OUR POSITION ON CLIMATE CHANGE
Climate change is one of the most significant long-term challenges facing society and the global economy. We accept the long-standing scientific research on human-induced climate change and support the aim of the Paris Agreement to limit global average temperature rise to well below 2°C.
Climate change presents risks for the enduring prosperity of our clients, communities and our business, which need to be managed. We monitor and assess climate risks and the potential impact on our business and have established a climate change action plan. This consists of: reducing our own environmental impact; investing responsibly; offering investment products that include climate focused exclusions; and reinforcing our governance and disclosure on climate change.
We collaborate with other investors as signatories to the UN supported Principles for Responsible Investment and through our membership of the Investor Group on Climate Change. For Perpetual, responsible investing means consideration of environmental, social and governance (ESG) factors is incorporated into our investment activities.
We are committed to transparent reporting and to aligning of our climate change disclosure with The Task Force on Climate-related Financial Disclosure (TCFD).
PERPETUAL FY21 SUSTAINABILITY REPORT HIGHLIGHTS ON CLIMATE CHANGE
Reducing our own environmental impact
Improving disclosure on climate
Investing responsibly for the climate and our clients
Offering investment products that include climate-focused exclusions
The electricity we consume in our offices and the air travel of our people who need to travel for business are the main contributors to our operational carbon emissions, so it is important we measure and manage those impacts.
During FY21, we estimate our Scope 1 and Scope 2 carbon emissions, predominantly from electricity used to power our offices, were 1,484 tonnes CO2e, which is a slight decrease on the previous year. While emissions fell in our Australian offices as more of our people worked from home, this was offset by the addition of Barrow Hanley and Trillium offices in the US, which are captured in our emissions data for the first time in FY21.
Restrictions on travel during the pandemic and the greater use of videoconferencing Software such as Microsoft Teams saw a significant reduction in the number of business flights. Overall, there were over 800 business-related flights in FY21, significantly less than the year before, when around 2,800 were taken. The carbon emissions associated with our business-related air travel dropped to 99 tonnes CO2e in FY2116, down 83% from 577 tonnes CO2e in FY20.
We are also seeking to reduce paper usage in our offices. Remote working arrangements and greater use of software programs such as DocuSign, which reduce the need for hardcopy printing, have helped reduce our paper usage. In FY21, we used 9 tonnes of paper, or 700 boxes, in our Australian offices, a reduction of more than 50% from the 19 tonnes consumed in FY20.
Reporting our environmental impact and actions demonstrates our accountability to all our stakeholders. We disclose our carbon emissions data annually to the CDP (formerly Carbon Disclosure Project). Our most recent CDP climate submission score in 2020 received a score of B-. This is the highest score Perpetual has received since we first started providing a submission to the CDP in 2010 and a significant improvement from our rating of D in 2019.
We have also undertaken a project to improve our environmental and carbon data collection and reporting, which will support our Sustainability Strategy work. This will help us to reinforce our approach to robust data capture, allowing us to report other environmental metrics in future including waste reduction and recycling programs.
Our asset management businesses take an active approach to identifying environmental risks and opportunities through their investment processes.
This was demonstrated by the PAMA Credit team who undertook deep-dive sector research looking at the challenges and opportunities that surging penetration of rooftop solar could pose for electricity distribution networks in the next decade. This included discussions with network operators, analysis on the future regulatory landscape and the effect on existing assets. Our focus also extends to identifying opportunities associated with the global energy transition. Our equities team in PAMA invested in First Solar, a US company that designs and manufactures solar-power systems using Cadmium Telluride thin-film technology. This results in quicker production and a lower manufacturing footprint. Demand for solar energy solutions is expected to continue to grow strongly, driven by declining costs of solar and the need to address climate change.
Over the year, PAMA also increased the focus on assessing climate risk across their portfolios. While PAMA’s equity strategies do not have specific climate-related objectives, overall, our Australian equity portfolios have two thirds the exposure to high carbon emissions intensive sectors than the S&P/ASX 300 Index.
In May 2021, Trillium announced they would join the Net Zero Asset Managers Initiative. Along with other global investors, participants in this alliance formally pledge to align their portfolios with the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius. As at 30 June 2021, Trillium’s domestic equity investment strategies were, on average, 62% less carbon intense than their respective benchmarks.
We are currently developing a Sustainability Strategy for Perpetual. As part of this process, we are considering what metrics and targets are appropriate for our business and to reduce our impact on climate change and the environment.
