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Australian Capital Territory

PRI reporting framework 2020

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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.).

13.3. Additional information. [OPTIONAL]

Treasury does carry out stress testing/scenario analysis for the investment strategies on an ongoing basis. Core scenarios form the basis for determining the medium-term economic outlook, with additional scenarios representing more extreme events that have a low probability of occuring but a high impact if they do occur. Importantly these scenarios are used to estimate potential nominal and real portfolio returns, as well as estimating peak to trough drawdown, over the next five years.

The portfolio modellling scenarios available to Treasury are developed by the asset consultant and currently cover a broad range of forward looking economic scenarios including recession, mediocre growth, upside surprise, China credit risk, new energy order, eurozone break-up and Australian housing risk. However, at this time Treasury is not able to access any specific climate-related risk scenarios, or ESG factor scenarios, where the estimation timeframe is potentially over a more extended period of time.

It is important to note that potential outcomes for key economic and financial variables affecting portfolios are highly uncertain.  Furthermore, the linkages between economic outcomes and financial markets, as well as how different asset classes are expected to interact under different scenarios, are impossible to predict with a high degree of certainty.


SG 13 CC.


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.

Under the Responsible Investment policy framework Treasury has achieved significant reductions in the assessed carbon footprints of the Australian and global equity portfolios, signficant reductions in the weight of holdings owning fossil fuel reserves and significant reductions in potential emissions from fossil fuel reserves.  The portfolios also continue to maintain exposure to companies seeking to reduce emissions, use cleaner energy sources, and manage energy consumption as well as providing clean technology solutions for energy efficiency, pollution prevention, sustainable water and green buildings. 

Treasury also seeks to invest directly in low carbon and climate resiliant funds in a number of asset classes that specifically target investment in renewable energy infrastructure assets, such as wind, solar, hydro and geothermal, and clean technologies that seek to improve the efficiency of energy production, distribution and utilisation while appreciably reducing or eliminating the negative environmental impact of these activities. Treasury has made a number of investment commitments to these types of funds.

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.

Treasury completes an annual carbon analysis of the listed share portfolios at the end of each financial year with the assistance of an external service provider. 

The purpose of the carbon portfolio analytic report is to assess the carbon footprint of each portfolio including the estimated carbon emissions, carbon intensity and weighted average carbon intensity. The report identifies: 

  • portfolio carbon footprint, total carbon emissions, carbon intensity and exposure to fossil fuel reserves;
  • carbon emissions by sector, type of emissions, the trend in carbon emissions of current holdings and attribution of individual portfolio holdings and sector contributions to portfolio emissions;
  • carbon intensity by sector, trends in current holdings and attribution of individual portfolio holdings and sector contributions to portfolio intensity;
  • the weighted average carbon intensity trends in current holdings and by sector, and the attribution of individual portfolio holdings to weighted average carbon intensity;
  • weight of holdings owning fossil fuel reserves, largest contributors to portfolio thermal coal reserves, largest contributors to portfolio gas reserves, and the largest contributors to portfolio oil reserves; and
  • potential emissions from fossil fuel reserves, portfolio companies with highest potential emissions and the largest contributors to portfolio potential emissions; and
  • other measures such as company effort to manage carbon risks, company energy initiatives and exposure to companies involved in clean technology solutions.

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
          To identify companies/sectors that are more likely to face exposure to carbon related market and regulatory risks, relative to the market benchmark.
        
          tonnes CO2e/US$1 million sales
        
          Sum product of the portfolio weights and carbon intensities
        
Carbon footprint (scope 1 and 2)
          To measure the portfolio's normalised carbon footprint to enable comparison with a market benchmark over time
        
          tonnes CO2e/US$1 million invested
        
          Sum of all emissions in the portfolio based on ownership normalised by amount invested
        
Portfolio carbon footprint
          To measure the portfolio's normalised carbon footprint to enable comparison with a market benchmark over time
        
          tonnes CO2e/US$1 million invested
        
          Sum of all emissions in the portfolio based on ownership share normalised by amount invested
        
Total carbon emissions
          To measure the carbon footprint of the portfolio and identify largest contributors to carbon footprint
        
          tonnes of CO2e
        
          Sum of all emissions in the portfolio based on ownership share.
        
Carbon intensity
          To compare carbon efficiency across investments/sectors to highlight key potential risks
        
          tonnes of CO2e/US$1 million sales
        
          Ratio of portfolio carbon emissions normalised by claims on sales
        
Exposure to carbon-related assets
          To identify potential stranded asset risks
        
          portfolio weight to companies owning fossil fuel reserves
        
          Weight of portfolio made up by companies that own fossil fuel reserves
        

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

The ACT Government's Responsible Investment policy framework takes a broad approach to better manage climate-related risks and opportunties.

To assess company exposure to and management of key ESG risks and opportunities the Responsible Investment policy includes ongoing and systematic individual company ESG risk assessments and overall company ratings. These risk and rating assessments cover a broad range of industry and company specific environment, social and governance themes and issues as companies vary in the complexity of their businesses and of the ESG issues they face.

The ESG company rating framework, where each company is rated on a scale relative to the standards and performance of their industry peers, assists Treasury to understand key sector/industry ESG risks and opportunities and integrate these factors into portfolio construction. Companies with the lowest overall industry-adjusted ESG risk rating score (worst), or that breach allowable thresholds for carbon emissions, carbon intensity and exposure to fossil fuel reserves are excluded from investment by Treasury.

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.


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.

1 %

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

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

Brief description and measures of investment

The clean technology investments in the private equity asset class gain exposure to a diversified portfolio of investments which have a focus on technologies that seek to improve the efficiency of energy production, distribution, and utilisation while appreciably reducing or eliminating the negative environmental impact of these activities. The investments are diversified across a number of different sectors including waste (integrated waste management, water and wastewater treatment) and recycling , energy efficiency, alternative fuels, advanced technologies, sustainable manufacturing (clean industrial technologies) and clean energy generation (renewables, including wind and solar).

Asset class invested

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

Brief description and measures of investment

Treasury made a number of investment commitments during the 2017-18 financial year to the unlisted infrastructure asset class which are now being drawn down and invested. 

One of the infrastructure funds provides exposure to infrastructure assets in Australia diversified by geography, industry, sector and maturity. Importantly this fund also directly invests into a separate renewable energy infrastructure fund. The renewable energy fund invests in Australian renewable energy assets with the current portfolio of operating assets including three operating wind farms and an operating solar farm. The fund is focused on construction and brownfield projects but also has the ability to invest in late-stage greenfield projects as well.

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



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