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Australian Capital Territory

PRI reporting framework 2020

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Asset class implementation gateway indicators

OO 10. Active ownership practices for listed assets

10.1. Select the active ownership activities your organisation implemented in the reporting year.

Listed equity – engagement

10.2. Indicate why you do not engage and do not require external managers to engage.

As a Directorate of the ACT Government (Sovereign Government Body Politic) responsible for policy, legislation and regulations on behalf of the Australian Capital Territory, Treasury does not undertake direct company engagement or directly contract for the requirement of fund managers to engage with companies on specific ESG factors.

As a signatory to the PRI Treasury encourages fund managers to engage directly with companies on ESG risks.  While Treasury does not contract for the requirement to enage on specific ESG issues it is important to note that the fund managers do actively engage with companies, industry bodies and relevant forums on ESG risks on a ongoing basis and provide reporting on behalf of all their clients. Over 90 per cent of the Treasury investments are managed by fund managers that are PRI signatories. 

Engagement activity by the external fund managers over the 2018-19 financial year, through both direct company and industry body or forum engagement, encompassed a very broad range of ESG risks and issues including: Australia's Modern Slavery Act, supply chain management, human rights, ESG integration, executive remuneration, TCFD reporting, Occupational Health and Safety, climate change and environmental risk management, sustainability, UN Global Compact and Australia's Banking Royal Commission.

Listed equity – voting

Fixed income SSA – engagement

Please explain why you do not engage directly and do not require external managers to engage with companies on ESG factors.

          Treasury does not contractually require fixed income fund managers to engage directly with supranational, sub-sovereign or agency issuing entities on specific ESG factors or issues. Appointed fixed income fund managers are required to ensure: credit quality within the relevant portfolio remains within investment grade guidelines; the exposure to different tiers of investment grade credit are within agreed guidelines; credit duration remains within agreed guidelines; the maximum permitted exposure to any one issuer remains within agreed guidelines; and the long-term debt of all entities in which the fund manager invests maintains a suitable credit rating by an approved rating agency or, if it is not rated, is limited to the maximum permitted exposure to such debt.  Exposures are to remain within approved limits based on the credit ratings of financial instruments and counterparties set out within the strategy, objectives and constraints permitted by individual investment management agreements or trust deeds as relevant, as agreed by Treasury.

Approximately 59 per cent of Treasury's total income exposures are to developed market sovereign or SSA-issued debt securities. Treasury's investment exposures to fixed income SSA securities is through two index-managed pooled funds and an actively-managed segregated mandate for an Australian sovereign inflation-linked debt securities fund.  Holdings include investment grade international developed market sovereign debt securities and Australian sovereign and SSA-issued debt securities managed by two fund managers who are both signatories to the PRI.
        

Fixed income Corporate (financial) – engagement

Please explain why you do not engage directly and do not require external managers to engage with companies on ESG factors.

          Treasury does not contractually require fixed income fund managers to engage directly with Fixed Income Corporate (financial) issuers on specific ESG factors or issues. Appointed fixed income fund managers are required to ensure: credit quality within the relevant portfolio remains within investment grade guidelines; the exposure to different tiers of investment grade credit are within agreed guidelines; credit duration remains within agreed guidelines; the maximum permitted exposure to any one issuer remains within agreed guidelines; and the long-term debt of all entities in which the fund manager invests maintains a suitable credit rating by an approved rating agency or, if it is not rated, is limited to the maximum permitted exposure to such debt.  Exposures are to remain within approved limits based on the credit ratings of financial instruments and counterparties set out within the strategy, objectives and constraints permitted by individual investment management agreements or trust deeds as relevant, as agreed by Treasury.

Approximately 18 per cent of Treasury's total income exposures are to Fixed Income Corporate (financial) securities. All of Treasury's investment exposure to fixed income corporate (financial) securities is to Australian debt securities through a cash enhanced investment strategy managed by a single fund manager who is a signatory to the PRI. The fund manager's approach to ESG is integrated within the overall security selection process, with ESG risks considered in the broader context of issuer factors such as business risk, management and industry risk.

The asset allocation by credit rating for the fund includes an 80 per cent exposure to securities rated A or higher, with a 40 per cent exposure to securities issued by financial institutions within the Australian banking industry and a 33 per cent exposure to Australian residential mortgage-backed securities. Most of the securities held in the fund have a time to maturity of less than 4 years.
        

Fixed income Corporate (non-financial) – engagement

Please explain why you do not engage directly and do not require external managers to engage with companies on ESG factors.

