Stewardship and ESG Integration

As part of our stewardship responsibilities, Realindex excludes specific companies involved in controversial munitions and armaments across all of our portfolios. We also apply screens to exclude tobacco and other “ESG red flag” companies for certain clients and manage a portfolio to the MSCI ACWI Socially Responsible Index ex Fossil Fuels.  Further, we believe that voting on company resolutions is an important responsibility of any equity holder, and we vote on company resolutions utilising proxy research from CGI Glass Lewis, Ownership Matters and other research where relevant. Robin Castles, Senior Portfolio Manager, is the Realindex ESG lead and is also responsible for coordinating our approach to proxy voting.

ESG research has been and continues to be a strategic initiative for Realindex.  Given our focus on systematic investment strategies, the degree to which ESG is explicitly incorporated varies across strategies.  Across our fundamentally weighted portfolios, governance is considered indirectly through the quality component of our enhancements process.  Within our Australian smaller companies strategy, we have incorporated a specific governance factor into our overall enhancements score.  This factor penalises firms with below average governance and also includes a weighting to change in overall governance quality, to capture currently unfolding information, credit firms with improving governance and penalise those that are getting worse.  Other areas of ongoing research include low carbon strategies and ESG aware strategies.

"The incorporation of ESG into the Realindex investment process remains an important and ongoing area of research for our business."

We have an extensive database of ESG data and metrics licensed from third parties which we use in our research and in some cases as part of our investment process, or customised client solutions. As at 30 June 2018 these providers include:

  • CGI Glass Lewis – They are our preferred provider for proxy voting analysis and they provide specific recommendations which we follow in most, but not all, cases
  • MSCI – Carbon emissions data and governance metrics; our preferred provider for carbon, and for governance outside Australia
  • Ownership Matters – A specialist firm which provides governance scores for Australian firms, also proxy voting advice for Australian firms
  • Regnan – ESG data for Australian firms
  • RepRisk – ESG incidents data
  • Sustainalytics – ESG and incidents data; our preferred provider for Environmental & Social scores

ESG Research

ESG research has been and continues to be a strategic initiative for Realindex. We have an extensive database of ESG data and metrics licensed from third parties which we use in our research and in some cases as part of our investment process, or customised client solutions.

We have conducted a significant amount of ESG research, including:

  • Constructing and back-testing an ESG-tilted portfolio relative to the ASX 200 using a combination of ESG and quantitative alpha factors
  • Tilting various benchmark weights with the objective of maximising the reduction in carbon emissions
  • Investigating the cross-sectional stock performance across 96 key metrics provided by MSCI Governance Metrics in both global and Australian companies;
  • Using ESG scores to predict stock level volatility 12-months ahead
  • We have incorporated governance into our overall enhancements score within Australian smaller companies, penalising firms with below-average governance. We have also included a weighting towards  change in governance within this, to reflect currently unfolding information, and to upweight firms that are improving their governance and penalise those that are getting worse
  • Separately we have investigated underweighting firms which have had recent negative environmental or social incidents

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 additional, 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

Given our focus on systematic strategies and the data dependencies that this requires, there are a number of challenges to overcome in order to systematically incorporate an awareness of climate change into our portfolios. More specifically, carbon data is a relatively new disclosure requirement and there are a number of concerns with the manner in which it has been provided. In particular, carbon footprinting without contextual information on how carbon emission intensity influences investment decision making, or around the limitations with the footprints themselves can be misleading. As such, we actively monitor developments in this space and continue to partner with clients to conduct research in this area.

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Proxy Voting

The team believes that voting on company resolutions is an important responsibility of any equity holder and votes on company resolutions using the services of CGI Glass Lewis. The team votes in line with CGI Glass Lewis recommendations, which have been formulated to promote high standards of corporate governance. In certain circumstances the team may override CGI Glass Lewis' recommendations where they believe it is in their clients’ interest to do so. Due to the systematic nature of their investment approach, the team maintains a separate proxy voting policy which is available on our website.

View the team's live proxy voting record

Australian Equity

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 have voted in each region.

 

Abstain

Against

For

2017/18 Total

Audit/Financials

11

1

331

343

Capital Management

8

21

621

650

Director election

26

262

3,569

3,857

Director Remuneration

3

14

207

224

Executive Remuneration

-

46

585

631

General business

-

-

-

-

Governance related

5

13

240

258

M&A

13

61

757

831

Remuneration Related

1

2

79

82

Shareholder proposal

-

62

527

589

Shareholder rights

4

89

31

124

Climate Change Related

-

22

207

229

Grand Total

71

593

7,154

7,818

 

 

Global Equity

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 have voted in each region.

 

Abstain

Against

For

2017/18 Total

Audit/Financials

101

120

2,992

3,213

Capital Management

109

234

4,479

4,822

Director election

877

2,114

26,577

29,568

Director Remuneration

87

91

1,116

1,294

Executive Remuneration

15

368

2,015

2,398

General business

130

198

2,651

2,979

Governance related

305

448

5,420

6,173

M&A

6

2

280

288

Remuneration Related

49

299

1,535

1,883

Shareholder proposal

101

784

481

1,366

Shareholder rights

36

289

1,465

1,790

Climate Change Related

2

20

22

44

Grand Total

1,818

4,967

49,033

55,818

 

Proxy voting by region

The chart below shows the number of times the team voted in each reason and the percentage of votes against management recommendations, against our proxy advisors' recommendation, or against both. The purpose of this table is to show the regional difference in voting patterns and governance concerns.

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

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