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Frontier Advisors

Service Providers Framework 2020

You are in Strategy and Governance » Policy on ESG beliefs

Policy on ESG beliefs

SG 01. Responsible investment policy

01.1. Describe how your organisation’s philosophy incorporates environmental, social and governance factors, and the link to your business offerings.

Frontier’s summary Responsible Investment Philosophy is stated as follows:

“We integrate responsible investment into our process to identify and manage material Environmental, Social and Governance (ESG) risks and investment opportunities, because ESG factors impact investment performance sustainability.”

The Responsible Investment Philosophy forms part of Frontier’s Investment Philosophy.  Frontier considers the combination of “traditional” and responsible investment considerations to represent the full extent of investment factors that investors must address to achieve their long-term investment performance objectives.

Frontier’s Responsible Investment Policy (“the Policy”) sets out the way responsible investment is integrated into its investment research and advisory efforts.

 

Frontier has been working with our clients and the investment management community on integrating responsible investment considerations since the late 1990s. While our fundamental philosophy remains unchanged, our research approach has been continually evolving as our clients and the funds management industry develop and change the way that they address these factors.

All ideas, managers and/or investments must justify their place in a client's portfolio across risk, return and cost dimensions. Risk and opportunities come in various forms and need to be identified, assessed and managed. ESG risks and opportunities are no exception and as such, ESG assessment forms an integral part of our research and advice.   We believe the identification and management of material ESG risks and opportunities will assist investors to achieve their long-term objectives.

Deep research adds value, drives innovation, confirms investment strategies and mitigates greenwashing. We use both quantitative tools and qualitative views to inform our ESG and broader research and advice and to add value for our clients. And of course, implementation matters.

 

 

 

 

 

 

01.2. Indicate whether you have policies that formalise the incorporation of your ESG beliefs in your business offerings.

01.3. Indicate the components/types of your internal policy and provide the URL and/or an attachment of the document/s if they are publicly available.

Policy components/types

Public availability

01.4. Indicate how these are put into practice internally across the organisation.

01.5. Additional information [OPTIONAL]


SG 02. Norms used to develop policies

02.1. Indicate what frameworks and guidelines you have used to develop your organisation’s policies. Tick all that apply.

          The Paris Pledge
        

02.2. Additional information. [OPTIONAL]

At the time of writing, Frontier Advisors is developing its approach to assisting clients with respect to the Australian Modern Slavery Act 2018 which was passed by the Australian Parliament in early 2019.  Frontier has been guided by several frameworks/guidelines beyond the human rights frameworks already noted.  These have included guidance documents and other resources produced by the Global Slavery Index, the Australian Council of Superannuation Investors (ACSI), and the Responsible Investment Association of Australia's Human Rights Working Group.


SG 03. Policy offerings to clients

03.1. Indicate whether you offer standard, off the shelf, policies to clients as part of your product offerings, and/or whether you create tailored versions for individual clients.

Off the shelf
Tailored
Asset class-specific RI guidelines
Sector-specific RI guidelines
Screening/exclusions policy
Engagement policy
(Proxy) voting policy
RI guidelines set out within the Investment Policy Statement (IPS)
RI guidelines set out in a freestanding RI policy
Multi-year RI implementation project plan
Conflict of interest management policy
Stockbroker allocation policy
Securities lending policy
Other, please specify (1)
Other, please specify (2)
Other, please specify (3)
None of the above

03.2. Provide a brief description of the key elements, any variations, or exceptions applying to these policies.

Frontier works closely with its clients when assisting them to develop and enhance their RI-related policies. 

Led by Principal Consultant, Natasha Kronouer, our Governance Advice, Risk, Decisions and Strategy (GARDS) specialist team provides bespoke advice and research on business strategy, investment governance and decision-making structures, in-housing and insourcing, and risk reporting frameworks.

