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ESG integration
Introduction
Active ownership
Climate change
Partnership with Prudential
Community and people
A final word
Eastspring ESG Principles Our investment beliefs as they relate to Responsible Investment are: 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
In Action Following a press report in Brazil about a global food producer being investigated on the grounds of modern slavery, we commenced engagement on the matter raised. Whilst our holding was not significant, we believe that identified instances of alleged modern slavery require a follow up, leveraging investor pressure to swiftly address these issues. During the engagement we also raised questions on allegations regarding illegal land clearing for agriculture, as an extension of the wider controversies occurring within the supply chain of this company. By encouraging the company to provide remedy to those affected and seeking improvements in supply chain monitoring, we believe we are more likely to influence real-world change. Ultimately, we believe that active ownership is preferable to exclusions. We will continue engagements with the company on the basis that long-term outcome-based engagements will allow us to collectively move the needle on progress.
Equity and Fixed Income We seek to identify, assess, and monitor material ESG risks and opportunities. Investment teams integrate ESG issues with material impact on a company’s valuation, credit worthiness, and license to operate within the investment analysis, investment decision, and active monitoring of holdings. This process also considers the impact of a company’s readiness to position itself positively to exploit future ESG opportunities in its specific market and sector. Through the ESG integration process, investment teams develop an informed and holistic assessment of a company’s exposure to and management of ESG risks and opportunities. This includes incorporation of third party ESG data, materiality metrics, as well as company and market specific data. Notwithstanding, we are mindful of data quality issues and will factor this into our assessment of materiality. Where possible, we will monitor and engage with data providers to address data quality issues. Integration in action: Reconciling ESG data with research and company engagement Eastspring Singapore engaged a Hong Kong electric holding company to understand why its carbon emissions
intensity was so high. The portfolio manager had reviewed the company- reported carbon emissions intensity of the company against our data vendor’s figure and noticed the disparity between these two figures. Leveraging on the long-standing relationship built upon years of engagement, the portfolio manager reached out to the company to seek clarification on this carbon emissions intensity number. We subsequently engaged the data vendor which prompted a re-evaluation by the vendor and led to an update in their reporting of the carbon emissions intensity of this company. The updated carbon emissions intensity, which was a third of the previous figure, was significant enough to result in a decline in the WACI of some portfolios. This shows how ESG integration within the investment process and thoughtful engagement can reinforce the decision making processes, allow for a better assessment of climate risk within portfolios, and benefit the wider investment ecosystem.
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.
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