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Aware Super

PRI reporting framework 2020

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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.

First State Super believes that an investee asset or company’s approach to managing ESG risks, impacts and opportunities, has a meaningful impact on their long-term viability and success. That is, assets and companies that act in a responsible way are likely to perform better over time. Assets and companies that are unwilling or unable to take ESG issues into consideration may:

• put the asset/company’s reputation at risk;

• cause loss of market opportunities;

• diminish asset/company value; and

• adversely affect other assets/companies in which the Trustee has invested.

The Trustee believes that identifying and managing ESG factors helps in finding new opportunities, steering capital towards more attractive areas, and managing long-term investment risks. It is expected that returns will be higher, and downside risks lower, over the long term. These benefits arise from avoiding the poor performance and enterprise failures that can arise from lax governance, and weak environmental and social practices. Managing ESG risk is a source of opportunity and a way to control for longer-term risks. Assessing ESG risks in the investment process is consistent with the Funds’ objectives as long-term investors, and also the Trustee’s fiduciary duties and responsibilities to members.

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]

As stewards of our members’ retirement savings, we have a duty to act in their best interests and to protect and grow the real value of their assets.  FSS approaches ESG integration across the whole fund, via assessment of ESG integration and stewardship of our managers in the management selection phase, appointment and monitoring thereafter. Where possible, we attempt to educate our mainstream analysts and fund managers on ESG integration. For investments in the private equity or infrastructure assets classes where either FSS or our manager takes a board seat in an unlisted company, we ensure our ESG principles influence board decisions. For listed assets a critical part of this is a responsibility to monitor and engage with companies in which we invest, directly and through the fund managers we appoint. This is more than just voting. Activities may include monitoring and engaging with companies on matters such as strategy, performance, risk, and capital structure.

Perhaps most importantly, we have an obligation to ensure that the companies we invest in on behalf of members are governed in a way which will enhance their performance over the longer term. 

We believe that good governance is essential to being able to generate the best financial outcome for members. We generally support boards that have a majority of independent directors and that contain a diverse set of experience and skills appropriate to the business.

Additionally, we take an interest in the environmental and social practices of the listed companies in which we invest.  We believe companies that take a sustainable approach to the environment and to the community, including their own workforce, will perform better over the long term.

To improve our knowledge of ESG issues, which enters in to our ESG direct or co-investment reviews, corporate engagements, or proxy voting, we carry out in depth thematic research projects annually. We have completed projects on executive remuneration, climate change, worker safety, diversity and long term value creation. We participate in and are members of industry bodies such as PRI, RIAA, ACSI, Hermes Eos and IGCC, to ensure our work is benchmarked with our peers and to learn and provide information on our approach to ESG integrate and active ownership.

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.

First State super undertook a research project in 2015/16 to understand the climate related risks and opportunities.  This resulted in our Board approved Climate Change Adaptation Plan (CCAP). [https://firststatesuper.com.au/content/dam/ftc/digital/pdfs/about/policies/FSS-Responding-to-Climate-Change-a-Case-Study_May-2016.pdf]  

The CCAP took a total fund view as opposed to individual investment strategies as climate related risks exist across the total portfolio.   

Risks identified include: direct (loss of earnings; physical asset damage and stranded asset risk); indirect (supply chain disruption; resource scarcity and specie extinctions and direct member impacts (health effects; wealth effects and loss of purchasing power).

Key short term risks and key medium to long term risk were also identified (Display 13 of our CCAP).

In 2018 a report was commissioned by 427 which undertook/incorporated a whole of portfolio assessment of the physical risks of climate change to our assets.  Risk assessed included sea level rise, flooding from extreme rainfall, heat and water stress and cyclones.  The outcomes of this assessment are utilised in assessing physical risk of climate change to existing assets as well as feeding into any new investments in direct infrastructure and property assets.

In 2019, First State Super’s Investment Committee approved its Climate Change Portfolio Transition Plan (CCPTP).  This Plan includes a commitment to increase the degree of physical risk assessments being undertaken as an integral part of due diligence in all new investments in real assets.

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 way we have tried to assess the nature and scale of climate change risk is to consider possible future scenarios of emission reduction “pathways” and then consider the risks posed under each one over different timeframes.  Specifically, we define four scenarios, corresponding roughly to four representative concentrations pathways (RCPs) modelled by the IPCC:

Scenario 1: Transformation (~ICPP RCP2.6)

Scenario 2: Policy Co-Ordination (~ICPP RCP4.5)

Scenario 3: Policy Fragmentation (~ICPP RCP6.5)

Scenario 4: Inaction (~ICPP RCP8.5)

The Transformation scenario, for instance, is an optimistic scenario in which global carbon emission are sequentially reduced to be 90 per cent less than 1990 levels by 2050 (or ~50% by 2030), with accumulated CO2 levels peaking at ~800 GtCO2.  This is a scenario where investors and corporations pre-empt policy changes and drive a major reallocation of resources from carbon-intensive activities to low-carbon activities, including greater renewable energy use.  Under this scenario, average temperature are projected to peak at 1.8O above pre-Industrial levels making it the only scenario in which global warming remains within the 2OC limit.

A high-level summary of these scenarios and associated risks is set out in our Climate Change Adaptation Plan  https://firststatesuper.com.au/content/dam/ftc/pdfs/About/policies/FSS-Responding-to-Climate-Change-a-Case-Study_May-2016_FINAL.PDF

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

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

Describe

In 2016 our Board approved our Climate Change Adaptation Plan that sets our the Fund's approach to identifying, managing and responding to risks and opportunities relating to climate change.  https://firststatesuper.com.au/content/dam/ftc/pdfs/About/policies/FSS-Responding-to-Climate-Change-a-Case-Study_May-2016_FINAL.PDF

The Board has approved our Climate Change: Portfolio Transition Plan (CC PTP), building on our CCAP, sets out our supporting analysis for our framework of recommended actions and targets to address material portfolio-wide climate change risks and opportunities. 

The CCPTP was separated into 2 parts being:

Part 1 seeks to provide a summary of a range of background climate change science and global responses to climate change.

Part 2 provides an overview of activities following the 2015 CCAP recommendations. 

The analysis and research from Part 1 culminates in an updated framework of recommended actions and targets FSS to:

  • provide a pathway for decarbonisation of the investment portfolio;
  • address climate change risk embedded within the investment portfolio and to adapt, where possible;
  • capture opportunities that will emerge in a decarbonising economy; and
  • lower risk through actively managing and engaging with portfolio investments on their climate change transition pathway.

A three-pronged transition plan has been recommended:

  1. Low carbon investments
  2. Portfolio Future – Proofing
  3. Engagement

A key highlight of the framework is the overarching emissions reduction target.  FSS will advocate for an economy wide 45% reduction in emissions by 2030.    For FSS this means, as a responsible owner, being accountable for targeted emissions reduction through the investment and portfolio decisions made across listed and unlisted assets.  In order to underwrite this in a meaningful way, FSS must understand, measure and monitor its investment portfolio emissions profile and understand what its future carbon liability may be as assets become responsible for paying for their emissions.  

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

specify

          Website - Climate Change Adaptation Plan https://firststatesuper.com.au/content/dam/ftc/pdfs/About/policies/FSS-Responding-to-Climate-Change-a-Case-Study_May-2016_FINAL.PDF
        

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.

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

02.3. Additional information [Optional].


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.

First State Super has a board approved Conflicts of Interest Policy that applies to all aspects of business within the Fund.  The Policy is publicly available on our website.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios (Private)


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