Increasingly, it is no longer enough for advisers to be reactive when clients ask about sustainable investing. It is vital that you have an ESG/Sustainable alternative as part of portfolio recommendations for your clients.

We have put together 5 questions you should be asking your clients when discussing sustainable investments ranging from how much clients now about ESG and sustainable investing to whether they need to see the sustainability credentials of underlying holdings.

  1. Do you want sustainable/ESG options?

An obvious first question but acting in the best interest of a client means delivering a solution that ties into a client’s interests. For some, it means investing sustainably, for others, it is not a factor. FASEA Code #6 states a solution must consider a client’s long term aims, which may involve investing sustainably.

  1. Do you know what ESG actually means?

This might seem like a simple question, but most investors are unaware that ESG is an investment process and not the means by which the “goodness” of a portfolio can be immediately assessed.

As an investment process, ESG takes into consideration the risk and downside potential of investing in a company (or investment) from an environmental, social or governance perspective. However, it does not mean that such an investment will not take place if the potential upside outweighs these risks. Understanding this difference is important to ensure you match investment suggestions with your client’s values.

  1. Do you want to make a difference to society through your investment choices?

Given that ESG is about investment process and doesn’t necessarily consider whether an investment delivers positively to society, unpacking this difference might narrow the selection of investment options. By narrowing these options, you will ultimately ensure that you are really acting in the best interest of your client by only suggesting solutions that match their views on sustainable investing.

The Lonsec Sustainable Managed Portfolios consider both ESG risk and sustainability measures. These sustainability measures focus on the goodness the funds included in the Portfolios and are underpinned by the United Nations’ 17 Sustainable Development Goals.

  1. Are there specific industries that you would prefer to exclude?

Each client is different and what one considers inappropriate could be appropriate for others Having a good understanding of what lines cannot be crossed is important and once you have this information, you can then identify a solution that meets your client’s requirements.

The filter tool in Lonsec’s iRate® platform allows you to exclude ten specific controversial industries from your product selection.  In addition, our Sustainability reports give in depth reviews of how products support sustainable outcomes and the extent to which any controversial industries are included in a portfolio. This way you can screen out any controversial industries that you client specifically does not want to invest in.

  1. Do you want to be able to see how much “good” your investment is delivering?

As the number of ethical and Sustainable products have grown, many are not as green or sustainable as they claim. With some solutions it is difficult to see exactly how they are delivering on their sustainability claims as the underlying holdings or progress against sustainable goals are not clearly reported.

If visibility of an investment’s sustainability promise is important to a client, you must identify solutions that report openly and clearly on these factors. Lonsec reports on its delivery against its Sustainable goals. The portfolios actively report against a number of factors such as reduction in CO2.

 


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Across the financial services industry there are a number of key themes that are ongoing and emerging, including regulatory and legislative change, challenges of a pandemic environment, distribution channels and the rising focus on ESG and sustainability considerations.

In this panel session we will discuss the strategic considerations associated with the rising adoption of net zero by 2050 commitments by asset owners and investment managers. The challenges will be discussed by leading super funds and investors and they will share their thoughts on how our industry can progress towards this target.

Lonsec hosted this panel as part of the Fund of the Year Awards 2021.

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2021 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

Lonsec and SuperRatings have announced the winners of this year’s Fund of the Year Awards, which were held virtually for the second year in a row.

The Lonsec Manager of the Year was awarded to First Sentier Investors in recognition of their strong investment approach right across their suite of products.

“First Sentier Investors has a strong track record, not just in performance, but also driving positive change with their investment products, having integrated ESG across their business.” said Lonsec Research Executive Director, Lorraine Robinson.

“Congratulations to First Sentier Investors and all the other winners and nominees in this year’s awards.”

First Sentier Investors CEO, Mark Steinberg, commented “First Sentier Investors has always had a focus on delivering sustainable long-term outcomes for our clients. We are very proud to receive this award as recognition of that commitment.”

The SuperRatings Fund of the Year went to UniSuper, recognising their strong assessments across the main judging categories, with strong performance, competitive fees and an ongoing focus on members.