          Treasury does not contractually require fixed income fund managers to engage directly with Fixed Income Corporate (non-financial) issuers on specific ESG factors or issues. Appointed fixed income fund managers are required to ensure: credit quality within the relevant portfolio remains within investment grade guidelines; the exposure to different tiers of investment grade credit are within agreed guidelines; credit duration remains within agreed guidelines; the maximum permitted exposure to any one issuer remains within agreed guidelines; and the long-term debt of all entities in which the fund manager invests maintains a suitable credit rating by an approved rating agency or, if it is not rated, is limited to the maximum permitted exposure to such debt.  Exposures are to remain within approved limits based on the credit ratings of financial instruments and counterparties set out within the strategy, objectives and constraints permitted by individual investment management agreements or trust deeds as relevant, as agreed by Treasury.

Approximately 4 per cent of Treasury's total income exposures are to Fixed Income Corporate (non-financial) securities. All of Treasury's investment exposure to fixed income corporate (non-financial) securities is to Australian debt securities through a cash enhanced investment strategy managed by a single fund manager who is a signatory to the PRI. The fund manager's approach to ESG is integrated within the overall security selection process, with ESG risks considered in the broader context of issuer factors such as business risk, management and industry risk.

The asset allocation by credit rating for the fund includes an 80 per cent exposure to securities rated A or higher, with a 40 per cent exposure to securities issued by financial institutions within the Australian banking industry and a 33 per cent exposure to Australian residential mortgage-backed securities. Most of the securities held in the fund have a time to maturity of less than 4 years.
        

Fixed income Corporate (securitised) – engagement

Please explain why you do not engage directly and do not require external managers to engage with companies on ESG factors.

          Treasury does not contractually require fixed income fund managers to engage directly with Fixed Income Corporate (securitised) issuers on specific ESG factors or issues. Appointed fixed income fund managers are required to ensure: credit quality within the relevant portfolio remains within investment grade guidelines; the exposure to different tiers of investment grade credit are within agreed guidelines; credit duration remains within agreed guidelines; the maximum permitted exposure to any one issuer remains within agreed guidelines; and the long-term debt of all entities in which the fund manager invests maintains a suitable credit rating by an approved rating agency or, if it is not rated, is limited to the maximum permitted exposure to such debt.  Exposures are to remain within approved limits based on the credit ratings of financial instruments and counterparties set out within the strategy, objectives and constraints permitted by individual investment management agreements or trust deeds as relevant, as agreed by Treasury.

Approximately 14 per cent of Treasury's total income exposures are to Fixed Income (securitised) debt securities. All of Treasury's investment exposures to fixed income corporate (securitised) debt securities is to Australian debt securities through a cash enhanced investment strategy managed by a single fund manager who is a signatory to the PRI. The fund manager's approach to ESG is integrated within the overall security selection process, with ESG risks considered in the broader context of issuer factors such as business risk, management and industry risk.

The asset allocation by credit rating for the fund includes an 80 per cent exposure to securities rated A or higher, with a 40 per cent exposure to securities issued by financial institutions within the Australian banking industry and a 33 per cent exposure to Australian residential mortgage-backed securities. Most of the securities held in the fund have a time to maturity of less than 4 years.
        

OO 11. ESG incorporation practices for all assets

Select the externally managed assets classes in which you and/or your investment consultants address ESG incorporation in your external manager selection, appointment and/or monitoring processes.
Asset class
ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes
Listed equity

Listed equity - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - SSA

Fixed income - SSA - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - corporate (financial)

Fixed income - corporate (financial) - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - corporate (non-financial)

Fixed income - corporate (non-financial) - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Fixed income - securitised

Fixed income - securitised - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Private equity

Private equity - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Property

Property - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Infrastructure

Infrastructure - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Cash

Cash - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

Money market instruments

Money market instruments - ESG incorporation addressed in your external manager selection, appointment and/or monitoring processes

11.4. Provide a brief description of how your organisation includes responsible investment considerations in your investment manager selection, appointment and monitoring processes.

Treasury includes an assessment of ESG capabilities and methodologies in determining best value for money in all relevant procurement activity when selecting and appointing fund management service providers, as well as determining whether the service provider is a signatory to the PRI.

Treasury includes ESG-related clauses, where relevant, in contractual arrangements as a requirement of the relationship. Investment mandate agreements require the service provider to regularly provide ESG policies and to report on ESG activities and the extent of integration of ESG risks and issues into the investment decision making or due diligence processes over the relevant period.

All external asset class fund management service providers are monitored on an ongoing basis in relation to contracted deliverables and adherence to stated investment objectives and mandate risk-constraints. Where relevant and practical, this monitoring includes information on the incorporation of ESG risks and issues in the investment decision making process and the ongoing long term sustainable management of the assets.


OO 12. Modules and sections required to complete

12.1. Below are all applicable modules or sections you may report on. Those which are mandatory to report (asset classes representing 10% or more of your AUM) are already ticked and read-only. Those which are voluntary to report on can be opted into by ticking the box.

Core modules

RI implementation directly or via service providers

Direct - Listed Equity active ownership

RI implementation via external managers

Indirect - Selection, Appointment and Monitoring of External Managers

Closing module

12.2. Additional information. [Optional]


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