Active engagement with companies is also an important part of how we invest responsibly. We use our influence as a fund manager to encourage improved environmental performance and to lead to better investment outcomes for our clients.
Across our asset management businesses in Australia and the US, we offer a number of dedicated ESG investment strategies and products, which incorporate criteria related to climate change.
PAMA offers the Wholesale Ethical SRI Fund and the Ethical SRI Credit Fund, which exclude companies or issuers that derive a material proportion of their revenue from fossil fuel exploration and production. During the year, we also launched our new Multi Asset ESG Real Return Fund, which also restricts fossil fuel investments.
Our June 2020 acquisition of Trillium means we can now offer more ESG-focused products. Trillium has a suite of fully ESG-integrated US domestic investment offerings, and two global, ESG-integrated, sustainability-focused equity offerings, both of which were launched in Australia in August 2020.
The Trillium ESG Global Equity Fund is designed to address the risks and opportunities created by the increasing constraints on natural capital, including an analysis of how companies manage climate risk. The Trillium Global Sustainable Opportunities Fund is a sustainability-themed strategy that invests in companies providing products and services to meet specific sustainability challenges, including climate change. While these products have a specific focus on climate, all Trillium products incorporate security-level analysis of climate risk and opportunity as part of the in-depth ESG benchmarking and peer analysis.
Barrow Hanley’s ESG Value Equity strategy uses a proprietary ESG ranking system, identifying best in class ESG performers as well as companies where there is an opportunity to improve ESG practices. The portfolio is lower carbon compared to its benchmark and has low exposure to utilities. Additionally, the energy team at Barrow Hanley increased its discount rate by 2%, which equates to a shadow carbon price of US$50 to US$75 (A$67 to A$100), when valuing energy and utilities holdings as those sectors will be more exposed to future regulation that leads to a higher carbon price.
Climate focused products and services we offer are not just related to our asset management businesses. PCT has acted as trustee for a range of loan issuers in the growing green bonds and securitised loans industry for environmentally focused outcomes.
PCT’s Debt Markets Services (DMS) business supported Brighte Capital to issue Australia’s first 100% green asset-backed securities debt issuance or ‘green bond’. The $190 million green bond will be used to finance loans for residential solar panels, battery storage and other low carbon products, which are expected to save over 360,000 tonnes of CO2 emissions annually.
Case study 1
ENGAGING ALASKA AIRLINE ON SUSTAINABILITY
As a long-term investor, the Barrow Hanley team look for opportunities to engage in constructive dialogue with companies to improve ESG performance, which can in turn boost valuations and provide better returns for clients.
Barrow Hanley has had a productive engagement with investee company, Alaska Airlines (Alaska), since 2019. Alaska had, for a long time, been one of the most fuel-efficient US domestic carriers. In 2016, the company acquired Virgin America Airlines, which at that time was the least fuel-efficient. Barrow Hanley raised options to improve the environmental performance for the combined group, including optimising flight paths and adding seats to their planes to improve fuel efficiency.
Further areas of discussion that are being explored include the use of sustainable aviation fuel, encouraging customers to bring their own water bottles to reduce plastic waste and promoting the use of electric vehicles and ride sharing to and from the airport through Alaska’s customer loyalty program.
Of the US national airlines, Alaska now has the second lowest total environment impact, including its carbon footprint and fuel use, relative to its revenue. Given the airline sector is one of the hardest to decarbonise, and that fuel costs can range between 20% to 30% of an airline’s costs, this will set the company up for stronger performance in the future.
Case study 2
BANK OF AMERICA WON’T FUND ARCTIC DRILLING
In October 2020, following a prolonged dialogue, Trillium filed a shareholder proposal asking Bank of America to address the risks associated with Arctic drilling. Trillium’s aim was to get the Bank to commit to not financing any projects that would have a negative impact on the pristine Arctic ecosystem that was home to the Indigenous Gwich’in people in the northwest of Canada and Alaska.
In late November 2020, faced with a combination of a shareholder proposal, vocal public engagement from the Gwich’in people, and polling showing that about two in three voters oppose moves to open the Arctic Refuge to drilling, the bank announced that it would not directly finance oil or gas exploration or production activities in the Arctic.
TRILLIUM FUNDS AVAILABLE IN AUSTRALIA
Two Trillium products with climate-focused exclusions are now available in Australia: the Trillium ESG Global Equity Fund, which holds no material investments in fossil fuels, and the Trillium Global Sustainable Opportunities Fund, a sustainability-themed strategy that invests in companies positioned to thrive as we transition to a more sustainable economy.