Eastspring’s Responsible Investment Report showcases various responsible investment efforts across our markets. Dive deeper into how we conduct active ownership, integrate ESG, and embed sustainability within our practices.
Responsible Investment Report 2022
Eastspring Investments: Responsible Investment Report 2022
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3
Introduction
Active ownership
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Foreword At Eastspring, our teams have shown remarkable resilience in 2022 by delivering on our priorities whilst navigating a complex time in the asset management industry. One of these key priorities has been our Responsible Investment (“RI”) efforts and it is with great excitement that we present our 2022 Eastspring Investments RI report. Putting this report together has allowed us to reflect on the strides we have made and reinforce where we want to be next on our RI journey. This was a foundational year for Eastspring’s RI progression. Taking stock of our key RI achievements in 2022, we have harmonised all RI-related policies across our markets into a single Eastspring Group Responsible Investment Policy (“Group RI Policy”) this past year. This policy uplift empowers us to adopt a consolidated One Eastspring approach towards our RI strategy in the years to come. Similarly, we enhanced our proprietary Environmental, Social, and Governance (“ESG”) data analytics so that our teams are equipped with technologies at their fingertips that will complement their decision making. We will continue enhancements to both in the new year. In our efforts towards strengthening our ESG leadership in Asia, we continue to drive active ownership efforts as investment teams across our markets leverage on their expertise and local knowledge to engage companies. We also enhanced our thematic engagement capabilities by expanding the range of topics being covered by our Central Engagement Programme. We are proud to share initial results and findings of our
thematic engagement on climate change and decarbonisation in the region. It truly reinforces one of the four tenets of our ESG Principles that active ownership is preferable over exclusion. Partnering with Prudential Group (“Prudential”) and aligning with our collective 2050 net-zero ambitions, we are delighted to share that we have well exceeded the goal of reducing the portfolio weighted average carbon intensity score (“WACI”) by 25% by 2025. We continue to support these ambitions and look forward to working on further initiatives that will support a climate transition that is inclusive and just. We are excited to share all that we have achieved with you. As we continue to make headway with our strategic initiatives, we hope that this report showcases our efforts across Eastspring to build a sustainable future together.
Bill Maldonado Chief Investment Officer & Interim Chief Executive Officer Eastspring Investments Group
Eastspring Investments: Responsible Investment Report 2022
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Contents
Introduction
6
6
Eastspring Investments
7
Our corporate milestones
8
Leading Asset Manager in Asia
10
Responsible Investment journey
11
2022 in numbers
Active ownership
12
14
Active ownership overview
17
Company engagements
31
Central engagement
32
Climate change and decarbonisation
33
Assessment process
41
Palm oil
United Nations Global Compact (“UNGC”) violators
42
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Introduction
Active ownership
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Climate change
43
Additional thematic engagements
62
44
Collaborative engagements
Task Force on Climate-related Financial Disclosures (“TCFD”)
65
46
Proxy voting
66
Governance and risk management
48
Exclusions
69
Strategy and metrics and targets
ESG integration 50 Harmonised Responsible Investment Policy 52 Eastspring ESG Principles 53 Integrating ESG into our investment process 54
Partnership with Prudential
74
Governance: Groupwide Responsible Investment Advisory Committee (“GRIAC”) 76 Internal Working Group: Sectoral Decabonisation 77 Supporting a Just and Inclusive Transition 78
Developing proprietary tools to support investment decisions and client reporting
56
58
Our ESG strategic offerings
Community and people
82
United Nations-supported Principles of Responsible Investment (“PRI”)
84
Year in Review: Our Initiatives
60
88
Diversity and inclusion
61
Providing ESG‑related training
A final word
90
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Eastspring Investments
Eastspring Investments Group (“Eastspring Investments” or “Eastspring” 1 ), part of Prudential plc, is a leading Asia-based asset manager that manages over USD 221.4 billion (as at 31 December 2022) of assets on behalf of institutional and retail clients. Operating since 1994, Eastspring Investments has one of the widest footprints across Asia. We provide investment solutions across a broad range of strategies including equities, fixed income, multi asset, quantitative solutions, and alternatives. We are committed to delivering high-quality investment outcomes for our clients over the long term.
1 Throughout the report, Eastspring refers to the entire Eastspring Investments Group. In cases where the report references individual Local Business Units, the country will be specified after Eastspring (e.g., Eastspring Singapore).
