SCAMMER ALERT
Please be aware of scammers falsely impersonating FSI representatives about potential investments. FSI representatives do not make direct contact with prospective individual investors on investment opportunities. These are not legitimate approaches from FSI. Find out more about combating investment scams.
Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.
Discover more
Leader in systematic equities across market cap weighted indices, smart beta and active quantitative strategies
Discover moreInvestment strategies
Insights
At Stewart Investors, we believe in putting people first. Our investment world-view is of a series of partnerships – with each other, with our clients, with the companies we invest in, the people who buy their goods and services, and with the wider society in which we all live and work.
Discover more
Short Term Investments Responsible Investment
- Our funds
- Fixed Income
- Short Term Investments & Cash
- Approach to responsible investment
Approach to responsible investment
Stewardship and ESG integration
In the Short Term Investments and Global Credit space, the Environmental, Social and Governance (ESG) assessment most often comes through its impact on the internal credit rating (ICR) provided by the Credit Analysts via our Credit Research process.
The portfolio management team then use this to assess relative value when compared to other similarly rated issuers. For example, ESG considerations in the financial industry have led to our internal rating for some issuers being lower than that of the external rating agencies. As a result, the risk-reward assessment has often been decided such that we are underweight that sector in our active global credit portfolios.
The ICR is also used by the credit portfolio managers when making their decision to buy or sell securities and to determine position sizes for the funds that we manage.
Case studies
We believe that a strong commitment to stewardship is an essential component of a strong approach to responsible investment, and that embedding responsible investment 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.
Climate change statement
Key climate-related risks in our team’s portfolio
A focus on Environmental, Social and Governance (ESG) issues can be particularly important when investing in credit markets. Companies’ management of ESG-related issues has a direct impact on their risk profile and, in turn, the probability of default. We believe that climate-related risks are as important as any other financial risk factor. These risks have additional emphasis in a world that needs to decarbonise rapidly.
Our Short Term Investments portfolios predominantly invest in the financial sector, which, we believe, also faces very real transition risks as the focus on decarbonisation increases substantially. Across our portfolios, we want to avoid the risks associated with exposures to stranded assets. Our stranded assets toolkit has been in place since 2013 to assist in monitoring this. We expect the transition to a lower carbon economy to require widespread changes in how companies operate, service and manufacture. Companies that do not transition in an orderly manner are at risk of being left behind, subjected to penalties and with stranded assets. Market pricing for climate risk is already starting to increase. We expect this to grow exponentially as we approach 2030 and beyond. As it pertains to default risk, we believe that companies that are not adequately addressing climate-related risks will face a reduced ability to refinance.
If climate change continues to evolve without sufficient mitigation, we would expect company financial performance to be negatively impacted by growing physical risks including natural disasters, supply chain disruptions, extreme temperature changes, employee safety and disruptions to operations. Alongside these risks however, we see opportunities for companies to try to mitigate the impact of these disruptions by developing resilient assets and supply chains. In particular, we believe our exposures to issuers in the Utilities and Financials sectors are most at risk of potential adverse financial implications as a result of fires, floods and other extreme weather events worsened by climate change.
While many of these risks may impact a company’s day to day operations, the regulatory environment surrounding climate-related financial risks is rapidly evolving. These regulations will continue to try and discourage companies from participating in activities that adversely affect climate change. Companies that do not comply could be open to litigation, which could pose negative implications for portfolios that hold such companies. The changing regulatory environment accompanies the prospect of reputational risk. Companies that continue to exacerbate climate change, due to their connections to fossil fuels and other high emitting activities, will lose their social licence to operate over time. Similarly, it is and will continue to be important to our portfolios for us to monitor this and our exposures to issuers that are not transitioning to a low carbon economy.
How we address these risks
A product of the credit research process is an ESG risk rating, which includes climate-related risks. Climate-related risks are identified as part of our Environment pillar, along with other environmental risks such as waste management, pollutants, water, biodiversity impact etc. As part of this risk identification process, we assess whether the company has made long-term as well as short/medium-term decarbonisation targets, the level of emissions data disclosed, as well as the capital expenditure that the company has dedicated towards transitioning to net zero. Our analysts not only look at how management manage downside risks but also how they capitalise on the upside risks.
