Treasury, in conjunction with a professional global index vendor, has developed and implemented bespoke customised listed ESG share index benchmarks - a global ex-Australia customised ESG index benchmark and an Australian customised ESG index benchmark.
In order to ensure greater alignment with the Principles for Responsible Investment and the ACT Government's Responsible Investment policy framework the customised listed equity index benchmarks utilise extensive and comprehensive negatives screens of the parent indices to exclude companies from investment.This achieves direct integration of ESG risks into the investment decision-making process through index and portfolio construction.
The framework includes business activity screens and excludes investment in companies involved in the production and manufacture of tobacco (and related products), the manufacture of cluster munitions whole weapon systems, components, or delivery platforms and the manufacture of landmines whole systems or components, as well as companies where their main business activity is the mining of coal.
The framework includes a comprehensive company ESG analysis and rating across numerous ESG factors relevant to each industry. Companies are assessed on environmental factors such as their carbon emissions, carbon footprint, exposure to fossil fuel reserves, carbon intensity, energy efficiency, impact from climate change, water stress, biodiversity and land use, raw material sourcing and scarcity, toxic emissions and waste, packaging materials and waste and electronic waste. Companies are also assessed on social factors such as human capital development, labour management including child labour, diversity, discrimination, and labour disputes, health and safety, supply chain standards, controversial sourcing, product safety and quality, chemical safety, privacy and data security, and nutrition and health. Companies are also assessed on governance factors such as corruption and fraud, business ethics, anti-competitive practices, and corporate governance practices and standards.Companies that are ranked lowest against their industry peers are excluded from the allowable investment universe.
The framework includes additional screens to address climate change risks and portfolio carbon exposures including non-investment in companies with high fossil fuel reserves, high carbon emissions and high carbon intensity of business operations.
The framework also includes a screen for company compliance with individual global norms and conventions and a screen for company involvement in ESG controversies. Companies that have violated global norms and conventions or that have been involved in a very severe ESG controversy are excluded from the allowable investment universe. The framework also includes further negative screens
This customised ESG approach to responsible equity investment was first implemented in April 2014. This comprehensive framework results in 119 companies currently being excluded from investment by Treasury, with over 9% of Australian equity market capitalisation excluded from investment and over 11% of global equity market capitalisation being excluded from investment by Treasury.