Across the investment portfolio we’re implementing environmental, social and governance (ESG) initiatives. We’re adjusting for climate change risks and opportunities at the highest level in our strategic asset allocation process, as well as in the asset sectors.
Investing for climate change
Climate change is not just an environmental issue, it’s a major economic force creating long-term changes to our regulatory, business and social environments. We know there are risks and opportunities associated with reducing greenhouse gas emissions, and we know that the physical impacts of climate change will affect investments. Understanding and managing these risks in our products will better position us to meet our clients’ needs.
Researching the effects
In 2015 we were one of only three Australian partners to participate in a global climate change research study led by our global asset consultant, Mercer. The report, Investing in a Time of Climate Change, is available to view on the Mercer website at https://www.mercer.com/our-thinking/wealth/climate-change-the-sequel.html
As a result of this study we reviewed our strategic asset allocation process and integrated climate change risk into assumptions within our risk-adjusted return and scenario analysis. This is an important development for our business, because asset allocation is the main driver of risk and return in our products.
Understanding the risks
Measuring our carbon footprint, or the carbon intensity of our portfolios, gives us a much better understanding of how our portfolios are exposed to climate change risk. To achieve this analysis, we’re partnering with a global environmental research agency.
We engage wholly with our investment managers to understand and evaluate how they incorporate ESG risk factors into their analysis, and encourage them to incorporate climate change risk when considering investment opportunities.
Excluding tobacco investment
After researching the tobacco sector extensively we decided that it holds substantial long-term risks, and concluded that excluding such investments will positively affect our clients’ risk-adjusted return targets. In late 2015 our board approved the exclusion of investments in tobacco products from our portfolios.
The board also heard from Dr Bronwyn King, a radiation oncologist and CEO of Tobacco Free Portfolios. Dr King’s collaborative work with finance industry executives has contributed to around 35 Australian superannuation funds implementing tobacco-free mandates.
Dr King is a passionate advocate for the move to tobacco-free superannuation portfolios and was featured in the March 2016 issue of Superfunds, the official publication of The Association of Superannuation Funds of Australia (ASFA):
“We need to apply current day thinking to the tobacco industry. Current day thinking would not tolerate an industry that will kill 6 million people this year; an industry that is on track to kill 1 billion people this century; an industry that substantially relies on child labour to produce its product; an industry that relies on a business model where its costs are automatically passed on to taxpayers across the globe. On any of these metrics the tobacco industry would be unequivocally unacceptable if it were a new industry launched today.”
The investment team worked with our investment managers to implement this tobacco exclusion across the portfolio. We’re pleased to report that, as at 31 December 2015, we no longer hold any direct securities issued by tobacco and cigarette manufacturing companies.