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Introduction
Active ownership
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Our corporate milestones
1994
1998
1999
Established office in Singapore
Established Prudential Corporation Asia,
Joint venture with ICICI Bank for India
Launched fund management operations in Japan
Joint venture with Bank of China International for Hong Kong
Regional HQ, in Hong Kong
2005
2002
2001
2000
Entry into Korea's fund management industry
Launched fund management operations in Malaysia
Entry into Taiwan’s fund management industry
2006
2007
2009
Launched fund management operations in Vietnam
Launched Prudential Property Investment Management in Singapore
Launched Al Wara Asset Management in Malaysia
Joint venture with CITIC Group for Mainland China
Expanded fund management operations for Hong Kong‘s retail market
2013
2012
Expanded institutional business to United States
Expanded reach to Europe with an office in Luxembourg
Opened office in the United Kingdom
Launched fund management operations in Indonesia
Introduced new brand name Eastspring
2018
2019
2022
Established an Investment Management Wholly Foreign Owned Enterprise in China
Acquisition of TMB Asset Management in Thailand
Acquisition of Thanachart Fund Management in Thailand
Incorporated Eastspring Asset Management (Thailand) Company Ltd, merging TMB Asset Management and Thanachart Fund Management
Eastspring Investments: Responsible Investment Report 2022
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Leading Asset Manager in Asia Our deep understanding of Asian markets, paired with our global perspectives, helps us to develop unique investment solutions for our clients. We have a strong commitment to responsible investment and delivering long term sustainable outcomes for the benefit of our clients and stakeholders.
Sales office Sales and investment office *Joint venture
China*
United Kingdom
South Korea
Japan
Luxenbourg
India*
United States
Taiwan
Hong Kong*
Thailand
Vietnam
Malaysia
Singapore
Indonesia
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Introduction
Active ownership
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
32% of senior management are women
Managing USD 221.4bn
300+ investment professionals
52.5% of employees are women
31 nationalities employed
Note: All numbers are as at 31 January 2023, except for AUM.
We harness on the ground expertise across 11 markets, including joint- ventures, by drawing on our in-depth local understanding of Asian corporates, sovereigns, and markets when assessing ESG risks and opportunities 2 . We leverage the ESG know-how and expertise gained from being entrusted by Prudential to achieve its sustainability target, for the benefit of all our customers. We provide customised responsible investment solutions to meet their clients’ needs, whilst aligning with Eastspring’s group-wide governance framework. The diversity of our workforce allows for the construction of wide perspectives, improves our decision making process, and helps us deliver better outcomes for our clients.
2 Please refer to the relevant fund prospectuses or offering documents for further information on material risks and relevant ESG issues.
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Responsible Investment journey
Memberships
EI Initiatives
Jul 2014
Feb 2015
Eastspring Singapore and Eastspring Japan sign Japan Stewardship Code
Eastspring Singapore forms Responsible Investment working group
Apr 2017
Oct 2015
Eastspring Singapore signs Singapore Stewardship Principles
Eastspring Singapore appoints independent RI consultant to assist with introductory dialogue
Feb 2018
May 2018
Eastspring becomes a PRI signatory
Eastspring formalises firm-wide RI Framework and Governance Structure
Nov 2018
Dec 2019
Eastspring Taiwan signs Taiwan Stewardship Principles
Eastspring Singapore launches first ESG-themed strategy.
Dec 2018
Aug 2020
Eastspring Korea signs Korea Stewardship Code
Eastspring receives first official PRI Assessment Report
Jan 2019
Mar 2021
Eastspring becomes member of AIGCC
Eastspring Singapore adopts the SASB framework
Feb 2020
Apr 2021
Eastspring Singapore becomes member of Climate Action 100+
Eastspring formalises Sustainability Steering Committee*
Jun 2020
May 2021
Eastspring Singapore becomes investor signatory of CDP
Prudential, parent company, announces 2050 net-zero targets
Nov 2020
Dec 2021
Eastspring Malaysia and Eastspring Indonesia join the PRI Sustainable Commodities Programme Eastspring Singapore and Eastspring Malaysia join the AIGCC Asian Utilities Engagement Programme
Eastspring Singapore launches Exclusions Policy.
Jun 2021
Jan 2022
Eastspring appoints Head of Sustainability
Mar 2022
Jun 2022
Eastspring Singapore participates in CDP Non-Disclosure Campaign
Eastspring Singapore appoints Director, ESG Specialist embedded in Investment function Eastspring launches harmonised Group RI policy; 87% of Eastspring Singapore’s SICAV range of funds achieve SFDR Article 8 status and are SFDR Level 2 compliant
Apr 2022
Jan 2023
Eastspring Singapore participates in CDP Transition Champions Pilot Programme Eastspring Singapore participates in CDP Transition Champions Pilot Programme
Apr 2022
Jan 2023
Eastspring consolidates all memberships under Group.
* This committee is now refreshed as the Sustainability Committee.
