Responsible investing

Barrow Hanley believes integration of ESG risk factors aligns with the pursuit of superior risk-adjusted returns for the firm’s clients and their beneficiaries.  

Barrow Hanley considers ESG factors in its research and valuation analysis and monitors third-party ESG ratings for active management and shareholder engagement, where appropriate, through dialogue and proxy voting with a company’s board and management. The firm has developed a proprietary scoring system to assign an ESG Composite Score, built on ESG scores by the firm’s analysts, and incorporates third-party ESG scores with a robust ranking methodology.  

As an active owner, Barrow Hanley believes there is value in partnering with investee companies to mitigate business risks and unlock shareholder value. This involves meeting with companies to discuss performance and conduct that will have a positive long-term effect on shareholder value, including proxy voting.  

For more information visit: www.barrowhanley.com/barrow-hanley-responsible-investing

J O Hambro operates a multi-boutique structure, with 13 individual investment teams offering 21 investment strategies, covering global and regional equities. With no house view, fund managers are given full investment autonomy, subject to regulatory and contractual requirements.  

The firm’s broad purpose is to deliver resilient, sustainable financial long-term returns for clients through active management that seeks to guide them through a world in constant flux, identifying structural trends and managing emerging risks, including those associated with environmental and social issues.  

Stewardship and engagement with investment holdings is led by fund managers, with each investment team conducting their own analysis and engaging with the companies they hold or consider holding, according to their specific investment objectives.  

J O Hambro have a dedicated Sustainable Investments team to support fund managers. They have developed a proprietary sustainability data, engagement and reporting platform called Affinity used by investment teams to enhance their analysis of the sustainability issues that may influence future returns and to record their consideration of these issues. The Sustainable Investments team also includes a new data science expert that has developed a probabilistic climate modelling tool: the Horizon model, which scores how likely a company is to reach the target that they have set.  

In 2022, J O Hambro signed a multi-year partnership with the University of Exeter’s Global Systems Institute and Business School to develop further understanding on how the latest research on global systems risks related to climate change and sustainability can be integrated into company boardrooms.  

For more information on J O Hambro’s approach to sustainability investment see their latest Stewardship Report at: www.johcm.com/uk/about-us/584/stewardshipreport

The Perpetual investment teams believe that ESG risks and opportunities impact the long-term investment performance of their clients’ portfolios and that being active stewards of their client’s capital can improve the investment outcomes for clients, including in relation to ESG issues.  

It is the Perpetual investment teams’ policy that investment managers should incorporate ESG issues into investment analysis and decision-making, where relevant and possible to each investment strategy and asset class. ESG issues will be relevant to all fundamental, active investment strategies where these issues are assessed by the Perpetual investment teams to be a factor that may impact the current or future financial performance of an investment.  

There are certain investments where ESG considerations are not taken into account when deciding whether to select, retain or sell an investment. They may include derivatives and commodities.  

Perpetual investment teams use a variety of tools to assess ESG issues as part of their investment processes.

Australian equities  

The ESG workbook is used by Perpetual’s equity investment managers and analysts and draws on internal and external ESG research to highlight a company’s ESG risks and issues, where considered by the investment team to have the potential to impact the current or future financial performance of an investment. The ESG workbook helps to prioritise issues for engagement with investee company management. 

Credit and fixed income  

An ESG risk scoring process, which includes internal and external research on an issuer’s approach to managing ESG issues, allows Perpetual’s credit analysts to assess the ESG risks as part of their credit research on each corporate issuer and whether the issuer has any measures in place to address those risks. ESG risk scores are included in each corporate issuer credit profile and assists the portfolio manager to evaluate credit risk. 

For more information visit: www.perpetual.com.au/asset-management/institutional-investors/responsible-investing 

Pendal’s responsible investment philosophy is based on three core beliefs:  

1. Attention to ESG issues contributes to better informed investment decisions and can improve the quality and consistency of long-term value creation. 
2. As an active manager, investment teams are well positioned to identify a full range of risks faced by the entities in which they invest, including ESG risks and opportunities.
3. The investment teams’ actions and decisions can affect practices in the entities in which they invest, such as in the way the company manages its risks, or its impact upon the environment or the community. They have both a fiduciary duty and an interest in responsibly managing this influence.  

