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Australian Capital Territory

PRI reporting framework 2020

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

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

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

The financial investment assets managed by Treasury are managed in accordance with an Investment Governance policy, Responsible Investment policy and individual Investment Plans.

The Investment Governance policy framework outlines investment legislative requirements, investment governance responsibilities, investment beliefs, risk management, engagement of service providers and monitoring and reporting requirements.

The Responsible Investment policy outlines the responsible investment objective, governance, the responsible investment framework, which is based on the UN Principles for Responsible Investment and Global Compact, and implementation considerations including investment exclusions, ESG and global norms integration into the investment decision-making process, proxy voting, procurement activity and reporting and disclosure.

The individual Investment Plans outline the approved investment strategy including the return and risk objectives and strategic asset allocation.

Copies of these documents are publicly available on the ACT Government's Treasury website under Financial Investments: https://apps.treasury.act.gov.au/publications.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

The Responsible Investment policy framework has been established by the ACT Government for the financial investment assets managed by Treasury.

The Responsible Investment policy outlines the ACT Government's approach to addressing the Principles for Responsible Investment (PRI). The Responsible Investment policy was first approved by the Chief Minister and Treasurer of the ACT Government in July 2012 and is reviewed on an ongoing basis, with key enhancements to the overall policy framework being approved by the Chief Minister and Treasurer in 2014, 2015 and 2018.

The ACT Government recognises that financial as well as environmental, social and corporate governance performance can impact long-term investment value and performance. The Government considers that environmental, social and governance risks and ownership responsibilities should be incorporated in investment decision-making processes in order to mitigate investment risks and improve the sustainability of the investments for the long term. The responsible investment objective is to generate both financial and sustainable (long-term) value. The objective of the Responsible Investment policy is to focus on long-term value creation for the Government's financial investments, including not just economic value but also broader values such as sound corporate governance and environmental sustainability. The approach adopted to meet the responsible investment objective is to combine both financial and non-financial ESG criteria in the selection and management of the financial investment portfolio assets.

Key elements of the approach to Responsible Investment include a direct integration of ESG and global norms analysis into investment decisions, a comprehensive proxy voting policy framework, as well as increased transparency and accountability of the investment operations and management of the investment assets with ongoing required reporting and public information disclosure.

The policy framework includes individual listed company screening for compliance with, or violations of, criteria that are consistent with recognised and widely accepted global norms and conventions, including the UN Global Compact, the ILO Declaration on Fundamental Principles and Rights at Work and the Universal Declaration of Human Rights. The analysis provides an assessment of the extent of company violations or controversies resulting from the impact of company operations and/or products and services that allegedly violate national or international laws, regulations, and accepted global norms and conventions. Companies highlighted by this assessment are excluded from the ACT Government's allowable investment universe.

The policy framework also includes individual listed company screening to assess a company's exposure to and management of ESG risks. The ESG risk assessment considers significant exposures to potential ESG risk and investment valuation impacts arising from changing global macro ESG trends.The assessment is based on key ESG themes including climate change, natural resources, pollution and waste, environmental opportunities, human capital, product liability, stakeholder engagement, social opportunities, corporate governance and corporate behaviour. These key ESG themes incorporate the assessment of a broad range of ESG risks and issues such as carbon emissions and carbon footprint, biodiversity and land use, water stress, labor management, health and safety, product safety and quality, supply chain standards, Board structure and diversity, business ethics and anti-competitive practices. Companies that are assessed as having very high and unacceptable ESG risk are excluded from the ACT Government's allowable investment universe.

The policy framework also includes listed company business activity exclusion-based screens where there is a strong ACT Government policy position and wide public support. These business activity exclusions are based on reasonable grounds that all, or a material, or in specific circumstances, any part of a listed company's revenue or core business is attributable to the manufacture of tobacco and related products, and the manufacture of cluster munitions and land mines.

The policy framework also includes listed company screening to assess a company's carbon emissions, carbon intensity and exposure to fossil fuel reserves.  Companies that exceed set thresholds for carbon emissions and/or carbon intensity and/or exposure to fossil fuel reserves are excluded from the ACT Government's allowable investment universe.