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Introduction
Active ownership
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
2022 in numbers
Our ESG Manifesto At Eastspring Investments sustainability is embedded in our Company’s purpose “Experts in Asia. Invested in Your Future”. We are committed to making a positive difference to the future of our society and our environment. We embed sustainability into our culture and policies both in our investment decision and business management practices. We believe that at the centre of our sustainability efforts are our stakeholders and the environments we share with them. We identify areas and address environmental and social issues impacting our stakeholders through education and targeted action. Our ESG Philosophy 1 Integrating ESG results in better investment decisions. We believe that incorporating material ESG considerations into the investment process can add value which can result in higher risk-adjusted returns for our clients over the long term. 2 Engaging with investee entities can be constructive. We recognise that responsible investing requires a patient approach and an understanding that improvement in corporate behaviour can support investor value over time. We believe that companies that adopt sustainable business practices are more likely to deliver superior value in the long-term. 3 Active ownership is preferable to exclusion. We believe that hard exclusions from our investment universe should be utilised as a last resort, where ESG risks are insurmountable or where continued engagement is considered ineffective. Rather, seeking change in corporate behaviour through engagement is more likely to have real world impacts. 4 Transparency to our clients is important. We believe that providing transparency on our ESG activities helps our clients understand our priorities and impact.
744 engagements conducted across Eastspring Read about our engagement activities and case studies on page 16
43% decline in the WACI for the investment portfolio managed on behalf of Prudential since 2019 Read more about our climate change initiatives and progress on page 64 97.7% of the total number of items eligible for proxy voting are voted on by investment teams Read more about our proxy voting activity on page 46 SGD70k raised for partner charities, as part of Eastspring Singapore’s Spring for Kids auction Read more about corporate sustainability initiatives on page 84
1 harmonised Eastspring
Group Responsible Investment Policy
Read about our Group RI Policy and approach to ESG integration on page 52
13 ESG strategic offerings * Read more about our strategies on page 58 * as at 31 March 2023 87% of Eastspring Singapore’s SICAV range of funds are aligned with SFDR Article 8 Read more on page 58 72 companies identified for thematic engagement on climate change and decarbonisation Read about our central engagement capabilities on page 31
Note: All numbers are as at 31 December 2022.
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Active ownership
Contents 14 Active ownership overview
17 Company engagements 31 Central engagements 32 Climate change and decarbonisation 33 Assessment process 41 Palm oil 42 United Nations Global Compact (“UNGC”) violators 43 Additional thematic engagements 44 Collaborative engagements 46 Proxy voting 48 Exclusions
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Eastspring’s responsible investment approach is deeply aligned with active ownership activities for risk mitigation and value creation over the long term. As active owners, we leverage on our market expertise to foster long-term, collaborative relationships with directly-held investee companies to deepen collective understanding and tackle material issues including ESG risks and opportunities. As such, we consider engagement and proxy voting as key drivers of active ownership. Integral to the investment process, the responsibility of engagement and proxy voting is often led by our investment teams.
As active owners, we leverage on our market expertise to foster long-term, collaborative relationships with directly-held investee companies to deepen collective understanding and tackle material issues including ESG risks and opportunities.
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Active ownership overview
744 Number of engagements
Environmental 38%
Governance 38%
ESG Topic
Social 24%
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
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Eastspring global engagement heat map
Top 6 markets engaged
CN
TW
IN MY
HK
US
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Company engagements Engagement with investee companies is core to our active ownership responsibilities. We aim to encourage business and management practices that support positive enhancement of material ESG traits or mitigation of material ESG risks across our holdings. We do this using constructive engagement based on our in- depth knowledge of our investments in the context of their business environment. Our investment teams evaluate material ESG risks, which may differ across companies, sectors, and asset classes. The level of engagement will therefore vary based on materiality, the size of investment, and the nature of the risks themselves. As long-term investors we adopt a patient timeframe, as we believe that this can improve the probability of achieving value-added outcomes. Engagement can be for a variety of purposes, such as for fact-finding or in response to specific ESG controversies. By better understanding an issuer’s approach to material ESG risks and opportunities, these insights can be incorporated to create a holistic view of a company’s investment profile. Engagement can also be undertaken to encourage improvements within an issuer itself. Our process incorporates a range of milestones reflecting time-bound expectations regarding acknowledgement of issues, strategy development, implementation, and reporting and disclosures.
Eastspring Asia engagement heat map
Our engagement footprint As experts in Asia, the investment teams in our LBUs across the region leverage long-standing relationships with investee companies in the markets in which we operate to engage on material ESG issues. The purpose of these engagements, which are long-term in nature, is to ensure that the issuer understands and manages material ESG risks in a suitable way and to a timeframe that meets our expectations. Where appropriate, we will work with issuers to address material ESG risks, acknowledging a company management’s speciality knowledge in their field.
