Pendal's philosophy for all our funds, not just explicit Ethical or Sustainable mandates, is that where ESG factors are considered material to the risk and return outcomes of the investment, we incorporate them into the investment framework. More specifically, labour standards or environment, social and ethical considerations are taken into account when making investment decisions, to the extent that such issues may affect the financial performance of an investment. We incorporate ESG integration across all of our listed equity strategies.
For Pendal, ESG issues arise in the following contexts:
- Our ability to deliver sustainable returns for both our clients shareholders
- Our differing responsible investment strategies to meet varying client needs (e.g. ESG integration, ethical investing, sustainability-themed investing)
- The actions we take as a corporate citizen that may impact upon the environment, the community or our other stakeholders
As an active investment manager, Pendal incorporates ESG factors as part of its core investment processes recognising that ESG issues can have a significant influence on the value placed on a company and its ability to drive shareholder returns on a sustainable basis. For more than a decade, we have been progressively factoring in ESG considerations more systematically into our investment process across multiple asset classes – including as a part of the research, analysis and due diligence undertaken – covering issues such as climate change, human capital and ethical conduct. Over this time we have seen first-hand that ESG issues have the potential to affect value, for example by creating new investment opportunities in the renewables and cleantech solutions sector or through findings of poor conduct having a material impact upon the financial sector. We know that the way a company handles ESG issues can provide insights into its exposure to negative incidents or emerging opportunities. We incorporate ESG as part of our fiduciary duty to clients.
ESG incorporation (bottom up, company specific incorporation of material ESG value drivers) is applied to all Pendal equity funds. Additionally, dedicated RI-labelled funds apply additional strategies including:
- Screening (negative and positive) has been developed to meet the needs of clients seeking to align their investments with the mission of their organisation and/or individual values:
- Our exclusionary screens are across a range of sectors (including fossil fuels, tobacco, alcohol, weapons, gambling, pornography, uranium). Some funds also employ temporary 12m exclusions for harmful activities such as breaches of environmental regulation, business conduct norms and labour rights. Sector-based screens are based on business involvement determined by revenue ranging from 0% to 10%, depending on the individual strategy (*except for Controversial Weapons - such as cluster munitions, landmines, nuclear weapons and biochemical weapons - where a 0% revenue materiality tolerance applies across the funds).
- Best-in-class positive and negative screening. In assessing this best-in-class or relative performance on environmental and social practices, we consider companies' sustainability strategy, policy, management and performance in areas such as: environmental management, for example, climate change, greenhouse gas emissions, energy and water use; business ethics and conduct including stakeholder relations; occupational health and safety management and performance; human capital management, including workplace relations, equal opportunity, consultation and participation in the workplace and employee conditions and benefits. We exclude those companies considered to be laggards in their sector, and positively tilt towards those companies we deem to be demonstrating leading environmental and social practices.
- Sustainability-themed investing: this thematic approach has the objective of tilting towards companies offering products and services which contribute to positive environmental and social outcomes, such as renewable energy, energy efficiency, climate change adaptation, sustainable buildings and land use, improved health and community wellbeing. It may also include companies we deem to demonstrate leading environmental and social practices. This enables us to the needs of those clients interested in investing sustainably.