In conjunction with our Responsible Investment Group, GARDS provides assistance in achieving clarity on the client's responsible investment beliefs and philosophy along with tailored design of RI-related policies.  Typically, this involves a multi-staged process starting with a comprehensive survey of key stakeholders focusing particularly RI beliefs and identifying areas of agreement and disagreement.  The next phase includes a workshop for stakeholders and moderated by Frontier, at which all parties discuss and agree priority elements of RI beliefs and philosophy.  Based on these outcomes, Frontier and the client work closely to develop and/or enhance an RI Policy.

At the client's request, the GARDS team will provide periodic reviews of the RI Policy in order to ensure it aligns with the client's current needs and prevailing RI thinking.

03.3. Additional information. [OPTIONAL]


SG 04. ESG/RI in business offerings

04.1. Briefly describe how you include ESG/RI factors as part of your business offerings.

Business area

Investment Consultancy

How you include ESG/RI factors

Frontier's Responsible Investment Group was established in 2017 to assist with the delivery of one of Frontier’s Major Projects for 2017 related to ESG, managed within Frontier' Investment Committee.  The Responsible Investment Group was subsequently established as a permanent business unit in 2018.  At the delegation of the Investment Committee, the Responsible Investment Group is responsible for thought leadership in, and oversight of Frontier’s efforts on responsible investment. 

04.2. Indicate the roles in your organisation, and indicate for each whether they have oversight and/or implementation responsibilities for ESG/RI within the organisation.

Roles present in your organisation
Oversight/accountability for ESG/RI
Implementation of ESG/RI
Board
Directors
Chief Executive Officer (CEO), Chief Financial Officer (CFO)
Chief Operating Officer (COO), Chief Information Officer (CIO)
Other chief-level staff

Please specify

          Director of Consulting, Director of Research and Director of Investment Strategy
        

Please specify

          The Directors of Consulting, Research and Investment Strategy are all voting members of the Responsible Investment Group
        
Other heads of department

Please specify

          Chair of the Responsible Investment Group
        
Dedicated ESG/RI staff
Other role, specify (1)
Other role, specify (2)
Other role, specify (3)
None of the above

04.3. Indicate how you ensure ESG/RI expertise for the roles where there are RI oversight/accountability or implementation responsibilities.

          Frontier's regular internal program of ESG training (available to all employees) often features external ESG/RI specialists provided by fund managers, advocacy groups etc.
        

04.4. Indicate whether your organisation has any ESG/RI linked incentives for its employees.

04.5. Describe the ESG/RI linked incentives.

The Chair of the Responsible Investment Group has a proportion of their financial incentives explicitly linked to meeting Objectives and Targets established annually for the Responsible Investment Group by the Investment Committee.  These Objectives and Targets include measures based on quality, idea generation, revenues, research and efficiency and internal communications.  One Investment Associate with specific RI responsibilities also has a proportion of their financial incentives linked to their performance on RI research.  

Given responsible investment activities are fully-integrated into Frontier's activities, all research and client consulting staff are indirectly incentivised on the quality of ESG integration as part of their overall incentive structures.

 

04.7. Additional information [OPTIONAL]


SG 05. Outsourcing of services (Private)


SG 06. Providing training/education

06.1. Indicate whether you provide training/educational services on ESG/RI. Tick all that apply.

06.2. Describe the main components of your training/educational services on ESG/RI and any variations depending on the group you provide training/education to.

ESG/RI training is typically provided to clients on request and delivered by members of the Responsible Investment Group and/or Governance, Advice, Risk, Decisions and Strategy team.

The format of ESG/RI training provided by Frontier will depend on the client's specific needs but may include formal presentations and/or roundtable discussions.

Content of ESG/RI training provided by Frontier will also depend on the client's specific needs.  Previous training sessions for clients have focused on a range of topics including management of climate-related risks and opportunities, fossil fuel divestment and the Australian Modern Slavery Act 2018. 

