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First Sentier Investors (including First State Investments)

PRI reporting framework 2020

Export Public Responses

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
82.5 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
17.5 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

We have 7 independent investment teams who invested in listed equities throughout 2019. 
The actively managed teams covered in this report are:
• Stewart Investors
• FSSA Investmet Managers
• Global Listed Infrastructure Securities
• Global Listed Property Securities
• Australian Equities Growth
• Australian Equities - Smaller Companies
• Realindex

Each of our listed equity teams have developed their own investment processes over many years by our leading investment professionals.
Responsible investment practices are applied by each of these teams in a way which complements their investment process and philosophy. Integration of ESG factors in bottom-up analysis, with a strong focus on company engagement is the common thread which tie our diverse investment capabilities together. 
Our Stewart Investors team's sustainability strategies started in 2005 and in 2017 our Listed Infrastructure team launched a sustainable listed infrastructure fund.
In terms of screening, currently our firm-level policy is to screen out companies involved in the manufacture of cluster munitions and landmines, and companies/individuals on sanctions or high risk of sanctions lists.  

Some examples include:
Stewart Investors: the principle of stewardship is central to Stewart Investors' investment philosophy and has been since 1988. All investment strategies strive to integrate ESG and sustainability considerations into every investment decision.  To us, sustainability factors are investment issues and we identify them and their materiality through a bottom-up approach. We believe that sustainability is a driver of returns, not a trade-off, and we believe that in order to deliver attractive long-term returns for our clients we must fully integrate sustainability into our analysis.  
FSSA: ESG is fully integrated into our single investment strategy and thus is implemented across all funds. As long-term and bottom-up investors we seek to invest in quality companies as defined by the strength of their management, franchise and financials. Considering ESG is therefore not just the ethical or right thing to do; to us, it is also entirely rational. It is only through analysing the extent to which a company addresses the interests of all stakeholders that we can construct an informed view on its prospects for the next decade – and it is these long-term prospects which inform our view on a company’s quality.  
GLIS: ESG issues are fundamental to infrastructure companies, given they have significant service obligations and moral accountability to the communities in which they operate. Our team therefore integrates ESG analysis into stock selection through our Quality Ranking model. 
The Quality Ranking is combined with a Value Ranking (which seeks to rank stocks in our focus list according to their relative mispricing), to provide an overall ranking of the securities on our focus list.  This overall ranking is the focus of our stock selection and portfolio construction process. 
Australian Small Companies: ESG considerations influence all our investment decisions to some degree, given that Sustainability is one of the six key criteria used in our evaluation of companies. ESG issues are also frequently raised with senior management during our engagement with companies, which contribute towards our view on the company.
Where ESG and sustainability factors are determined to have a material impact on profitability, they are quantified and can influence other factors, most directly in the valuation and financials of the stock. This would ultimately influence the active positioning in the portfolio, using the portfolio’s tiering system.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

The Stewart Investors team have  integrated the consideration of ESG factors into investment decision-making since their inception in 1988. Their investment approach  focuses on:

• Stewardship

• An absolute return mind-set

• Bottom-up analysis

• Long-term thinking

• Searching for quality companies

• Finding sustainable and predictable growth

• Strong valuation disciplines

The sustainability strategies augment this process by seeking to invest in the shares of those companies which the team believes are particularly well positioned to benefit from, and contribute to, the sustainable development of the countries in which they operate.

LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 


Indicate who provides this information 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

Each active equity team has its own process for selecting and remunerating brokers.

Two teams. FSSA and AEG value genuinely independent research and select out brokers on this basis. Some of their largest brokers (by expense) are ones that write substantial research on corporate governance - an essential part of our ESG analysis. They also look to utilise reputable independent consultants who have specialist skills in certain aspects of ESG analysis, for example, carbon emissions and/or advice on CEO/management appointments if we are not familiar with them - although FSSA will also draw on brokers to help provide up-to-date information on management changes amongst their holdings.

One, GLIS remunerate on an ad-hoc basis, while the remainder do not remunerate brokers for ESG research

Stewart Investors regularly tenders for ESG research independently and pays for it from its own P&L. Information on these tenders can be found at:

The unbundling of execution from research costs will increase with a number of our teams adopting that position. While driven by regulatory change we are supportive of greater transparency and value for clients from research services.

