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Australian Capital Territory

PRI reporting framework 2020

You are in Strategy and Governance » Outsourcing to fiduciary managers and investment consultants

Outsourcing to fiduciary managers and investment consultants

SG 12. Role of investment consultants/fiduciary managers

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

12.1. Indicate whether your organisation uses investment consultants.

12.2. Indicate how your organisation uses investment consultants in the selection, appointment and/or monitoring of external managers.

Asset class

Asset class

12.3. Indicate if your organisation considers responsible investment in the selection, appointment and/or review processes for investment consultants.

12.4. Indicate whether you use investment consultants for any the following services. Describe the responsible investment components of these services.

Describe how responsible investment is incorporated

          To provide an independent review of the Government's responsible investment policy, as amended from time to time, to ensure it remains contemporary and consistent with current objectives.
        

Describe how responsible investment is incorporated

          Treasury reviews annual stress testing of the financial asset portfolios conducted by the asset consultant utilising a broad range of economic and financial scenarios and themes, including previous historic economic and market events. The economic scenario analysis helps assess potential risks incorporated in the strategic asset allocation.  A current economic stress scenario incorporates a new energy order with significant falls in the price of oil.

Potential ESG risks and issues are considered in setting the strategic asset allocation and the allocation of assets across geographic markets and sectors. ESG themes, risks and issues are considered in conjunction with portfolio construction and the selection of asset class investment strategies.

Integration of ESG risks is provided through an assessment of the key ESG risk factors for each asset class, management of these key risks by external investment management service providers, as well as consideration of the type and geographic location of underlying financial investment assets.
        

Describe how responsible investment is incorporated

          The asset consultant provides Treasury with ongoing investment research touching on a broad range of topics, including ESG risks and issues.  As an example, the asset consultant believes that climate change presents both risks and opportunities to asset owners that should be considered at a strategic level, as well as in portfolio construction and monitoring.  The asset consultant provides a framework to understand how the incidence of climate change may shift the return distributions of various asset classes globally.  This assists the assessment of the inherent risks and resilience of portfolios and suggests ways capital should be allocated.

The asset consultant has also provided a research report (based on a review of academic research) in relation to the financial impact of ESG factors and stewardship on investing. Key conclusions of the research paper being that better ESG scoring companies tend to provide for better risk-adjusted returns over the long term and that governance is a very influential factor.
        

Describe how responsible investment is incorporated

          Treasury utilises an asset consultant to provide fund manager research and investable investment rating recommendations, as well as ongoing monitoring and assessment in relation to their continued use. 

The asset consultant is required to provide an assessment of an investment manager's responsible investment policies, practices, activities and reporting as part of the overall assessment of an investment manager's suitability. 

This assessment is considered along with other key information and analysis from the asset consultant around an investment manager's business, people and investment processes.  This analysis includes an assessment of the quality or skill of the organisation, including the capability of the investment team, quality of investment decision-making and the business management that supports the people and investment process, the expected investment risk to achieve stated performance targets including the investment process, the investment controls and risk management framework in place, as well as an assessment of the risks inherent in the investment product or organisation.

An investment manager and/or investment product may have a comprehensive ESG investment process in place but may still present as an unsuitable investment risk overall.
        

12.7. Additional information [Optional].


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