Our consideration of ESG factors in our debt investments is concentrated in the screening and due diligence phases, prior to entering an investment. We also proactively engage with issuers post-investment as part of our ongoing investment monitoring and in response to emerging or potential material ESG risks.
In the due diligence phase, we integrate ESG factors into our credit assessment process. ESG integration practices vary across our debt investment portfolios due to the differing nature of the assets held and to meet specific client mandates. Our analysis incorporates ESG information from in-house research and a range of external parties, including credit ratings agencies and consultation and reports from environmental, legal and other technical specialists.
Where we identify material ESG risks, we engage with the borrower’s management to understand plans to mitigate or manage these risks. This approach maximises our investment universe within debt markets and aligns with our preference to engage with the company rather than apply an exclusionary approach.
We believe ESG factors can impact company performance and subsequently investment returns over the short, medium and long term. Each of our Listed Equities teams has its own approach to identifying and factoring material ESG considerations in the investment selection process.
Active Large Caps combines a systematic investment model with a qualitative fundamental overlay to target consistent returns with low drawdowns. The fundamental overlay draws upon external ratings, internal research and direct company meetings and engagement, in which ESG considerations form a significant part of the company due diligence process. We incorporate ESG considerations in stock selection, portfolio construction and in defining investable securities.
Active Small Caps adopts a bottom-up, fundamental approach to portfolio management, drawing upon ESG research, direct company engagement, broker reports and proxy advisers. Quantitative and qualitative ESG data is integrated into the analysis of industry sectors and individual companies to establish a proprietary ESG score, which, together with our broader competitive analysis, informs our investment decisions.
While we do not consider ESG factors at the portfolio construction stage for our enhanced passive index strategies, we continue to manage bespoke sustainability-themed equities strategies and products in partnership with individual investors.
Quantitative Equities works with clients to develop bespoke ESG Equities strategies to meet their specific requirements in terms of the type and measure of ESG and Carbon enhancements, as well as exclusionary criteria.
Our active stewardship approach applies to all our Australian listed equities strategies. We engage and exercise our voting rights to encourage responsible corporate behaviour and improved transparency on the management of material ESG risks and opportunities.
The Private Equity team’s approach to ESG integration extends beyond risk management to consider how we can have a greater positive impact during ownership through social and environmental initiatives that benefit employees, customers, communities and the environment.
In due diligence, we identify ESG-related risks and investment exposures. For opportunities that progress, we incorporate identified ESG risks and exposures in our ownership plan. All investment cases are required to articulate the company’s ‘noble purpose’ - its overarching mission - and our approach to supporting this purpose. A clear set of ‘Year 1’ ESG deliverables is required, and these actions are tracked during our ownership through bi-annual and annual assessments.