Building our responsible investment capabilities
In addition to providing traditional investment strategies, we have a vision to grow our responsible investment business, primarily under the Regnan brand, and to become a global leader in this space. We already have a long heritage in providing responsible investment products. As at 30 September 2020, we had approximately $3.1 billion in funds under management in dedicated responsible investment strategies across multiple asset classes.
We recognise that several drivers – from client interest and regulatory changes, through to the presentation of ESG factors material to valuations – reinforce the need for us to continue building our capabilities and our access to high quality, investment-relevant research. While our business model is “investment led”, meaning our investment professionals independently determine their investment strategies, we are providing the means for them to have access to in-house ESG professionals and education to progressively factor ESG factors into their investment processes.
Our Regnan business unit provides high quality ESG research and thought leadership, which is shared with our fund managers via education and knowledge workshops. We believe this provides a competitive advantage and empowers our portfolio managers to better understand the impact of ESG risks and considerations in their processes.
During FY20, a number of our core investment strategies enhanced the integration of ESG factors into their investment process and we see this trend continuing.
Expanding our ESG offering
We continue to meet our clients’ needs with a growing suite of ethical, sustainable and impact investment products and have steadily increased the number of people in dedicated responsible investment roles.
Leveraging our strong reputation in this growing sector, we expanded our Regnan investment capabilities during the year with the launch of the Group’s first Impact product, the Regnan Credit Impact Trust. The Trust invests in Australian fixed-income securities, with a focus on investing in Impact bonds to generate social and environmental outcomes, alongside returns.
Additionally, we on-boarded a four-person Global Equity Impact team in the UK. The Regnan Global Equity Impact Solutions strategy will be launched in the December quarter of 2020 and will be distributed globally.
Other highlights during the year included the launch of a sustainable managed portfolio, a collaboration between Pendal Australia, Regnan and AMP. The portfolio will be offered to financial advisers and clients through the MyNorth wrap platform.
Additionally, the Pendal Multi-Asset Target Return Fund became a fully ESG-integrated, sustainable liquid alternatives strategy. The fund incorporates exclusionary ethical screens and positive sustainability considerations into: portfolio construction and security selection processes, and the impact of the investment. The fund is the first of its kind to achieve Responsible Investment Certification2.
2 Through the Responsible Investment Certification program administered by the Responsible Investment Association of Australasia (RIAA). You can find out more about the program on their website www.responsiblereturns.com.au
JOHCM and International Select Team
Throughout the year, the JOHCM Global and International Select team collaborated with Regnan on a multi-month engagement with a food producer across several ESG priorities. Regnan’s bespoke research on the company and deep ESG expertise supported a better-informed view of the company’s risk profile and shaped the objectives sought in their collaborative engagement. Throughout the year the company has implemented several changes directly addressing priority areas. The company acknowledged that the feedback enhanced their understanding of business risks and the value in pursuing a more sustainable business model.
Stewardship and engagement
As responsible stewards of our clients’ assets, we engage with investee companies and exercise our voting rights. Through proxy voting and ongoing dialogue with the management of companies in which we invest, we aim to better manage risk, effect change and protect value for our clients over the long term.
We prioritise those companies and issuers where we have identified areas of concern, or where our shareholding affords us greater influence, so we may drive improved practices.
During the year we improved our client reporting on engagement activities to enhance client insights. This involved showcasing our active approach to engagement by combining statistical and proxy voting data with case studies and advocacy highlights.
In 2021 our UK business will publish its first Stewardship Report to demonstrate how it has applied the Stewardship Code 2020 published by the FRC. The FRC’s significant updates to the Code include reporting expectations about the activities and outcomes of stewardship, and a more explicit focus on ESG.
Pendal Australia Proxy Voting - Australian and global equities voting activity for Pendal Australia funds
|Total items voted||For||Against||Abstain||Other3|
|Percentage of total resolutions (proposals)||99.81%||91.59%||8.07%||0.49%||7.59%|
JOHCM Proxy Voting - Global equities voting activity for JOHCM funds
|Total items voted||For||Against||Abstain||Other|
|Percentage of total resolutions (proposals)||98.76%||94.30%||4.65%||1.05%||0.00%|
3 ‘Other’ includes Management Say on Pay (MSOP) proposals and where Pendal did not vote on a proposal due to administrative and other reasons, including where a shareholding was divested prior to the voting cut-off date.
Please note individual funds may place differing votes on the same resolution and therefore the percentage of total resolutions may include more than one voting position per resolution.
Pendal BIDS team (Australia) engagement with a European railway company
While this issuer had otherwise strong sustainability credentials, particularly on climate change, a deterioration in safety performance and a lack of disclosure on management’s response raised concerns. Prior to making an investment decision, our BIDS team worked with Regnan to develop a plan of action for engagement to address these shortcomings. They then held a detailed discussion with the issuer, probing safety performance across employee, contractor, and customer segments, and encouraged disclosure enhancement, conveying the materiality of safety to the team’s evaluation of the company’s sustainability performance.
We actively participate in a range of industry bodies and initiatives, working collaboratively with our peers to promote greater acceptance of responsible investment practices and to support the management of ESG risks and opportunities in the best interests of all stakeholders.
Notable industry participation in FY20 included:
Ongoing contribution to the Australian Sustainable Finance Initiative (ASFI)
Participation and contribution of thought leadership at the UK’s Investment Association (IA) industry forums
Involvement in the Financial Services Council (FSC) ESG Working Group and the RIAA Human Rights Working Group
Active participation in the Investor Group on Climate Change (IGCC)
Collaboration with the Principles for Responsible Investment (PRI).
A complete list of our industry associations and partnerships are available here.