“UniSuper has continued to deliver strong net benefit outcomes over the past twelve months, due to competitive fees and strong performance. Coupled with a clear focus on supporting and servicing members, with a range of advice services embedded into their offering, UniSuper demonstrates the benefit of consistent excellence across all aspects of their offering.”

“It is an honour to continue to recognise the best in the superannuation sector and award those funds who, in the last year, have helped their members to navigate a very difficult time.” said SuperRatings Executive Director, Kirby Rappell.

UniSuper CEO, Peter Chun, said “We’re so proud to have won SuperRatings Fund of the Year award. UniSuper is committed to delivering greater retirement outcomes for our members so it’s an honour to be recognised for offering the very best in investment performance, value, and member services, especially now we can welcome all Australians to our fund.”

Full List of Winners

 

Lonsec Manager of the Year

First Sentier Investors

 

Lonsec Multi-Asset Fund of the Year

BlackRock Tactical Growth Fund

 

Lonsec Active Equity Fund of the Year

Hyperion Australian Growth Companies Fund

 

Lonsec Passive Fund of the Year

VanEck MSCI International Quality ETF – ASX: QUAL

 

Lonsec Active Fixed Income Fund of the Year

Pendal Short Term Income Securities Fund

 

Lonsec Property and Infrastructure Fund of the Year

Australian Unity Healthcare Property Trust

 

Lonsec Alternatives Fund of the Year

Partners Group Global Value Fund

 

Lonsec Emerging Manager of the Year

Sage Capital

 

Lonsec Innovation Award

Robeco SDG Credit Income Fund (AUD Hedged) – Class B

 

SuperRatings Fund of the Year Award

UniSuper

 

SuperRatings MySuper of the Year 

AustralianSuper

 

SuperRatings MyChoice Super of the Year

Hostplus

 

SuperRatings Pension of the Year

QSuper

 

SuperRatings Career Fund of the Year 

HESTA

 

SuperRatings Momentum Award

TelstraSuper

 

SuperRatings Net Benefit Award

AustralianSuper + HESTA

 

SuperRatings Smooth Ride Award

QSuper

 

SuperRatings Infinity Award

Australian Ethical Super

 

Release ends
For more information, contact:
Rob Hardy
Robert.Hardy@lonsec.com.au
1300 826 395

The Sustainable portfolios remained comfortably ahead of the strategic benchmark and their respective FE Multi-Asset Benchmark Indices during the September quarter. This was despite a market-sell off, concerns around softening global growth, rising inflation and fears of a global financial contagion stemming from the worlds most indebted company, Evergrande Group based in China.

Returns from Dynamic Asset Allocation were flat to slightly positive over the quarter, with the overweight position in risk assets and underweight position in fixed income adding value.

  


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Lonsec and SuperRatings are pleased to announce the nominations for this year’s Lonsec and SuperRatings Fund of the Year Awards. With 18 categories, the awards emphasise Lonsec and SuperRatings’ commitment to recognising the best providers across the managed fund and superannuation sectors.

Lonsec CEO, Mike Wright, comments, ‘As the pandemic has posed ongoing challenges across investment markets and operating environments, it is important that we recognise the contributions of strong funds that are helping their clients and members navigate this uncertainty.’

For the first time, Lonsec will present a full suite of nine managed fund awards, including an overall Lonsec Manager of the Year. Lorraine Robinson, Executive Director of Lonsec Research explains, ‘In previous years, the SuperRatings Awards have been a much-anticipated event and we decided it’s time that Lonsec Research further recognised the outstanding contributors to the managed fund market.’

This year’s awards will be the nineteenth for SuperRatings, recognising the best superannuation funds. Kirby Rappell, Executive Director of SuperRatings comments, ‘It is an honour to continue to recognise the best in the superannuation sector and award those funds who, in the last year, have helped their members to navigate a very difficult time. While this year’s event will be held virtually, the awards continue to be very real.’

An overall SuperRatings Fund of the Year winner will also be announced on the day. The full list of nominees for all categories is available at the bottom of this release.

The awards will be held at 3.00pm on Thursday, 28 October in a 1.5-hour online session to be enjoyed from the comfort of your home or office. As part of the awards program, Lonsec and SuperRatings will host a panel session, On the Road to Net Zero by 2050, to discuss the strategic considerations associated with the rising adoption of net zero by 2050 by companies and governments and what this means for investment portfolios.