Environmental
Social
Governance
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Company A
Company A is an energy company in an emerging market. Given the increased impact of transition risk to high emission industries such as the energy sector, and the proliferation of companies setting long-term climate targets without near to mid-term clarity on execution plans, Eastspring Singapore reached out to the company to clarify its capex plans for decarbonisation with a focus on the 2022 – 2026 timeframe. This helped the team build confidence on the near-term risks and opportunities that the company can mitigate and capitalise on, respectively. In response to the question by the investment team on the underlying assumptions driving future market demand for energy, the company mentioned that they were anchoring their strategy on the two assumptions that were relevant for their specific position in the market: 1 Continued proximity to, and ability to access cheap and low carbon gas, which will continue to be in demand beyond 2050. 2 Enhanced focus on decarbonisation of existing operations, whilst developing a more sustainable plan of developing new transition technologies. The investment team sought greater clarity on the company’s focus on new transition technologies to assess how the company was positioning itself to specific transition opportunities. The company demonstrated that it is building capacity to assess and subsequently invest in future energy diversification projects with synergies to the core businesses. It shared the creation of a fund and a dedicated rese arch centre featuring a combined portfolio of projects focused on developing biofuels, hydrogen, and offshore wind power. We also attained a better grasp of the company’s governance of its climate strategy, which demonstrated Board oversight as well as executive implementation under a committee overseeing firmwide Occupational Health and Safety (“OHS”), Environment, and Sustainability initiatives.
Climate transition capex
Eastspring Singapore
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
The engagement highlighted how the ESG team provided feedback to the company on the type of internationally-recognised biofuel certifications to help the company better prepare for the increasing regulatory focus on biodiversity, including the possibility of future import taxes. The company responded that they were appreciative of this dialogue and will factor in these considerations when scaling their biofuel program.
With capacity building towards its strategy and proper governance channels in place, we gained a clearer understanding and level of comfort of the company’s preparation for its climate commitments. We will continue to monitor the company’s implementation of its transition strategy, whilst considering political and competitive landscape changes.
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Company B
Company B is a port operating company. Eastspring Singapore spoke with representatives of the company to better understand their approach to handling material ESG risks, including climate adaptation and OHS. Going into the engagement, we observed that a third- party ESG rating agency had awarded the company a bottom-quartile rating and utilised this opportunity to advise the company on enhancing disclosures and remediating identified issues. We provided feedback that a driver of the bottom-quartile rating had to do with limited disclosure of quantifiable ESG targets and programs in areas considered to be material from an ESG perspective. We encouraged the company to take measured steps to ameliorate this issue by formalising remediation policies on impacted areas, setting quantitative OHS targets, and instituting a physical climate risk integration process. The company was receptive and revealed that they had already been conducting an Environmental Impact Assessment (“EIA”) before any potential modification to natural areas and that they will consider publication of these EIA reports, in order to reflect these processes accurately to third-party ESG rating agencies. When questioned about their readiness for physical climate risks adaptation, particularly on rising sea levels, a material issue to port operators, the company demonstrated awareness of the issue and had already taken steps towards adaptation through conducting an expert review and increasing the height of several flood gates. The company also disclosed that it is currently working on climate physical risk scenarios modeling. In light of this positive sharing, we encouraged them to disclose their plans publicly as this would add to improving their ESG rating. In parallel, we reached out to the third-party ESG rating agency to prompt a timely rating review. All things considered, we will continue to monitor the progress in addressing targeted issues and work in tandem with the company to improve disclosures to the market.
Climate adaptation
Occupational Health and Safety
Eastspring Singapore
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
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Company C
Company C is an Electronics Manufacturing Services (“EMS”) company. In May 2021, US Customs and Border Protection initiated an investigation into a Malaysian EMS company which has been accused of using forced labour. In November 2021, a high-tech home appliance maker terminated its contract with the company following an audit of its labour practices and whistleblower’s allegations. Recognising that EMS companies in Malaysia typically have high migrant workers ratio in the workforce, we believe other EMS companies could face similar scrutiny which could result in significant reputational risk and potentially loss of revenue if their labour practices are perceived to be below expectations. This engagement is an extension of our wider engagement on this topic. Since 2021, we have conducted several engagements with two Malaysian EMS companies to understand how well they were managing migrant workers related issues. These engagements included 1-to-1 meeting and small group discussion with their senior management. We also engaged relevant specialist to understand expectations on migrant worker rights and the status quo in Malaysia. Both EMS companies have made notable progress in 2022 with social compliance audit in place and found no systemic forced labour practices based on 11 indicators of forced labour set out by the International Labour Organization (“ILO”). Recruitment fees paid by workers to recruitment intermediaries have been fully reimbursed and other gaps identified were resolved or supported by immediate remedial actions. We are satisfied with the audit findings and actions taken by both companies and will continuously monitor their ongoing efforts on migrant workers related issues.
