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Short Term Investments Responsible Investment
- Our capabilities
- Fixed Income
- Short Term Investments & Cash
- Approach to responsible investment
Approach to responsible investment
Stewardship and ESG integration
In the Short Term Investments 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. The ICR is also used by the 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
The incorporation of Environmental, Social and Governance (ESG) issues can be particularly important when investing in credit instruments. A company’s management of ESG-related issues has a direct impact on their risk profile and, in turn, the probability of default.
Our Short Term Investments portfolios predominantly invest in the financial sector, namely banks. Banks and financial institutions are primarily exposed to climate risks through their lending activities (known as their financed emissions). Here we assess the degree to which a bank is exposed to hard-to-abate industries, and what the bank is doing to mitigate their exposure to these industries, such as reducing/exit lending to the hard-to-abate industry, or work with the hard-to-abate industry on a transition plan. We consider the physical risks of floods, storms and extreme weather events to the underlying collateral for the bank’s loans, and could weaken a bank’s balance sheet.
Finally, climate-related risks have second order effects, such as the borrower’s ability to obtain insurance for the assets in the longer term and increasing regulatory risk/scrutiny.
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
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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.
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. If you are unsure about whether a fund is suitable for your objectives, situation or needs, you should consult a financial adviser.
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.
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