06.3. Describe whether these training/educational services include any commercial elements.

          Frontier may, in the course of providing ESG/RI training to clients, make them aware of various other related tools and or services which may assist them in incorporation of ESG factors in their investment strategy.  Examples may include Frontier's climate change scenario module or modern slavery portfolio mapping tool (in development).
        

06.4. Additional information. [OPTIONAL]


SG 07. Applying, advancing and promoting the PRI principles

07.1. Describe how your organisation applies, advances and promotes the PRI Principles.

Frontier became a signatory of the PRI in October 2006 as a professional service partner.  While not a steward or manager of assets, on becoming a signatory, Frontier has publicly committed to providing, developing and promoting services that support its clients’ implementation of the Principles. 

In signing the PRI, Frontier has also committed to engaging with investment managers and related service providers to further consider ESG issues in the management of monies on behalf of our clients, consistent with their fiduciary duties.

Principle 1:

Frontier works with clients to understand and clarify their ESG investment beliefs and objectives.  This defines matters that are most important for the client and assists with the development of the client’s investment philosophy and strategic asset allocation.

In designing an overall investment strategy the sensitivity to climate change risks are examined along with other risk factors.

We incorporate ESG considerations into our manager selection and manager monitoring process.  A fund manager’s approach to ESG forms a significant part of our due diligence both at the time of initial manager assessment, and as part of an ongoing review.

Principle 2:

Frontier regularly engages with fund managers to ensure active ownership policies are in place and as part of our regular monitoring of these managers we assess whether their active ownership practises are in line with their stated policies.

Principle 3:

As part of our regular monitoring of managers, we regularly request disclosure by managers with respect to their ESG practices.  Frontier also engages with investment managers with respect to the enhancement of their ongoing ESG reporting to investors, particularly with respect to ESG metrics and data that is most commonly sought by our clients. 

Principle 4:

For Frontier clients considering becoming PRI signatories, we have provided details with respect to the requirements of the PRI, as well as outlining the key benefits of becoming a signatory.  Frontier also engages with investment managers that are yet to become signatories in order to promote the benefits of adopting the principles.

Principle 5:

Frontier regularly encourages investment managers and related service providers to further consider ESG issues in the management of monies on behalf of our clients where consistent with their fiduciary duties.  One example relates to Frontier collaborating with the Clean Energy Finance Corporation with respect to decarbonisation targets as well as introducing the organisation to some of our clients who are PRI signatories. 

Principle 6:

Frontier regularly undertakes and publishes research or written thought pieces across a range of ESG related topics.  ESG/RI is a standing topic at our annual client conference with previous presentations and panels including topics such as climate change and modern slavery.  Frontier is regularly invited to provide commentary on ESG/RI topics by reputable journalists and we seek to actively participate in report on progress made by the firm and by our clients. 

07.2. Highlight whether there are any ways that your organisation would like to engage further with the PRI. [OPTIONAL]


SG 08. Actions taken to promote responsible investment

08.1. Indicate which of the following actions your organisation has taken to promote responsible investments during the reporting year, independently of collaborative initiatives.

08.2. Additional information. [OPTIONAL]

Frontier is a member of the Global Investment Research Alliance (GIRA).  GIRA is an innovative information sharing alliance between regional, like-minded and independent investment advisory firms. Frontier and Segal Marco Advisors are the foundation members, creating the Alliance in 2013, with UK-based firm, Lane, Clark and Peacock (LCP), joining in 2014.

GIRA provides each partner with access to an expanded manager research database, with all three databases accessible remotely and online. Regular contact between sector team counterparts, onsite meetings, joint manager meetings, research forums and joint venture research projects all contribute to enhanced global awareness and a sharing of ideas and concepts from a broad international pool of investment professionals.

Frontier has engaged with its GIRA partners on ESG matters in order to broaden its perspective on how ESG integration is considered in different global jurisdicions.  Frontier believes these insights can provide useful context in providing RI advisory services to its clients (e.g. understanding regulatory developments in ESG outside Australia).