Labour practices and working conditions
Eastspring Malaysia
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
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Company D
Company D is an energy company in Indonesia.
Business ethics and transparency
In 2021, then Chairman of Prudential Insurance Growth Markets, Donald Kanak, was the originator of the Energy Transition Mechanism (“ETM”) via the World Economic Forum and Asian Development Bank. Since then, we have been huge supporters of early retirements of coal-fired power plants (“CFPP”) and believe in the value of well- planned and well-financed early retirement projects. In October 2022, the media reported that the company had signed a Memorandum of Understanding (“MOU”) with a state-owned entity (“SOE”) to purchase one of SOE’s coal-fired power plants (“CFPP”) to support the Nation’s net zero programme by accelerating the CFPP’s retirement. As no prior details were shared with investors, the immediate market reaction to the acquisition announcement made during the G20 Conference led to plunging share prices. Within the week, we arranged a meeting with the company’s Chief Financial Officer (“CFO”) to discuss the details of this plan and other key concerns, including the lack of transparency and the significance of the CFPP against the company’s equity size and cash flow. If the communication of the MOU had been better managed, the company would have been able to highlight the benefits of the early retirement program and the value it will bring about to its key stakeholders, which may have prevented the volatility they experienced in their share price. The company management responded positively to our feedback and shared that the project was a joint venture in the early stages of its development, hence valuation and internal rate of return details were not yet available at that point in time. The company also clarified its financing plans which, in line with its 2020-25 downstream plan, included expansion of its renewable energy business as well as the use of green financing instruments We provided further suggestions on the delivery and content of investor relations materials to better position future announcements related to this project. The company demonstrated willingness to improve, and we will monitor progress on this project and engage with management accordingly.
Eastspring Indonesia
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
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Company E
Company E is a multiline and specialty retailer and distributor in Asia. As most retailers are actively promoting their membership programs, aiming to combine online and offline channels to strengthen consumer consumption, energy management in physical stores and customer data security were selected as our top focus for engagement. The company shared the efforts to manage energy consumption, noting that it looks to: Control the air-conditioning temperature of each branch based on weather conditions Replace the traditional lamps with LED devices Switch the warehouse to automatic extinguishing lighting, and Increase the adaption of natural lighting in the stores during daytime. We have also noted that the electricity cost of a single store has exhibited a downward trend annually. As the company is still actively expanding its stores and presence in both online and offline capacities, we expect that there will be an increase in electricity consumption. As part of the engagement, we assessed the company on their readiness for data security issues, we are satisfied that the company has sufficient governance and infrastructure in place. The company’s Information Security Officer and related personnel are responsible for implementing data security tasks and arranging education and training for all employees. All relevant personnel are required to obtain data security licenses. The company also has cross-functional Risk and Data Security Team that reviews the data security plans, governance, implementation, and supervision of each department. The team reports findings to the Board on a regular basis. In terms of infrastructure, the company has clear measures for dealing with software and hardware issues. In addition, it conducts two internal audits and one external audit every year to continuously conduct data security risk assessment and control.
Energy management
Data security
Eastspring Taiwan
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
We have reminded the company to continue to implement and monitor its energy saving and data security practices, to protect consumer information from leakage and fraud traps during the period of frequent online fraud and attacks. We will continue to monitor the energy management and information security implementation results as it expands the scale of online and offline operations.
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Company F
Company F is a beauty and cosmetic conglomerate in South Korea. As a recognised global cosmetic company, this company has been highly regarded in the local cosmetic industry for their commitment to sustainability management. As part of preparation, the Eastspring Korea team assessed the company’s 2030 agenda in sustainability management and identified two key engagement objectives for the company. First, the investment team wanted clarity on the long-term investment risks or opportunities. Second, the investment team sought a better understanding of current issues and solutions in supply chain management including the use of palm oil as an ingredient of its cosmetics. Upon raising these concerns, the company responded by showing a recognition of the effects of unsustainable palm oil on the wider eco-system, citing the deforestation caused by indiscriminate cultivation of palm farms, including the threat to of endangered species, greenhouse gas emissions, and human rights issues in the supply process. As a starting point, the company displayed awareness and publicly reports its current consumption of palm oil and palm kernel- derived raw materials annually as raw materials for cosmetics and household products. To address supply chain management issues as part of its long-term ESG agenda, the company shared ongoing efforts to increase the proportion of Roundtable on Sustainable Palm Oil (“RSPO”)-certified raw materials. Leveraging on its role as a consumer, the company is directing its support into efforts for the sustainable use of palm oil throughout the industry through the RSPO system by striving to expand the purchase of palm oil that is sustainably produced without deforestation. To further enhance its efforts, the company announced it will set aside an internal budget to invest into biodiversity conservation efforts and increase the use of RSPO certified palm oil to 90% or more by 2023. As of the latest reported statistic, in 2021, approximately 40% of the palm oil derivatives are RSPO-certified.
