Stewardship and ESG Integration

We consider ESG risks to be factors that may place business value at risk. Companies at risk are identified using both external providers and our own internally driven research, which is based on a systematic and extensive company meeting program. Company meetings provide us with the opportunity to engage on ESG issues and gain greater insight into potential risks and opportunities. It also provides us with the opportunity to positively influence companies towards ESG best practice where appropriate. 

Identified ESG risk factors are used to assist in developing the quantitative and qualitative assumptions used by analysts in their assessment of industries and stocks. This analysis is vigorously stress tested and screened under a peer review process. This process seeks to highlight the analyst's and team's conviction in the target price and buy/sell recommendation.

Assessment and monitoring

ESG risks are primarily identified by the team's own internally-driven research, which is based on a rigorous company engagement programme. Analysts assess how companies are managing ESG issues and encourage the entities in which they invest to improve their ESG performance and disclosure. 

Integration

ESG considerations are used to help develop quantitative and qualitative risk assumptions in analysts' assessment of industries and stocks, and are overlaid in target price and stock recommendations. 

Engagement

We have active dialogue with chairpersons and/or senior company management on material ESG issues which we identify through our consideration of ESG risks. We try to gain comfort that the company's senior management and board are aware of, and accountable for, the management of material issues. 

Where we feel material issues are not being appropriately addressed it can ultimately flow into our proxy voting and investment decisions.

Case Studies

We believe that a strong commitment to stewardship is an essential component of a strong approach to responsible investment (RI), and that embedding RI into the core of our investment activities is in the best long-term interests of our clients. For more than a decade we have systematically and progressively improved our practices and processes across our investment capabilities globally.

Learn more through our interactive case studies map

Climate Change

The section below provides addition, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement. 

Team Climate Change Statement

A material impact on the utility sector specifically, and industrial sectors more broadly, is the current state of flux of Australian energy policy. The ageing electricity generation fleet combined with targets for emission reductions creates the need to reshape the nature of electricity generation in Australia.

Stable policy is required to facilitate investment in new generation sources to ensure this transition occurs smoothly. However, policy flux has led to a reluctance to invest creating tightness in generation markets and driving prices materially higher. This creates risk for utility companies and impacts on earnings for industrials given that materially higher energy costs wash through the broader economy.

To incorporate these risks into our investment process, we ensure we maintain broad dialogue with industry participants and policy makers to remain aware of potential shifts in regulation setting. In our valuation work, we capture sufficient capital investment if a company is currently reliant on ageing, thermal generation assets and therefore needs to reshape its generation base, or fade earnings appropriately. Within the broader industrial space, we capture an increase in energy costs for those companies with significant energy intensity in their manufacturing processes.

In terms of engagement, as per the comments above, capital investments and stranded assets are a key focus, and the resultant impact on earnings. Also important are discussions around remediation costs given that the transition away from a thermal generation fleet will facilitate significant investment to shut old facilities down and remediate the sites upon which they sit. In the coming year, continued engagement with a range of market participants, regulators and subject experts remains an ongoing focus within our stock research and broader industry research.

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Proxy voting history by type of resolution

The table below contains the proxy voting history for the team by issue type. The chart provides the same information for 2016.

Voting Independence 

The chart below shows the number of times the team has voted against management recommendations, proxy advisors' recommendations, or against both. The purpose of this table is to show the independent judgement which is applied by the team when making voting decisions.

 

Abstain

Against

For

2017/18 Total

Audit/Financials

-

-

7

7

Capital Management

-

-

100

100

Director election

1

12

434

447

Director Remuneration

1

2

21

24

Executive Remuneration

-

12

220

232

General business

-

-

-

-

Governance related

-

9

88

97

M&A

-

-

12

12

Remuneration Related

-

9

163

172

Shareholder proposal

-

6

-

6

Shareholder rights

-

-

6

6

Climate Change Related

-

3

-

3

Grand Total

2

53

1,051

1,106

 

 

Proxy voting information is as at 30/06/2018
Source: First State Investments / CGI Glass Lewis

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