SG 09. Long term trends

09.1. Indicate which of the following long-term trends are addressed in your product outputs.

09.2. Explain how this long-term trend affects your product outputs.

Frontier has conducted detailed research into the demographics outlook for the globe and the potential impact on the economy, interest rates and investment returns. Our research included analysis of labour force participation, productivity growth, consumption, investment and savings patterns.  The output of this research was factored into our long-term outlook for asset classes, which flows through to the advice we provide to clients as part of their investment policy and strategic asset allocation reviews.

09.2. Explain how this long-term trend affects your product outputs.

Frontier has developed a Climate Change Module into Prism, within our proprietary portfolio analytics system.  This is part of an ongoing objective to assist clients in considering environmental issues in their portfolio at the strategic asset allocation level.  The Climate Change Module specifically aims to better understand the potential impacts of climate change on investment portfolios with regard to the return impacts of different but plausible scenarios. 

We are continually in the process of reviewing our climate change modelling to take into account more recent changes in the relative cost profile of renewable energy and updated estimates with respect to the potential physical impacts of climate change.  We also are continually refining the outputs of the modelling to make these more functional for clients.  In this endeavour, we are particularly mindful of regulatory guidance which is growing in stature in Australia and ensuring that the modelling is consistent with such guidance e.g. alignment with TCFD. 

Most recently, Frontier has looked to explicitly factor in long-term climate physical and mitigation dynamics into its determination of long-term expected asset class returns.  In mid 2019, this process resulted in our long-term expected return for Australian cash (risk-free) being reduced by almost 0.25% p.a. This decision impacted our long-term return expectations for all asset classes as we employ a "building blocks" approach to capital market assumptions, the common base of which is the cash return.  This represented a strong signal to clients that Frontier's sees climate change as a material and present impact on portfolios over the long term, even under a base case scenario.  

          Inequality
        

09.2. Explain how this long-term trend affects your product outputs.

Frontier has conducted in-depth research into the potential impacts of global dynamics around inequality on long-term economic growth and therefore, asset class returns.  Frontier views inequality as a drag on sustainable economic growth.  Along with the long term impact of climate change, inequality was a contributing factor to Frontier's decision to reduce our long-term expected return for Australian cash in 2019.


SG 10. Interaction with asset owners

10.1. Indicate whether you interact with asset owner clients.

10.2. Indicate the typical frequency and type of interactions with your asset owner clients.

Type of interaction

Frequency

Frequency

Frequency

Frequency

Frequency

10.3. Additional information. [OPTIONAL]

In our meetings with our clients, we provide all areas of investment advice and support, and as required, this includes ESG/RI advice and implementation.


SG 11. Aligning approach with investor goals

11.1. Describe how you typically align your organisation’s philosophy and approach to ESG/RI with your investor clients’ goals.

Frontier’s focus is the provision of investment and related advice and research. This, along with our commitment to independence, defines what we do.  We work as a team in partnership with our clients, pioneering creative business and investment solutions, which have regard for ESG/RI given that the identification and management of ESG risks and opportunities can assist investors to achieve their long-term goals.

Frontier's ESG/RI beliefs and philosophy are described in our publicly-available RI Policy.  Given the large number and wide variety of ESG factors however, the formulation of Frontier’s responsible investment research agenda also considers the materiality of these factors.  ESG factors expected to have a material impact on the long-term performance of client portfolios are prioritised for research. Materiality in this context may variously refer to the expected scale of risk and/or opportunity, the prevalence of an ESG factor within the economy, and/or the degree to which Frontier assesses an ESG factor can reasonably be managed by clients. 

11.2. Additional information. [OPTIONAL]


SG 12. ESG recommendations not aligned with investor goals

12.1. Describe what steps you take, if any, when your ESG recommendations are not in line with your investor clients’ goals.