The ACT Government's approach to Responsible Investment also includes a comprehensive proxy voting policy framework which is aligned with the requirements of being a signatory to the PRI. The ACT Government makes full use of the rights of share ownership through actively exercising all voting rights. The ACT Government votes all directly-owned shares for the promotion of effective corporate governance, environmental and social practices, as well as long term value creation.

Transparency and accountability are key elements of the Responsible Investment policy framework. This includes the requirement for ongoing reporting of investment activities, as well as the public disclosure of the ACT Government's Responsible Investment policy, Investment Plans, directly-owned share holdings, proxy voting policy and share voting activity for the financial year.

 

 

01.6. Additional information [Optional].

          
        

SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

The ACT Government's Responsible Investment policy framework takes a broad approach to better manage transition and phycial climate-related risks and opportunties. The Responsible Investment policy includes 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. Companies with the lowest overall industry-adjusted ESG risk rating score, or that breach allowable thresholds for carbon emissions, carbon intensity and exposure to fossil fuel reserves are excluded from investment by Treasury.

Focusing on transition and physical climate-related environmental issues, companies are assessed against climate change risks, natural resource use, waster management and environmental opportunities. 

Climate change risks includes an assessment of carbon emissions, product carbon footprint, financing environmental impact and climate change vulnerability. The carbon emissions assessment includes type of operations and percentage of operations exposed to high/moderate/low carbon intensity, as well as location of operations and percentage of operations in countries with strengthening or pending carbon emissions regulation. The product carbon footprint assessment includes composition of product portfolio (as percent of total revenue) by carbon footprint. The climate change vulnerability assessment includes types of operations and location of operations (percentage of population exposured to climate-related hazards and value of assets exposed to climated-related hazards.

Assessment of environmental opportunities includes opportunities in clean technology (percentage of operations in business segments with high R&D funding and high exposure to clean technology markets and percent of operations in business segments with high/moderate/low level of involvement in developing and commercialising clean technology products and services), opportunities in green buildings (percentage of revenues from property types with high/moderate/low resource consumption and location of operations with percentage of operations in countries with strengthening or pending climate change or energy-related regulations) and opportunities in renewable energy (percentage of assets in power generation business segment and location of operations with percentage of operations in markets with government subsidies in support of renewable power production). 

Based on this comprehensive assessment methodology 119 listed companies are excluded from investment by Treasury for business activity, assessed ESG risk and assessed climate-related risks, with over 9 per cent of the Australian share market capitalisation (MSCI Australia Investable Market index) excluded from investment and over 11 per cent of international share market capitalisation (MSCI World ex-Australia index) excluded from investment by Treasury.

 

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

The individual company ESG risk and rating assessment process applies a weighted assessment framework based on the type of risk/opportunity over a short, medium and long term time horizon.

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

Explain the rationale

The ACT Government has not made any public statements in relation to the TCFD at this time.

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

The Responsible Investment policy framework has materially addressed future climate-related risks.

The ACT Government is also a leader on climate change action with the Australian Capital Territory now powered by 100% renewable energy electricity. The ACT Government has declared a climate emergency and believes that taking early action to reduce emissions and prepare for climate change is more cost effective than delaying action.

The ACT Climate Change Strategy 2019-2025 outlines the next steps the community, business and Government will take to reduce emissions by 50-60% (below 1990 levels) by 2025 and establish a pathway for achieving net zero emissions by 2045. The plan also addresses transport, waste avoidance and management, buildings and urban development, land use and biodiversity. The climate change strategy also focuses on reviewing planning regulations to improve sustainability, reducing urban heat and improving liveability. 

The strategy has been informed by consultation with the community, local businesses and subject matter experts.

A copy of the ACT Climate Change Strategy 2019-2025 is publicly available on the ACT Government's Environment website: https://www.environment.act.gov.au/__data/assets/pdf_file/0003/1414641/ACT-Climate-Change-Strategy-2019-2025.pdf/_recache

 

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.


SG 02. Publicly available RI policy or guidance documents

 

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

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02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

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02.3. Additional information [Optional].

The ACT Government's Responsible Investment policy includes business activity investment exclusions, the integration of an ESG and global norms-based risk assessment, share proxy voting and reporting and disclosure requirements. 

There are comprehensive formalised guidelines and methodologies for the company business activity screening, company ESG assessment and rating across numberous environmental, social and corporate governance factors, company compliance with global norms and conventions, company involvement in ESG controversies and assessment of a company's carbon emissions, carbon intensity of business operations and exposure to fossil fuel reserves.

