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Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

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formerly Realindex Investments

Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.

Backed by a unique blend of research, portfolio construction and risk management, focused on uncovering original insights and translating them into investment strategies that are active and systematic, aiming to generate alpha.

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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.

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Global property securities

Approach to responsible investment

Stewardship and ESG integration

We have implemented sustainability considerations into our investment process. We believe the consideration of ESG issues will lead to better risk/return outcomes, which will ultimately improve long-term returns for investors. 

Corporate governance is a particular focus, where board independence as well as respect for shareholder rights is of paramount importance. We also consider any specific sustainability initiatives implemented by a company and the environmental impact of existing assets and developments. A company's history as a good corporate citizen is taken into account, as well as evidence of meaningful contributions it might have made to benefit society more broadly.

Assessment and monitoring

We have developed a tailored ESG framework that is part of our stock review process. When an analyst reviews a property company, an ESG review will also be done. While the primary source of ESG information is company dialogue, the team also utilises Sustainalytics and MSCI Governance Ratings to streamline the sourcing of data and information. Despite sourcing third party research, in-house research remains the most important source of reference when integrating ESG considerations into the investment process.

Integration

ESG issues are assessed using a two-pronged approach. Firstly, ESG considerations are one of the variables in the initial screen that we use to determine our defined investible universe. A low ESG score (in combination with low scores on other factors) can lead to a stock being excluded from our investment universe.

Secondly, each company in our universe is rated on specific ESG factors. These are used in determining the beta in the capital asset pricing model, which directly impacts our valuation of a stock. The higher the team rates a company's ESG profile, the lower the beta, which leads to a higher target valuation. This outcome would make it more likely that we would invest in the stock.

Engagement

We are firm believers in investor rights and take a proactive stance on ESG issues, especially with regards to corporate governance. Communication with CEOs and board members is undertaken where it is deemed appropriate in order to try and influence and enforce change.

Despite sourcing third party research, in-house research remains the most important source of reference when integrating ESG considerations into the investment process.

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We are firm believers in investor rights and take a proactive stance on ESG issues, especially with regards to corporate governance.

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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

Climate change can impact the value of investments; the nature of property assets is inherently long term, making climate change a material issue for long term property asset valuation. 

Physical Risks

Property is naturally exposed to physical risks. We are conscious of investing in assets that are exposed to increased prevalence of wild weather events brought on by climate change. At present we do not have any serious concerns for the portfolio, however we do expect that assets located in areas that are susceptible to rising sea levels, flooding and wild weather events will continue to be impacted as global temperature averages rise.

Market and Business transition

Already we are seeing a flight to quality, particularly in the office sub-sector, which encompasses an asset’s overall environmental rating. Companies that are not accommodating for this structural demand change will be left with assets that are less desired than their peers. We believe that this will influence returns for our stakeholders in the long term and invest with a carbon overlay and incorporate an environmental score into the valuation stage of the investment process to mitigate this risk. We also believe that this provides an opportunity on the upside as ‘greener’ assets rank more attractively for the strategy, in line with our long term views for the property sector.

Reputation and social licence to operate

As environmental disclosure demands across the property sector increase, we expect that the discrepancy between the top of the universe and the bottom of the universe will become more transparent.

Our strategy currently screens out companies that do not meet Operational Net Zero by 2050 targets and conducts extensive environmental due diligence on all of our holdings. We believe our environmental stock due diligence is market leading and that our strategy is well-positioned to produce a high Environmental, Social and Governance (ESG) focused total return to our investors over the long term.

Legal and regulatory

Regulations in the property sector will become more stringent as governing bodies tighten development requirements and operational quotas. We perceive stringent legal and regulatory changes as opportunities rather than risks as they will enforce a better standard and benchmark for our property sectors in order to achieve one common goal, i.e. fight the risk of climate change. We will continue to work with regulatory bodies and leading companies within our sector to work through various challenges facing our sector; universal and uniformed disclosure and green-washing are some of our sector’s current challenges, to name a few.