Frontier recognises there is no “one size fits all” approach for ESG, with there being diversity in the ESG philosophy and level of specialisation of investors.  This need to tailor responsible investment advice is one of Frontier's foundational responsible investment beliefs.  Frontier’s approach is always to work closely with clients to understand and clarify their ESG investment beliefs and objectives to ensure advice will be provided which is appropriate to a client's unique set of objectives, constraints and values.  Frontier prides itself on providing frank and fearless advice and may, if circumstances dictate, recommend against intended courses of action relating to responsible investment by the client if we deem these to compromise the long-term sustainabilty of investment performance.

12.2. Additional information. [OPTIONAL]

The most frequently encountered example we have observed to date where our preferred approach has been problematic for clients is with respect to the treatment of fossil fuel exposure in portfolios and managing the risks of these exposures (e.g. stranded asset risk).  As a house, Frontier's view is that divestment of securities issued by companies with meaningful fossil fuel-derived revenues should be a last resort.  We have a preference for active ownership where feasible, in order to drive positive change at a company level, and ultimately reduce emissions from fossil fuel use.  However, in some cases, our clients will face certain limitations and/or specific stakeholder needs/preferences under which engagement is not readily feasible.  In such circumstances, Frontier has continued to put forward its view but acknowledge for practical reasons, that divestment will be a preferred approach.  We then work with clients to develop its strategy in order to effect a divestment approach which meets its needs.


SG 13. Seeking feedback from clients

13.1. Indicate whether you seek feedback from clients on your RI/ESG services and product offerings

13.2. Describe how you use this feedback in your RI/ESG services and product offerings.

Frontier has established a Client Relationship Management (CRM) committee, from which members meet with clients on more formal basis to receive feedback on all aspects on our services, which includes and ESG/RI advice provided.  Typically, such feedback is directed to the Responsible Investment Group to ensure that feedback which may be relevant to Frontier's broader client base may be efficiently addressed as part of the Group's role in driving overall responsible investment activity at Frontier. 

Additionally, Frontier client teams frequently meet with internal client staff where regular feedback on our advice and services are regularly provided.  Any feedback from our clients is used to improve the advice and services we provide to our client base.

Frontier is currently responding to client feedback in a number of areas with the most noteworthy being an evolution of our process to assess the RI credentials of investment managers.  While this has long been a formal component of Frontier's investment product rating and monitoring process, client feedback indicated that consideration of a broader range of RI capabilities, and greater consistency of output across products was highly desirable.  As such, the Responsible Investment Group, along with Frontier's Research Teams, are in the process of developing a more robust, transparent and structured ESG assessment framework which is expected to be in use before the end of 2020.


SG 14. Managing conflicts of interest

14.1. Indicate whether your organisation has a policy for managing potential conflicts of interest.

14.2. Describe how you manage potential conflicts of interest.

Frontier’s Conflict of Interest Policy sets out the framework for monitoring and managing conflicts of interest within the business. This includes procedures for ensuring client sensitive or privileged information is kept confidential within the relevant teams, including the process for quarantining electronic and other information received from, or known about, a client and their activities.  Frontier will not act or advise on both sides of a transaction, nor will it advise a client where a promoter is on both sides of a transaction or proposal due to the inability to fairly and transparently verify a market price and the obvious conflict of the third party promoter.

14.3. Describe how you ensure that company employees do not derive any personal gain from the use of information collected during your work process.

Frontier sometimes receives information which, if disclosed, might materially affect the price or value of Financial Products. This is "inside information". The general principle of Frontier's Conflicts of Interests Policy is that employees are prohibited from dealing in any Financial Products in relation to which Frontier holds inside information. Further, employees have an additional specific restriction in relation to their superannuation and pension accounts such that, where the employees’ pension fund is also a Frontier client, then switching is only permitted within 30 days of the fund's notification of its annual/six monthly reports except with the prior approval.

14.4. Additional information. [OPTIONAL]


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