The portfolio managers consider climate-related opportunities as part of any new product design process. As part of this process, we have access to ESG data providers to access carbon analytics, climate scenario-analysis, physical and transition risk tools. In particular, the climate scenario-analysis tool provides us with an indication of the net zero alignment of our portfolios. It also allows us to assess the exposure of our portfolios to climate change mitigation activities, which can be useful when designing products in a world that needs to rapidly decarbonise.
The targets and objectives we have set
For our Short Term Investments & Cash portfolios, we have focussed on portfolio level targets as opposed to company level. We have set quantitative targets for our portfolios, based on thresholds of the portfolios’ alignment status with to net zero. These targets apply to eligible proportions of our portfolios (portfolio eligible AUM). The eligible proportion of the portfolios exclude cash at Bank, Derivatives, Government-related issuances and Funds, and may be susceptible to periodic fluctuations. Our targets cover all of our active, publicly available portfolios. These targets focus on the proportion of the portfolios either committed to aligning, aligning or aligned to net zero by 2050. Over the short (2025), medium (by 2030) and long (by 2050) term, the targeted proportion of the portfolio aligned to net zero significantly increases. The criteria for committed to aligning, aligned and achieving net zero is based on the framework developed by the IIGCC.
The criteria for committed to aligning, aligned and achieving net zero is based on the framework developed by the IIGCC. For more information on what aligning, aligned and achieving net zero means please see Our climate metrics and target.
Short term (by 2025)
Portfolio level
- 75-100% of portfolio eligible AUM “committed to aligning” with net zero
- 25-50% of portfolio eligible AUM aligning to net zero
- 0-25% of portfolio eligible AUM aligned to net zero
Medium term (by 2030)
Portfolio level
- 100% of portfolio eligible AUM “committed aligning” with net zero
- 75-100% of portfolio eligible AUM aligning to net zero
- 50% of portfolio eligible AUM aligned to net zero
- 0-25% of portfolio eligible AUM achieving net zero
Long term (2040-2050)
Portfolio level
- 100% of portfolio eligible AUM aligned to net zero by 2040.
- 50% of portfolio eligible AUM achieving net zero by 2040, with 100% of portfolio achieving net zero by 2050
Disclaimer
Any targets (including, but not limited to, the net zero targets) on this webpage are based on (i) available information and representations made to First Sentier Investors by third parties, including, but not limited to, portfolio companies; and (ii) assumptions made in relation to future matters such as the implementation of government policy in climate-related areas, enhanced future technology and the actions of portfolio companies. Such information and representations may ultimately prove to be inaccurate and such future matters may not ultimately be realised. As such, First Sentier Investors cannot guarantee the achievement of these targets. These targets are subject to ongoing review and may change without notice.
Any ESG related commitments, are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any ESG related commitments are continuously reviewed by the relevant investment teams and subject to change without notice.
To the extent this material contains any measurements or data related to ESG factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate.
Keep up to date with our latest research and developments on social media, or subscribe to our email newsletter
First Sentier Investors became a Certified B Corporation in November 2022 with a score = 107.2, noting that the passing score is 80. Please visit the B Corp Directory to view our report and for additional information regarding the assessment process.
Material on this website is intended to provide general information only. This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (FSI AIM), and includes the Financial Services Guide for FSI AIM.
This material does not take into account your objectives, financial situation or needs. Before making an investment decision you should consider the information on this website and the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the relevant fund, issued by either Colonial First State Investments Limited (ABN 98 002 348 352, AFSL 232468) (CFSIL) or The Trust Company (RE Services) Limited (ABN 45 003 278 831, AFSL 235150) (Perpetual) and assess whether the fund is appropriate given your objectives, financial situations or needs.
Any opinions expressed in videos are the opinions of the individual participant and are subject to change without notice. Such opinions: (i) are not a recommendation to hold, purchase or sell a particular financial product; (ii) may not include all of the information required to make such a decision in relation to such financial product; and (iii) may substantially differ from other individuals within First Sentier Investors.
Copyright © First Sentier Investors (Australia) Services Pty Ltd 2023 (part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc MUFG).