The nominations for the Lonsec awards are:

Lonsec Manager of the Year

Finalists

First Sentier Investors
Franklin Templeton
Pendal Group

Lonsec Multi-Asset Fund of the Year

Finalists

Atrium Evolution Series – Diversified Fund AEF 9
BlackRock Tactical Growth Fund
PineBridge Global Dynamic Asset Allocation Fund

Lonsec Active Equity Fund of the Year

Finalists

GQG Partners Emerging Markets Equity Fund – A Class
Hyperion Australian Growth Companies Fund
T. Rowe Price Global Equity Fund

Lonsec Passive Fund of the Year

Finalists

BetaShares Asia Technology Tigers ETF – ASX: ASIA
ETFS Physical Gold – ASX: GOLD
VanEck MSCI International Quality ETF – ASX: QUAL

Lonsec Active Fixed Income Fund of the Year

Finalists

Ardea Real Outcome Fund
Macquarie Income Opportunities Fund
Pendal Short Term Income Securities Fund

Lonsec Property and Infrastructure Fund of the Year

Finalists

Australian Unity Healthcare Property Trust
ClearBridge RARE Infrastructure Income Fund (Hedged)
Quay Global Real Estate Fund

Lonsec Alternatives Fund of the Year

Finalists

Hamilton Lane Global Private Assets Fund (AUD)
Man AHL Alpha
Partners Group Global Value Fund

Lonsec Emerging Manager of the Year

Finalists

Daintree Capital Management
Eiger Capital
Sage Capital

Lonsec Innovation Award

Finalists

iShares Core Corporate Bond ETF (ASX: ICOR)
Magellan FuturePay
Robeco SDG Credit Income Fund (AUD Hedged) – Class B

 

 

SuperRatings Fund of the Year Award

Announced on the day.

 

 

 

 

 

SuperRatings MySuper of the Year 

Awarded to the fund that has provided the Best Value for Money default offering.

Finalists
AustralianSuper
Aware Super
CareSuper
Cbus
Equip
HESTA
Hostplus
QSuper
Sunsuper
UniSuper

SuperRatings MyChoice Super of the Year

Awarded to the fund with the Best Value for Money Offering for engaged members.

Finalists
AustralianSuper
Aware Super
CareSuper
Equip
Hostplus
Mercer Super Trust
QSuper
Sunsuper
UniSuper
Vision Super

SuperRatings Pension of the Year

Awarded to the fund with the Best Value for Money pension offering.

Finalists
AustralianSuper
Aware Super
Cbus Super
HESTA
Hostplus
QSuper
Spirit Super
Sunsuper
TelstraSuper
UniSuper

SuperRatings Career Fund of the Year 

Awarded to the fund with the offering that is best tailored to its industry sector.

Finalists
Cbus Super
HESTA
Hostplus
Mercy Super
TelstraSuper
UniSuper

SuperRatings Momentum Award

Awarded to the fund that has demonstrated significant progress in executing key projects that will enhance its strategic positioning in coming years.

Finalists
Active Super
Cbus Super
CSC
Equip
Hostplus
TelstraSuper

SuperRatings Net Benefit Award

Awarded to the fund with the best Net Benefit outcomes delivered to members over the short and long term.

Finalists
AustralianSuper
CareSuper
Cbus Super
HESTA
Hostplus
UniSuper

SuperRatings Smooth Ride Award

Awarded to the fund that has best weathered the ups and downs of the market, while also delivering strong outcomes.

Finalists
Aware Super
BUSSQ
CareSuper
Cbus Super
HESTA
QSuper

SuperRatings Infinity Award

Awarded to the fund most committed to addressing its environmental and ethical responsibilities.

Finalists
Active Super
Australian Ethical Super
Aware Super
Christian Super
Future Super
HESTA

Release ends
For more information, contact:
Rob Hardy
Robert.Hardy@lonsec.com.au
1300 826 395

The recently released Intergovernmental Panel on Climate Change (IPCC) Report made for sobering reading. Based on the most up to date, science-based understanding of the climate system and climate change, the report found that it “is unequivocal that human influence has warmed the atmosphere, ocean and land. “ According to the report, human influence has ‘very likely’ to ‘almost certainly’ contributed to global land and ocean warming, the retreat of glaciers, the decrease in Artic sea ice, rising sea levels and the increase severity and number of extreme weather and climate events that are occurring across every region across the globe.