02.4. Additional information. [Optional]

The main sources of ESG information comes from company meetings, calls and correspondence, company-issued reports, and engagement activities.

In addition, Stewart Investors teams commission external research into specific ESG topics and the Sustainable Funds Group of Stewart Investors receives biannual portfolio reporting from ISS-Ethix.

We also use RepRisk, Sustainalytics, MSCI, Ownership Matters and other online resources.

LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate whether your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

ESG engagement and proxy voting is performed by the relevant analysts and portfolio managers not by a separate team. As a result analysis of ESG issues which influence investment decisions can also influence engagement and proxy voting activities and visa-versa. All investment teams either have a centralised database with ESG information or have a standard section of company reports which include their ESG assessments. 

Stewart Investors: We believe corporate engagement and voting activities are a key part of our investment approach. Our investment team are responsible for all engagement activity and voting decisions – we do not have a separate team tasked with engagement/voting. As such investment decision-makers are fully aware of the information derived from both engagement and voting activities.

(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by


We exclude cluster munition, landmine and cigarettes/ tobacco product manufacturers. 

We also exclude sanctioned and very high risk countries, companies domiciled in those countries and individuals. We are also able to implement exclusionary screens based on specific criteria requested via individual client mandates.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

For cluster munitions and land mines the criteria were established under our cluster munitions policy which was approved by the Global Responsible Investment Steering Group. The companies captured by the policy are reviewed annually with any changes reported in our annual responsible investment and stewardship report. 

Effective 1 May 2019, our formal group wide policy excludes investment in manufacturers of cigarettes and tobacco products

For sanctioned and high risk countries we enforce country level restrictions based on the constituents of the Australian Department of Foreign Affairs and Trade (DFAT) Sanctioned Countries List and similar lists issued by Governments in other jurisdictions where our funds are domiciled. The constituents on each system are regularly reviewed and updated.

Any potential investments in companies domiciled in these countries would be rigorously screened to ensure that there is no association with any sanctioned individual, entity or regime prior to investment. No investment is possible in companies domiciled in any country on the DFAT list without clearance from Investment Compliance personnel as the system controls do not allow it.

In addition our controls include screens for any potential investment from a country deemed to be ‘very high risk’ in relation to politically exposed persons, sanctions and ultimate beneficial ownership controls. The scope of this framework will be wider than the sanctioned countries list and the countries deemed to be ‘very high risk’ are updated on a regular basis.

Please also see the following link for more information:

LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

          pre and post trade compliance reviews

06.2. If breaches of fund screening criteria are identified, describe the process followed to correct those breaches.

Pre and post trade compliance systems prevent investment in excluded companies. Any breaches are managed through the investment compliance processes. Provided screening lists are coded within both Aladdin and CRIMS. Trade activity is considered against these lists and exemptions are flagged (both on a pre and post trade basis).

If an exemption is flagged Investment Compliance investigates the circumstances, contacting Portfolio Managers and other stakeholders where appropriate.

Any valid breaches of restrictions will be escalated to the Risk team who enter the details within a Risk Management System, which tracks resolutions and any required preventative measures.

06.3. Additional information. [Optional]

(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

The Stewart Investors: 

Our Sustainable Funds Group focus on long-term sustainable development as a key driver of the investment process. The team invests in the shares of high quality companies that are well positioned to benefit from and contribute to the sustainable development of the countries in which they operate.

Global Listed Infrastructure: 

In December 2017 the global listed infrastructure team launched the First State Sustainable Listed Infrastructure Fund. This Fund appeals to investors who wish to gain exposure to the benefits that listed infrastructure asset class can offer (steady capital growth and inflation-protected income); and who also want to ensure that the companies they invest in are taking a responsible stance towards sustainability issues. 
This Fund invests in the same opportunity set as the global listed infrastructure strategy, but includes an additional stage in its investment process known as “sustainability analysis”. This stage takes a deeper look at the sustainability aspects of each company and seeks to further understand the direction of travel a company is moving; the adequacy of measures put in place so far; and, their ability to contribute towards the UN Sustainable Development Goals (SDGs). 
We see an increasing awareness of SDGs from companies within the listed infrastructure investment universe, with the most relevant six being:
• Clean Water and Sanitation
• Affordable and Clean Energy
• Industry, Innovation and Infrastructure 
• Sustainable Cities and Communities 
• Responsible Consumption and Production
• Climate Action
SDGs also provide a useful framework that supports the Fund’s approach to company engagement.