How we identify these risks

Our key metrics:

  • Total Operational Carbon (tonnes)
  • Total Embodied Carbon (tonnes)
  • Portfolio Operational Net Zero Date
  • Operational Carbon Intensity (kilograms of carbon dioxide emissions per square metre)
  • Portfolio Solar energy generation (megawatts)
  • Portfolio Solar generation to Total Energy Consumption (%)
  • Renewable energy as a % of total energy consumption (%)
  • % energy sourced from renewables (%)
  • Total Development Embodied Carbon (tonnes)
  • Total Development Embodied Carbon Offset (tonnes)

The strategy’s risk assessment process is derived from all stock level fundamental analysis which incorporates full stock carbon analysis as well as continual re-evaluation of a top-down negative screen for all holdings.

Our carbon assessment methodologies have been developed in-house, to cater for identified Scope 3 emissions on all owned assets. This includes assessment of forecast embodied carbon associated with development and redevelopment.

We believe that implementing ESG considerations into our investment process leads to better risk return outcomes, which will ultimately improve long-term returns for clients.

Accordingly, the investment process directly incorporates ESG factors, ensuring an ESG bias in the portfolio. ESG factors are incorporated in three components of the investment process.  

Firstly, ESG factors are included in the initial screen which we use to define our investible universe. We have two ESG negative/exclusion screens: 1) the stock must achieve “controlled and “non-controlled” operational carbon net zero by 2050; 2) a low ESG score across a range of ESG factors within our qualitative assessment can lead to a stock being excluded from our investible universe.

Secondly, ESG factors and scores feed into the Capital Asset Pricing Model (CAPM) used in our Discounted Cash Flow (DCF) valuation methodology. This incorporates environmental factors as well as social and corporate governance factors.

A lower ESG rating will cause us to allocate a higher beta rating to the company’s shares. Other things being equal, the higher a company's beta is, the higher its cost of capital discount rate will be. A higher discount rate lowers the present value we place on a company's future cash flows, and reduces our total return expectations for that stock. 

Thirdly, within the “Negative Screen” at the final stage of the investment process we can bias the strategy on many ESG factors including carbon outcomes. For instance, seek to bring forward the portfolio’s “controlled” and “non-controlled” operational carbon net zero date.

How we address these risks

ESG factors have always been fully integrated and embedded in our investment process from the initial negative screening stage to bottom up stock valuation stage and final negative screening stage. Furthermore, starting from 2022, we have made material enhancements to the carbon analysis undertaken on the portfolio and introduced a new exclusion/negative screen criteria: Any stock that does not achieve “controlled” and “non-controlled” operational carbon net zero by 2050 fails the exclusion test and will not make it through to the portfolio.

Continuous engagement with companies on ESG issues is a part of our investment process. We strive for improvement within our portfolio and our sector over time by setting short-term and long term targets. We aim to reach those targets through engagement. Where we see material issues are not being appropriately addressed within a reasonable time frame, generally 18-24 months; we will make the final decision to divest.

Our voting framework is aligned with the FSI voting policy. We take into account investee companies’ environmental, social and governance policies in our voting decisions.

The targets and objectives we have set

We have set targets over the short to long term at individual company level with an objective to reduce emissions from our sector. At team level, our long term target is to have the portfolio achieving net zero emissions by 2050 or earlier.  100% of our assets under management is covered by our targets.

To track progress to a low carbon economy, we measure various science-based KPIs and commit to continuous reporting on those metrics. Some examples of our KPIs are carbon intensity, year on year carbon emission reduction (scope 1 & 2), embodied carbon emissions reduction, company net zero target and renewable energy as a % of total energy consumption.

Our long term vision is to achieve a portfolio with 100% exposure to green assets. It is an ambitious vision, however with planning over the long period, that vision is possible by green development and redevelopment, carbon credit programs and renewable energy sources.

Proxy voting

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 FY2023.

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.

Proxy voting by region

The chart below shows the number of times the team has voted in each region and the percentage of votes against management and our proxy advisors' recommendations, 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 31/12/2023

Source: First Sentier Investors / CGI Glass Lewis

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.