Promoting, reporting on and collaborating with other investors to further the United Nations Principles for Responsible Investment (UN PRI) saw Colonial First State Global Asset Management (CFS GAM) achieve a top quartile ranking in three of the six principles for the recent UNPRI survey. The work by Amanda McCluskey, head of sustainability at CFS GAM, in writing course materials for the half-day course on ESG and superannuation run by the Australian Institute of Superannuation Trustees earned the manager a top quartile ranking for principle four, which promotes acceptance and implementation of the principles within the investment industry. The manager’s responsible investment report saw it jump from third to first quartile for principle six, which encourages signatories to report on their progress in implementing the principles.

CFS GAM’s sustainable property guide, written by the property team and made publicly available through the NSW department of environment and climate change, saw it reach the top quartile for principle five, which encourages collective initiatives to enhance the principles. The manager was ranked second quartile for the other principles, which promote the integration of ESG considerations in stock selection, active ownership of securities and for pressure to be put on investee companies to disclose ESG matters. McCluskey said the manager was educating its investment staff to improve its standing in these principles.

For example, analysts were receiving education from various sources, “from the Australian Conservation Foundation through to UBS sustainability analysts”. She said that more ESG analysis was becoming available as superannuation funds and funds managers pressed brokerages to supply the information. Before initiatives such as ESG Research Australia was launched by HESTA and VicSuper, Citi and Goldman Sachs JBWere were the only brokerages providing ESG research. Now Deutsche Bank and Macquarie Bank have joined in, and Royal Bank of Scotland last month appointed Alva DeVoy as a dedicated ESG analyst to its sell-side equities team.

Institutional investors were “using that weight of investment to influence behaviour,” McCluskey said. “It shows that by embedding this into the supply chain, you can influence outcomes.” Among CFS GAM’s investment teams, the UK-based emerging markets team was best at integrating ESG risks into its portfolio since they had focussed on this since inception, McCluskey said. The Australian property team has dedicated ESG resources as it operates all of the assets it fully owns in its portfolio. The biggest hurdle blocking widespread integration of ESG was the perception that it was similar to socially responsible investment (SRI), McCluskey said.

“They think it’s SRI, that we’re going to screen alcohol or tobacco. You don’t want clients to think you’re compromising performance in any way. “It’s about making the best possible investment decision.” But the long-term nature of ESG risks meant that current remuneration models for brokers and funds managers, which are better aligned with short-term performance, did not always reward good management of ESG risks. This amounted to a “mismatch with long-term liabilities and issues”. The UNPRI issues the 97-question survey to signatories.

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