The Lonsec Sustainable Managed Portfolios have a dual objective of delivering strong risk-adjusted returns while also making a positive contribution to the key environmental and social challenges facing society as measured by the United Nations Sustainable Development Goals (SDGs).

Climate change impacts a number, if not all, of the SDGs.

For example, changing weather patterns, more severe droughts, floods and tropical cyclones can significantly impact SDG 2 Zero hunger (and consequently SDG 3 Good health and well-being) due to increased food insecurity. SDG 1 No poverty will also be affected, as livelihoods, particularly in the agricultural sector, are lost. Climate change is also clearly impacting SDG 14 Life below water with coral bleaching events and ocean acidification on the rise and 15 Life on Land as decreased biodiversity, changing climate zones, and heatwaves threaten the extinction of many species.

The Lonsec Sustainable Managed Portfolios seek to address climate change in several ways;

  • We invest in strategies that are actively looking to solve the challenges of climate change. Impact strategies such as the Impax Sustainable Leaders Fund which invests globally in companies that are active in resource efficiency and environmental markets and the Pengana WHEB Sustainable Impact Fund which invests in sustainable investment themes including environmental themes such as cleaner energy, sustainable transport and water management. The Lonsec Sustainable Portfolios also have exposure to green and sustainable bonds through our fixed income strategies, where the proceeds of the bonds go directly towards funding climate solutions such as wind and solar farms.
  • We limit our exposure to fossil fuels, and in particular, thermal coal. As the highest emitting fossil fuel, coal is simply an exposure we want to avoid. Most of our underlying managers go further and exclude fossil fuels altogether which we strongly encourage as alternative technologies including renewables become more accessible. We monitor the portfolio’s exposure to each of the major fossil fuels (coal, gas, oil) using a third-party data provider to ensure that our exposures are low or zero and aligned with the goals of the Paris agreement, and we track the overall carbon footprint of the portfolio.
  • We invest in strategies such as the BetaShares Global Sustainability Leaders ETF (ETHI) that targets ‘climate leaders’. These are global large cap companies that have passed screens to exclude companies with direct or significant exposure to fossil fuels. 100% of the power generated by the companies in ETHI come from renewable sources.
  • We invest with managers that have strong Environment Social and Governance (ESG) integration, that is, they understand and incorporate the physical and transition risks of climate change into their financial analysis. They are managers that engage directly with companies around their climate disclosures and on their transition plans to net zero emissions. While targeting climate leaders and excluding fossil fuels can assist in keeping the carbon footprint of the portfolio low, it does little to reduce carbon emissions in the real-world – it simply passes the problem and emissions onto other investors. All companies, not just those focused on climate solutions, need to be part of the transition if we are to have a real-world impact. We want fund managers to work with all companies to reduce their emissions across the board and improve the carbon footprint of the entire market. In this regard, we see ESG integration as playing a critical role in delivering to the SDGs.

We believe the Lonsec Sustainable Portfolios are well positioned from a climate change perspective, however, more needs to be done. We will continue to work with fund managers and encourage more ambitious goal setting. At present we have 35% of FUM in the portfolio committed to net zero emissions by 2050 either through the Net Zero Asset Managers initiative or independent commitments. We want to see that number increase. It is important to Lonsec and important to our clients that we seek to urgently address climate change. We believe that addressing the impacts of climate change can help build more resilient portfolios and deliver more stable and higher long-term returns for our clients.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

In 2020 Lonsec introduced ESG assessment scores for all its managed fund reviews. More than just a simple style classification, Lonsec reviews the actual implementation of ESG through the investment process and incorporates that assessment as one of the factors that determine a fund’s final investment rating. Now well into the second year of our enhanced review process we have noticed some clear actions by managers over the last twelve months to improve their overall ESG implementation.

The most immediately obvious change, year over year, has been an increase in the public provision of ESG policies by managers and a clear improved trend in reporting on proxy voting and engagement. Importantly, though, ESG policies are improving in quality, clarity and commitment. Lonsec favours policies with clear ESG objectives and beliefs, and board or CEO signoff and buy-in. Lonsec is pleased to note an overall improvement in proxy voting policies, with more of them referencing ESG as important considerations and leading policies clearly stating how a manager might be expected to address and vote on particular issues.