Pendal Australian Equities  

The Pendal Australian Equities team’s ESG integration framework is a standalone process that is designed to systematically feed into the overarching investment decision making process to enhance risk-adjusted returns.  

In undertaking a company assessment, the team takes the most material ESG factors and considers to what extent ESG information contributes to analysts’ views on, for instance, revenue forecasts, execution capability, competitive position, and the likelihood of an ESG issue materialising. The Pendal Australian Equities team’s assessment of materiality is informed by industry standards and Pendal analysts’ own insights. At the portfolio construction level, the portfolio manager is aware of the ESG issues at play in an analyst’s assessment of a company, through a centralised ESG integration database.  

The team sets priorities for key ESG themes – such as climate change or diversity, equality and inclusion – that are assessed as being material at a portfolio level or to clients and which holdings have material exposure to those themes. From a bottom-up perspective, analysts also identify ESG issues, typically through their integration frameworks. These insights are brought into engagements for discussions with boards and management teams, where relevant.  

Pendal Income and Fixed Interest  

The primary consideration for the Pendal Income and Fixed Interest (I&FI) team’s approach to ESG integration in fixed income is to maximise risk-adjusted returns. The team views ESG integration as a way of understanding other risks and opportunities outside of traditional credit research and see ESG risks as having the potential to highlight future credit concerns. Different approaches are taken for Pendal’s sustainability-labelled income and fixed interest strategies.  

The I&FI ESG integration process includes conducting research to understand ESG risks across different issuers, engagement with issuers, pricing ESG risks, and monitoring changes to issuers and broader risks.  

For more information on Pendal’s approach to responsible investment, including for other asset classes such as Global Equities, Multi-Asset and Small Caps, see their Responsible Investment Philosophy and Approach document here: www.pendalgroup.com/about/investment-capabilities/ responsible-investing 

Regnan draws on more than 20 years of experience in sustainable investment, providing research, engagement and advisory services on the role of sustainability and governance issues in support of better financial outcomes. In 2020, they expanded into impact and thematic investment capabilities, established in J O Hambro and Pendal Australia under the Regnan brand (see page 18 for Regnan funds). These teams take a systems-thinking approach to help identify how best to support meaningful change by understanding the trajectory of sustainability challenges and where in the sustainability value-chain the most attractive opportunities can be found.  

Regnan conducts research, systems-engagement and advocacy in collaboration with Regnan-branded funds as well as providing sustainability insights to support client needs. The engagement process includes research-based assessments to set change objectives; these objectives can be thematic or at a company level and aim to address risks and opportunities that are company specific and often portfolio-wide, such as climate transition.  

Progress is tracked throughout the engagement, often over a number of years, identifying the impact achieved, risks mitigated or opportunities realised.  

The Regnan Sustainable Value Assessment (SVA)* is a forward looking and bottom-up analysis of environmental and social issues, and how they are governed, undertaken by experienced specialists. Regnan methodologies have been designed to promote comprehensive evaluation of sustainability issues while also providing flexibility to incorporate company specific considerations.  

For more information visit: www.regnan.com 

^{*Regnan's Sustainability Value Assessment is undertaken for all Regnan Sustainable Water and Waste Fund holdings and on-request for the Regnan Global Equity Impact Solutions Fund holdings.}

Trillium, headquartered in Boston, Massachusetts, has been focused solely on sustainable and responsible investing since 1982. It is the firm’s belief that a company’s commitment to implementing ESG principles is instrumental in creating distinct competitive advantage and building long-term value.  

Trillium’s investment process integrates in-depth ESG research and analysis with fundamental financial due diligence to help identify the companies best positioned to deliver risk-adjusted, long-term outperformance.  

It is fundamental to Trillium’s mission and fiduciary responsibility to engage with the companies held on behalf of its clients to press for positive change on any material ESG concern or opportunity that Trillium believes will help protect or enhance shareholder value.  