The policy framework includes a rolling annual screen for company involvement in specific business activities including companies that grow or process tobacco or that manufacture tobacco products, companies that manufacture landmines whole systems or components, companies that manufacture cluster munitions whole systems or components and companies where their primary business activity is the mining of coal. Companies involved in these business activities are excluded from the allowable investment universe.

The framework includes an ongoing systematic and comprehensive company environmental, social and governance (ESG) rating, relative to their industry peers, across numerous ESG factors to understand how exposed the company is to each key issue (business and geographic) and how the company is managing each key issue. The environmental performance of companies are assessed on issues such as carbon emissions, carbon footprint, carbon intensity, exposure to fossil fuel reserves, 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. The social performance of companies are assessed on issues 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. The governance performance of companies are assessed on issues such as corruption and fraud, business ethics, anti-competitive behaviour and practices, diversity and Board structure, executive remuneration, as well as other corporate governance practices and standards. Companies that are ranked in the lowest ESG rating category relative to their industry peers are excluded from the allowable investment universe.

The framework includes an ongoing systematic assessment of companies’ compliance with or violations of global norms and conventions, including the United Nations Global Compact Principles, the International Labour Organisation’s conventions, and the United Nations Guiding Principles on Business and Human Rights. The framework includes an ongoing systematic assessment of companies’ involvement in ESG controversies and the severity of the impact of company operations and/or products and services that violate national or international laws and regulations. Companies that fail this assessment, or that are involved in very severe controversies are excluded from the allowable investment universe.

The framework also includes an ongoing systematic and comprehensive assessment of a company’s carbon emissions (Scope 1 and Scope 2), carbon intensity of business operations (Scope 1 and Scope 2) and exposure to fossil fuel reserves (coal, oil and gas). Companies that are assessed to be large owners of fossil fuel reserves, that have a large carbon footprint or that have high carbon intensity are excluded from the allowable investment universe.

In addition to the Responsible Investment policy and sustainability proxy voting policy guidelines Treasury also makes publicly available the Investment Governance policy framework and the individual Investment Plan policy documents, as well as quarter end share holdings and proxy voting activity. 


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

All the financial investment assets of Treasury are managed by the procurement of external fund management services and products.

Procurement covers the process of acquiring goods and services and the process of disposing of goods, works and property.  The Government Procurement Act 2001 and the Government Procurement Regulation 2007 set out what is required when undertaking procurement on behalf of the ACT Government.  The legislative framework for the procurement of services, such as investment management services, has controls and procedures in place to mitigate the potential for any conflict of interest.

The individual Investment Management Agreements (IMA) between the Australian Capital Territory (Territory) and investment managers directly addresses conflict of interest by requiring the investment manager to warrant that no conflict of interest exists or is likely to arise in the performance of the services and of its obligations under the agreement.  The IMA also requires the investment manager to notify the Territory immediately of a conflict or potential conflict, with a clause directing the investment manager to comply with any requirement of the Territory to eliminate or otherwise deal with the conflict or risk of conflict.

03.3. Additional information. [Optional]

Treasury utilises the services of a global Master Custodian to provide for separation of investment duties to ensure there is independence in custody of the financial investment assets, trading, investment monitoring and compliance, valuation, performance calculation and reporting.


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

The ACT Government's Responsible Investment policy framework includes individual listed company screening for compliance with, or violations of, criteria that are consistent with recognised and widely accepted environmental, social and governance global norms and conventions, including the UN Global Compact, ILO Declarations and Conventions and the Universal Declaration of Human Rights. Breaches and violations of these international norms that are flagged by an event-driven controversy are captured by this screening process.

Independent analysis by an external service provider provides an assessment of the extent of company violations or controversies resulting from the impact of company operations and/or products and services that allegedly violate national or international laws, regulations, and accepted global norms and conventions. Companies that fail this assessment, or that are deemed to have been involved in a very severe controversy are excluded from investment.

These companies will only be reconsidered for investment by Treasury once the external service provider confirms that certain criteria have been met by the company, including the company's response to the controversy, lack of new allegations, remediation of the situation and the acceptable conclusion of any regulatory and/or legal actions.


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