Supply Chain Management and Palm Oil
Eastspring Korea
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
With a clearer understanding of the company’s sustainability management, and in particular its treatment of supply chain management in relation to palm oil use, we will continue to express our expectation the firm only use 100% RSPO-certified palm oil and check its progress in the next meeting.
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Central engagement
the letter is sent, we will rate the company as Milestone 1 and continue engagement with each company until it has satisfactorily resolved the relevant outstanding sustainability issue. This is likely to be a multi-year process. In 2021, Prudential had set a target to engage with the companies responsible for 65% of the absolute carbon emissions in their investment portfolio, which includes both listed equities and corporate bonds. The Eastspring Central Engagement team undertook these engagements under its Climate Change and Decarbonisation thematic, thereby allowing our client to meet their requirement of the Net Zero Asset Owners’ Alliance (“NZAOA”). Furthering our Central Engagement Program in 2022, we expanded our thematic focus to include the unsustainable use of Palm Oil and United Nations Global Compact (“UNGC”) violators. Additional thematic engagements, which will be discussed later in the chapter, have also been adopted by the team.
As active owners, we use our Central Engagement Programme as a platform to express our expectations on material ESG themes to targeted investee companies. Thematic engagement on specific issues complements the investment team’s more company-centric ESG engagements. The programme objectives are based on our judgment of materiality to investment portfolios managed on behalf of clients. For each identified material ESG theme, the Central Engagement team follows a six‑step process to carry out the engagement programme.
Milestone 1 Raised awareness of issue with company
Milestone 2 Dialogue in process
Milestone 3 Company has agreed to address the issue
Milestone 4 Company has developed or are planning to implement a plan to address the issue
To determine the deployment of engagement and to keep track of
engagement progress, we have designed a six-step process for assigning engagement milestones to companies. After assessing the disclosures, targets, and strategy of the company management, we assign a milestone to each company. We utilise letter writing via emails as the initial mode of engagement to request that companies address the issue. Once
Milestone 5 Company has satisfactorily resolved the issue
Central engagement cycle
1 Identify topic for engagement
2 Identify companies that are in scope for the engagement topic
3 Cross-check company
4 Assess quality of management, targets, and strategy to shortlist target companies
5 Compose engagement
6 Monitor progress
disclosures against selected standards, initiatives, targets, and strategy
letter and email to target companies
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Climate change and decarbonisation
As part of the pilot year of our climate change and decarbonisation thematic engagement, we screened the portfolio for the top carbon emitting companies that make up 65% of the Prudential portfolio’s absolute carbon emissions. This had translated to 86 entities, or 72 companies. In the first year of engagement: There are 19 companies that have fulfilled all our criteria. Eastspring has engaged these companies and will continue to monitor their progress against stated goals. There are 53 companies that have deficiencies in the disclosure of their transition plans. Eastspring has engaged all companies at least once. These companies have been assessed and categorised over the five different milestones, depending on their responsiveness and maturity of their climate action plans.
Engagement Milestone breakdown
4
1
18
2
11
3
6
4
14
5
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Assessment process
3 key assessments Disclosure: Does the company disclose its climate change and decarbonisation plans to CDP? Targets: Has the company set targets to reduce carbon emissions? Strategy: Has the company set clear strategy for its climate change and decarbonisation plans?
Sustainability team quality assessment Is the overall quality up to standard?
There is an information gap, based on the 3 key assessments above
Company fulfils all criteria
We engage the company directly
We monitor the company’s progress
Milestone 1
Milestone 2
Milestone 3
Milestone 4
We developed an assessment process for determining the status of each of the company’s approach to climate change and decarbonisation.
Milestone 5
Eastspring Investments: Responsible Investment Report 2022
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Milestone 1 R aised awareness of issue with company
Milestone 2 Dialogue in process
A cement company in China.
A utility company in Southeast Asia.