Unfortunately, there remains a clear gap, however, between voting expectations and actual outcomes. Lonsec is concerned that actual voting decisions, particularly for ESG and Sustainability labelled funds, might not align with the expectations of fund investors, particularly with respect to environmental, Paris agreement based and diversity issues. For this reason, Lonsec places a high level of importance on clear, reporting of voting decisions, with leading fund managers providing clear rationales for why they have voted in a particular way. This is especially important where client expectations are likely to be aligned a to a certain perspective, given the type of fund invested in. There have been a few clear leaders in this respect with some delivering improved functionality and transparency of voting intentions and rationales for contentious decisions, published prior to the AGM’s and votes being lodged. Lonsec sees this as a is a very positive move and would encourage its widespread adoption.

Engagement is also a key ESG implementation approach where managers have improved their overall policies and reporting. Assessment of engagement activities by Lonsec however, remain difficult. As most managers prefer to engage “behind closed doors”, a thorough review of the passion, commitment and position being taken by managers is difficult to assess. Disappointingly a recent interview with Man Group CEO indicated that many of his largest institutional shareholders, who claim engagement as a key plank of their stewardship activities, don’t actually engage on key issues like remuneration policies, even when his company tries to engage with them! For this reason, Lonsec’s process looks for the manager to deliver clear proof points where strong engagement is claimed.

These broad improvements have meant that, overall, managers are scoring higher than they were a year ago on Lonsec’s proprietary scoring models. As a result, the “the bar is being lifted” and managers who’s ESG approach is static are likely to slip in our relative rankings.

Lonsec does note, however, that there is still considerable room for improvement by many managers on the transparent integration of ESG into their investment processes. While an increasing number of managers are utilising external ESG ratings and data, or proving their own ESG research, there remains room for improvement in articulating how said research actually impacts investment decisions. Overall ESG risk measurement at the portfolio level and clear feedback loops to portfolio decisions are largely missing from most managers processes.

Lonsec is also keen for managers to be more transparent about the nature of their ESG styles and how that might impact security selection. There is a wide variety of approaches to ESG integration, not all of which naturally align with broad investor expectations. Lonsec would welcome simpler descriptions of the ESG approach being adopted rather than the common, more generic, “ESG is integrated into our research/investment process” with an explanation of how this actually works.

All in all, Lonsec is pleased to report improving policy and reporting transparency from managers and is looking for continued improvements on investment process descriptions and robustness.

Author: Tony Adams

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2021 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

Lonsec’s complete suite of managed accounts is now available on Macquarie’s wrap platform with the addition of the new Sustainable portfolios. The Sustainable portfolios provide greater choice for clients seeking investment strategies that align with their personal values and demonstrate strong environmental, social and governance (ESG) practices.

Recognising the growing demand for responsible investment solutions, Lonsec developed the Sustainable portfolios’ Balanced, Growth and High Growth risk profiles with a unique philosophy that looks through both lenses of ESG, which focus on the underlying managers’ process, approach and integration of ESG factors, along with Sustainability measures, which focus on the funds’ positive impact on the world.

To measure the portfolios’ contribution to society and the environment, we assess funds against the UN’s Sustainable Development Goals (SDG) framework. We look at the activities of the companies held in a fund and net the positive contributions to the 17 SGDs against the negative impact of exposures to controversial industries.

Deanne Baker, Portfolio Manager for the Sustainable portfolios said, ‘The Sustainable portfolios now have a 6-month track record and, not only have the outperformed the Benchmark over the last 3 and 6 months, but they have also made positive contributions across a number of the SDGs including SDG 11 Sustainable Cities and Communities, 3 Good Health and Well Being, SDG 1 No Poverty, SDG 5 Gender Equality, SDG2 Zero Hunger and SDG 7 Affordable and Clean Energy. With the addition of our Sustainable portfolios on Macquarie, we are thrilled to offer an investment solution that aligns with the needs of our clients and can have a positive impact on the planet”.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

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 The Lonsec Sustainable Managed Portfolios were launched on HUB24 on 8 December 2020 and investor capital was put to work immediately in improving societal and environmental outcomes. The Sustainable portfolios have been well supported to date, with an increasing number of investors looking to invest in not only a way that delivers solid returns, but also aligns to their values.