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis




Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

A full description of each team's approach is provided in our annual responsible investment and stewardship report: 

LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          ESG ratings from two providers integrated with analyst tools Bloomberg and Factset. Group-wide ESG portfolio monitor tool has been developed.

09.6. Additional information. [Optional]

As the investment teams operate independently, ESG analysis is performed by each team and maintained separately. A centralised database and direct access to the research of a number of leading ESG research providers is available to all teams. Teams use multiple ways of collecting and storing and interrogating the information. 

The quality of the ratings we receive from external providers is monitored by the responsible investment team using our ESG Portfolio Monitor tool. This includes feedback from investment teams which is in turn fed back to the providers.

Portfolio monitoring forms part of the quarterly investment (product assurance) committee reporting process.  

LEI 10. Aspects of analysis ESG information is integrated into

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

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis.

10.3. Describe how you integrate ESG information into portfolio weighting.

​ESG issues are fully integrated in their investment process in number of ways.The frequency and degree to decision differ based on the type of company and its circumstances.

For example, Stewart Investors stated that portfolios are constructed with a long-term investment horizon in mind, typically increasing exposure as we engage and deepen further our company relationships.

Our FSSA team's portfolio construction and the weights of individual holdings are determined by their level of conviction, which is rooted in the quality of the company and its valuation. ESG is fully incorporated into our assessment of quality and thus is reflected in portfolio weightings.

The Global Listed Property Securities team states that ESG factors are used to screen our investible universe and determine Total Return Expectation of a stock

Global Listed Infrastructure Securities team stated that it is integrated through the Quality Ranking Model which consists of 25 qualitative criteria that they believe influence stock returns in general and infrastructure securities in particular with ESG accounting for 24% of the overall quality score.

Australian Small Cap team stated that ESG and sustainability factors are quantified and can influence other factors, most directly in the valuation and financials of the stock.

10.4. Describe the methods you have used to adjust the income forecast/valuation tool.

​Global Listed Property Securities comment: An ESG score out of 5 is incorporated into the company CAPM beta and discount rate calculation feeding into the company valuation.

Stewart Investors comment:we analyse a broad range of valuation metrics to come up with a sensible estimate of what a share is worth over time to us as long-term investors. ESG information is factored into our assessment of the overall quality of a company's governance and franchise. This in turn determines what price, if any, we are prepared to pay for said company. We undertake a range of different approaches based on earnings, cash flows, book value, replacement cost and physical metrics.

FSSA comment: Quality companies with better ESG credentials will generally merit a higher multiple; conversely, weaker companies may warrant a discount. However, there are no hard and fast rules on the extent to which these might be applied.

Australian Small Companies comment: Where ESG and sustainability factors are determined to have a material impact on profitability, they are quantified and can influence other factors, most directly in the valuation and financials of the stock.

10.5. Describe how you apply sensitivity and /or scenario analysis to security valuations.

The ​Global Listed Infrastructure Securities Team perform scenario/sensitivity analysis on all companies to assess upside and downside scenarios that could eventuate. Given that the future is uncertain we need to be forward thinking about risks and how they could impact our view of the underlying fundamental value of a business. For risks where the valuation impact is less explicit we incorporate this into the qualitative side of our investment process.  

Stewart Investors carry out detailed fundamental research ahead of investing in any company. An important part of our research includes assessing the risks and/or opportunities a company might face. Once invested, we continually monitor the companies we own to understand any changes to their strategies, relevant sector or market related changes and impacts, and movements in their share prices.

Global Listed Property Securities Team comment: We assign a single metric for each variable in our forecasting and valuation process, including assessment of ESG factors.

Australian Small Companies team comment: ESG considerations are part of scenario analysis and impact our view of the underlying fundamental value of a business.

10.6. Additional information. [OPTIONAL]