As the Chinese proverb says: 趁热打铁 (translation: strike whilst the iron is hot), we contacted CDP right away after our virtual meeting with the company. The team at CDP was very thrilled, as other investors and itself have tried to engage with the cement company since 2010. For the disclosure cycle of 2022, the cement company responded to CDP’s climate survey for the first time in over a decade after the CDP’s first request. We rate the engagement with the company as Milestone 2, because the company has yet to set targets for carbon emissions reduction and there is no concrete plan for decarbonisation.
The company was initially assessed on its climate action plan in 2021, and it did not pass any of our minimum expectations, including disclosure to CDP, setting credible targets to reduce carbon emissions, and explaining its decarbonisation journey. Our continued attempts of following up yielded results when we were eventually referred to the senior Investor Relations (“IR”) manager who is responsible of ESG. We arranged for a virtual meeting and had conducted the engagement in Mandarin. During the engagement, we communicated that investors primarily want to see that the company disclose for the first time and concerns over first time scores being poor are secondary. We encouraged the company to submit its first-ever disclosure in 2022, and it gave the IR manager confidence to agree to submitting its CDP disclosure for the first time.
In a very small number of cases, our engagement process is less effective than we would hope. In this case, the company did not disclose to CDP’s climate survey, did not share targets to reduce carbon emissions, and did not provide any details on decarbonisation. Our attempts to engage the company resulted in a non-response to date, which, should it persist, will result in the implementation of our escalation process incorporating proxy voting.
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Milestone 3 C ompany has agreed to address the issue
A global food supply chain company.
Management was very keen to transition from coal-fired fuel to other fuels, especially biomass. However, the change in coal sources requires the approval of local and state governments. CSO mentioned that the company has yet to seek government approval and is preparing the necessary documentation. We rate this company as Milestone 3 because the company has agreed to set and disclose a long-term target by 2050, primarily based on the guidance of SBTi.
The company has provided adequate disclosure to CDP, shared details on its decarbonisation strategy, and has also set a medium-term target by 2035 for its Scope 1 and 2 carbon emissions. However, there was no mention of a long-term target to 2050. We had a virtual meeting with the Chief Sustainability Officer (“CSO”), who agreed that the company needs to set a long-term target for carbon emissions reduction and explained that the company was committed to guidance from the Science- Based Targets Initiative (“SBTi”). The climate-related network has just developed a draft for the forestry and agriculture sector. The CSO planned to use the SBTi’s guidance as the basis for a long-term target for the company.
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Milestone 4 C ompany has developed or are planning to implement a plan to address the issue
A steel company in Australia.
so. In 2023, the updated CDP database showed that the company has provided their first ever disclosure. We will continue to monitor and engage the company on its progress.
During our engagement, we explained the benefits of disclosing to CDP, which include improving its reputation as a transparent company, improving access to capital, moving ahead of regulatory changes on environmental reporting, identifying risks that were previously overlooked, and benchmarking against industry peers. Five months later, the company informed Eastspring that it acknowledged our expectations to disclose on CDP and would participate in CDP’s disclosure cycle for 2022. Given the rich inventory of data and information on climate action the company already has, we believe that it can disclose to CDP in 2022. We rate this company as a Milestone 4 because the company had agreed to report to CDP and was in the process of doing
Upon assessment, the company had fulfilled most of our criteria on climate change risk as it has set medium-term and long-term targets and shared details of its decarbonisation journey extensively. It has also conducted scenario analysis and explained the key drivers and assumptions for each scenario. In addition, its senior management, including the Chief Executive Officer (“CEO”) and Chief Sustainability Officer (“CSO”), have a part of the variable incentives linked directly to emissions reduction. The only information gap is its disclosure to CDP’s Climate Survey. Initially, the company was reluctant to disclose to CDP as the Sustainability team had focused on enhancement in Taskforce on Climate- related Financial Disclosures (“TCFD”).
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Milestone 5 C ompany has satisfactorily resolved the issue
A private conglomerate in Southeast Asia.
As part of our assessment, the company has good-quality disclosure on its targets to reduce carbon emissions for the short- term, medium-term, and long-term. It also started disclosing in CDP’s Climate Survey in 2020, when it has sufficient data inventory on its carbon emissions. The company has also set up a Sustainable Development Office in 2021 with the CEO serving as the Chair of the Sustainable Development Committee. The company has integrated climate-change related KPIs from the CEO to heads of various business units, to all employees. The CEO has an ESG-related KPI of 30% of total performance, and this KPI is assessed by the Board of Directors to translate into annual variable incentives.
However, details of its decarbonisation journey appeared to be vague and lacking in detail. This was the primary reason for engagement with the company. We engaged with the company’s senior management including the CFO. To reach its short-term target of reducing carbon emissions by 2025, the management explained that it would largely rely on changes in energy sources from fossil fuels to alternative sources including biomass. Specifically, the management aimed for 50% of its energy sources coming from alternative fuel sources by end of 2022.