For more information on Trillium’s sustainable investment approach visit: www.trilliuminvest.com/esg/investment-approach

TSW considers ESG issues throughout the fundamental research process as they relate to risks and valuations. Companies or industries are not excluded from TSW’s investable universe based solely on ESG factors. As value investors, TSW’s fund managers may find opportunity in companies with addressable ESG issues that may have had a material impact on company valuation. Companies with negatively perceived ESG characteristics, those where management has made a commitment to improve ESG practices, or cases where the market has severely penalised the company and has failed to recognise positive change, may offer potential for attractive returns. 

 Company disclosures, including on ESG and other risk factors, are analysed during the fundamental review process and factored into the risk and reward outlook of the companies under consideration for investment.  Where ESG considerations may be a material risk or a key catalyst, heightened scrutiny is required. In addition, sell-side research on ESG-related issues is also considered alongside proprietary research.  

TSW engages regularly with the management teams to suggest and highlight areas of concern or improvement, including on ESG topics, if the investment team believes there is increased risk or potential positive change offering an opportunity for value creation for shareholders. 

For more information visit: www.tswinvest.com

Our Wealth Management division defines responsible investment as a holistic strategy that incorporates consideration of ESG issues in investment decisions.  

The Wealth Management investment team believes that the investment management industry can help promote more sustainable economic growth by investing in businesses and assets that consider social and environmental impacts as part of delivering value to investors. This should translate into more attractive risk-adjusted returns.  

Where the Wealth Management investment team manages direct assets on behalf of clients, such as Australian Equities, ESG considerations are intrinsic to the way in which securities are selected. Investment teams consider a range of ESG issues, but the degree to which ESG issues influence varies across strategies. For the Responsible Investment Direct Equities strategy, an ESG screening framework dictates the universe of investable options. For other strategies, ESG issues are considered alongside, and do not necessarily override, other factors as part of assessing expected financial outcomes for an individual investment.  

As a multi-manager, a significant portion of the Wealth Management team’s investments are managed on behalf of clients by external investment managers. The team’s manager selection process incorporates ESG considerations as part of the due diligence and monitoring of all investment managers.  

For more information on the Wealth Management division’s approach to responsible investment, see the responsible investment policy here: www.perpetual.com.au/PPResponsibleInvestmentPolicy

Since its foundation in 1886, Perpetual Group has promoted high standards of governance with clients and other stakeholders. As a leading provider of fiduciary services across Australia and Singapore, for our Corporate Trust division, strong governance is central to how the business is managed and how the interests of clients and beneficiaries are protected.  

In FY23 Australia’s financial services and consumer credit regulator, the Australian Securities and Investments Commission (ASIC), has overseen the implementation of several important regulatory initiatives focused on consumer protection such as design and distribution obligations, greenwashing protection, complaints handling and breach reporting. Similarly, the Monetary Authority of Singapore (MAS) in Singapore has also introduced new regulations and guidelines relating to sustainable finance, greenwashing, business continuity and countering financing of terrorism controls. It is the role of the Corporate Trust division in the jurisdictions where they operate to ensure trusts comply with relevant laws and regulations, and they closely monitor the regulator’s interpretation of those laws.  

In response to guidance issued by ASIC in June 2022 relating to avoiding greenwashing when offering or promoting sustainability-related products, the Corporate Trust division completed a review of their current oversight arrangements and the practices of their clients on sustainability-related product disclosure. The Australian business refreshed their advertising and marketing guidelines to ensure policies reflect required practices relating to the new ASIC regulatory initiatives, as described above. The team also shared a series of recommendations with clients on good practice of disclosure on sustainability-labelled investments, supported by training videos, webinars and guides.  

In Singapore, the team has reviewed the MAS regulation relating to greenwashing with clients, including an annual discussion to address their obligations on the topic. They updated in-house compliance manuals on business continuity management guidelines and countering the financing of terrorism controls. 

To find out more about Perpetual Corporate Trust visit;  www.perpetual.com.au/corporate-trust/