition Pathway Initiative (“TPI”) etc. It should be noted that these PRI-recommended tools do however have limitations. Aeon Investment Management is mainly invested in South African stocks. The recommended tools do not cover a significant number of companies operating in developing markets e.g. South African-based companies and thus we are only able to obtain a limited amount of information on the analysis of these companies. Companies also only disclose a limited amount of environmental metrics to the public thus further increasing the limitations to the analysis. Aeon Investment Management has raised these issues with the research providers.

Describe

Depending on the outcome that has been provided by the scenario testing (if sufficient information has been embedded into the database/programs), we factor the identified risks into our investment case and apply an appropriate ESG risk premium to our final valuation.

Describe

The final valuation, after considering climate-risks and applying an appropriate ESG risk premium, determines whether we invest (or continue investing) in a company. Depending on the severity and urgency of the identified risks, we conduct engagements with the executive team of the companies in question.

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

As indicated in the previous answers, we evaluate the potential impact of climate-related risks based on qualitative and quantitative analysis. On a broad level, some of the climate-related risks that we identified include:


• Lack of company disclosure as it relates to environmental targets
• Company water usage
• Company emissions and disclosure thereof
• Companies’ waste management programs and implementation thereof.
• Companies’ energy usage
• Food security risks as a result of climate-related risks


Given that Aeon Investment Management largely invests in South African companies, we have had to rely on global timescales such as the Paris Agreement, other available global conventions, and frameworks that have target carbon emissions and local jurisdiction regulation. We adopt these timescales into our own investment time horizon and subsequently investment strategy.

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:

          PACTA
        
Other

Other (2) please specify:

          Transition Pathway Initiative
        
Other

Other (3) please specify:

          2 Degrees of Separation
        

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

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

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

We have recently started utilising several quantitative tools such as The Paris Agreement Capital Transition Assessment (“PACTA”) tool, The Transition Pathway Initiative (“TPI”) and 2 Degrees Scenario Analysis to assess risk, obtain data and assess our portfolio positioning in relation to transition scenarios etc. It should be noted that these PRI-recommended tools do however have limitations. Aeon Investment Management is mainly invested in South African stocks. The recommended tools do not cover a significant number of companies operating in developing markets e.g. South African-based companies and thus we are only able to obtain a limited amount of information on the analysis of these companies. Companies also only disclose a limited amount of environmental metrics to the public thus further increasing the limitations to the analysis. Aeon Investment Management has raised these issues with the research providers.

We also use trend data from research portals such as Carbon Tracker as a discussion point for plans by company management to assess their reduction in climate-related risks. We generally discuss these climate-related risks with company management and what their plans are.

14.5. Additional information [Optional]


SG 14 CC.

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

Aeon Investment Management recently developed an environmental policy to create a framework that identifies companies’ current and potential risk factors and to quantitatively integrate these factors (depending on company disclosure) into the investment philosophy to ensure responsible investment.

We aim to identify companies that actively reduce their carbon footprint, disclose their emissions and have an ongoing positive effect on the South African society and the global community at large.

The rapid awareness of the effect that companies have on the environment has resulted in an increased requirement from investors and other stakeholders for companies to disclose their environmental metrics e.g. GHG emissions. Aeon Investment Management has created a framework that identifies a broad range of company risks. These risks may not be applicable to all companies and do not encompass all the risks that companies may face. In determining whether to continue to invest in a company, Aeon Investment Management undertakes an analysis on the company by considering the following:

1. Disclosure
We determine the company’s level and relevance of environmental metrics disclosure:
o Does the company disclose its GHG emissions, energy consumption, water usage and waste production in its Sustainability/ Integrated Report?
o Has the company disclosed the trends in its GHG emissions, energy consumption, water usage and waste productions to determine any changes (positive and negative) to the above-mentioned factors and monitor the implementation and continued practice of their sustainability policies?
o Going forward, has the company disclosed a plan to reduce its environmental impact?
o If applicable, has the company recently or historically had any environmental catastrophes such as hazardous spills and subsequent fines? Has the company disclosed the fines and programs they have implemented to rehabilitate the damage caused by these catastrophes?

2. Water (if applicable)
o Has the company disclosed its water usage and the amount of water it has recycled in its Sustainability/ Integrated Report?
o Does the company have an extensive policy (-ies) in place addressing the reduction of water usage and/or recycling water?

3. Emissions
o Has the company disclosed its GHG Scope 1, Scope 2 and Scope 3 emissions in its Sustainability/ Integrated Reports?
o What is the company’s carbon emissions per unit produced relative to its competitors?
o What initiatives has the company implemented to lowering their emissions and reducing their carbon footprint?
o Does the company fully and publicly endorse the Paris Agreement or any other climate agreements? What formal commitments have been implemented by the company towards addressing climate change?


4. Waste (if applicable)
o Has the company disclosed the level of tailings and overburden waste it produces?
o Does the company produce any hazardous waste and how has this been eliminated?


5. Energy
o Has the company disclosed its electricity usage or relevant benchmark metric?
o Has the company implemented any renewable energy initiatives within the business?
o What is the company’s electricity usage per unit of production and what is the historical trend of this production?

More information available online: https://www.aeonim.co.za/wp-content/uploads/2020/03/Aeon-Investment-Management-Environmental-Policy-1.pdf

 

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

Aeon Investment Management votes on all proxy resolutions for shares held in our portfolios and we provide full details of our voting record quarterly on our website ((http://www.aeonim.com/engagement-activities). Aeon Investment Management's Voting Policy covers Corporate Governance, Environmental and Social issues. The policy is aligned with adequate investee entities' environmental metrics disclosure and adherence to Paris agreements, global frameworks and/or local regulation targets.


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.

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



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