The management also articulated the key milestones for the decarbonisation journey from its medium-term target of 2031 to net zero target by 2050. To transition, the management shared that it plans to invest into green energy (e.g., hydrogen), utilise carbon capture, and propose internal carbon price to incentive employers to reduce carbon emissions at a faster pace. The company also plans to introduce new products that are highly recyclable and low energy consumption. We rate this company as Milestone 5 as it has fulfilled our criteria on disclosure, targets set to reduce carbon emissions, and its decarbonisation plan was clear and thoughtful.
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Monitor progress
A utility company in Greater China.
The company actively discloses its Scope 1, 2, and 3 carbon emissions annually. It participated in CDP Climate survey since 2010, has set clear emissions reduction targets over the short, medium, and long term, and targets to reduce Group’s carbon emissions intensity by 80% from 2007 levels to 2050, ahead of China’s National Determined Contributions (“NDC”) in 2060. It has signalled that it plans to tighten long-term net zero target closer to 2050 and has outlined clear pathway to decarbonise from coal and liquid fuel. The company has taken the initiative to keep track of SBTi standards for utility companies. Its medium-term goal to reduce its 2030 carbon emissions intensity is also aligned with the Paris Agreement goal of limiting global warming to well below 2°C above pre-industrial levels. We wrote a complementary letter to inform the company that it is on the right track with its climate strategy, and we would monitor its progress on decarbonisation and tightening its 2050 target.
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Active ownership
Introduction
ESG integration
Climate change
Partnership with Prudential
Community and people
A final word
Just as engagement results matter, we believe that building a long-term relationship with companies is even more beneficial for both parties, especially for companies in emerging markets. It facilitates discussions over multi- year periods and has led to positive outcomes as companies develop a genuine understanding of material ESG issues and implement strategies to address them. Seah Peishee Central Engagement Lead, Eastspring Singapore
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Insights
Taking on climate change and decarbonisation as the first thematic engagement of the Central Engagement programme provided great insight to the team on how to approach future thematic engagements. We recognised that for a topic as complex as climate change, we needed to be cognisant of local and industry sensitivities and adjust our course of engagement to allow for clear, two-way communication with these companies. As part of our first year of engagement, we noticed the following: 1 Medium is the Message: Depending on the industry and country that the company is based in, adjustments to our engagement channels and the usage of local language both serve to optimise our engagements with companies. 2 Local Knowledge is an Edge: Being proficient in the local language and customs, combined with having detailed knowledge of the climate ambitions of the country in which the issuer operates, can mean the difference between an effective engagement and a non-reply. 3 Accountability is Key: When companies link climate change metrics and targets to their senior management’s variable incentives, there is a good chance that engagements will be taken more seriously as an accelerant for strategy development and implementation. 4 Patience is a Virtue: Company structures vary across industries and countries and creates different levels of bureaucracy and lines of reporting. As such, the entry point of engagement (i.e., the first point of contact for engagement) is essential and patience in navigating these structures for engagements is key. Change is often a multi-year endeavour.
In the theme of climate change and decarbonisation, it appears that outcome-driven engagements with SOEs to develop the targets and disclosure is a multi-year journey.
For example, in the case of engaging with Chinese State-Owned Entities (“SOEs”), we found that by navigating language and culture barriers, choosing the appropriate mode of communication, engaging with the appropriate decision makers, framing our requests in line with National Commitments, and offering support for improved reporting and target setting, enhanced our engagement sessions and optimised them for follow-up actions and results. In the theme of climate change and decarbonisation, it appears that outcome- driven engagements with SOEs to develop the targets and disclosure is a multi- year journey.
believe it is important, especially in the markets in which we operate, to continue our engagement activities, even as clients may choose to exit coal producers and energy generators due to excessive, unrewarded climate risks that they possess. Eastspring hopes to leverage on the long- standing relationship and regional expertise of engaging with these coal companies to encourage them to accelerate their transition. As such, we have elected to continue to engage with the companies that were identified in 2021 but have since been divested. We plan to continue being a part of the wider dialogue on climate transition and adaptation so that as these companies evolve, they may once again become part of our investible universe.
Just Transition In Asia and emerging markets more generally, the concept of a just and
inclusive transition is a necessary ingredient of the world’s move to more sustainable energy sources. In particular, the issue of access to electricity looms large, as many communities have only recently been afforded access to this essential service. Transitioning the energy mix, whilst maintaining this access to electricity, is the key challenge of a just transition. We
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