While we don’t yet have a full month of performance to report on, the portfolios have performed in line with our expectations over the first few weeks, generating positive returns for investors.

And looking forward, there couldn’t be a better time to invest sustainably.

Momentum on climate action is gathering pace as governments, companies and communities seek to move out of this COVID-19 induced haze and look towards a greener and more equitable recovery.  Europe and the UK have committed billions towards what some are terming a ‘Green Industrial Revolution’, encouraging innovation and private investment in clean technologies, creating hundreds of thousands of jobs, while at the same time protecting the environment. China too, has backed a ‘green recovery’, setting ambitious targets for reducing carbon emissions, re-forestation and increasing renewable energy sources including wind and solar. With the US re-joining the Paris agreement on 20 January 2021, two thirds of global polluters have now committed to carbon neutrality, or net-zero emissions by 2060 at the latest. These recent developments provide strong regulatory tailwinds for those wanting to invest sustainably.

And while some governments have been dragging their heels on the climate action front (Australia is looking increasingly isolated in its stance), locally companies are forging ahead with their own commitments to reaching net zero. According to Climate Action 100+, 43% of the world’s largest emitters (including Qantas, BHP and Woodside Energy) have now adopted some form of net zero emissions target. While the nature of those targets varies, we view this as an important step and highlights the positive impact capital owners can have through direct shareholder engagement.

Shareholders are voicing their concerns on a range of ESG issues from modern slavery to gender diversity as well as climate related issues. Public awareness of sustainability issues has never been higher.  As the Boards of AMP and Rio Tinto are now acutely aware, listening to and responding to broader stakeholder concerns is becoming increasingly important.

But for all this optimism, there is still much work to do, not only on the climate front, but across a range of other Sustainable Development Goals (SDGs) to which these portfolios aim to align themselves.  COVID-19 has exacerbated inequality around the world, health outcomes have diverged significantly, and poverty is on the rise particularly in some of the hardest hit developing nations. It is important that as we move into 2021, governments, companies and investment managers alike look to maintain that positive momentum and ensure no-one gets left behind as we build back better.

Now, let’s get to work!

Portfolio update

From a portfolio perspective, one of the ways we work to align the portfolio with SDG 13: Climate Action is through our investment in BNP Paribas Environmental Equity Trust.  The strategy is managed by Impax Asset Management, a London based manager who invests globally in companies that are active in the resource efficiency and environmental markets.  The top holding in the Trust is Linde Plc, a global leader in industrial gases.  In January 2021, Linde announced it would build and operate the world’s largest PEM Electrolyzer for Green Hydrogen. Once built the total green hydrogen being produced will be able to fuel approximately six hundred fuel cell buses, driving 40 million kilometres and saving up to 40,000 tons of carbon dioxide tailpipe emissions per year. This investment also aligns well to SDG 7: Affordable and Clean Energy.

On the fixed income side, the Pendal Sustainable Australian Fixed Interest Fund invested in the Australian dollar KfW Green Bond. KfW is a development bank owned by the German government Projects supported by this bond include the construction of a wind park, solar farm and energy efficient housing in Germany. This bond aligns well to a number of SDGs including SDG 7: Affordable and Clean Energy, SDG 11: Sustainable Cities and Communities and SDG 13: Climate Action.

With initiatives such as the Net Zero Asset Managers initiative, launched in December 2020, global fund managers are also committing to net zero. This initiative aims to secure further backing among asset managers to eliminate greenhouse gas (GHG) emissions from their portfolios. Three managers we are invested with have joined as founding members of this initiative; AXA Investment Management, Wheb and Atlas Infrastructure.

From 1 January 2021, Ausbil announced that it was removing fossil fuel exposure from the investment universe for the Ausbil Active Sustainable Fund.  This includes the exploration, mining and/or distribution of fossil fuels, such as oil, gas, oil sands and coal.  70% of the equity managers in the Lonsec Sustainable portfolios now exclude all forms of fossil fuel investments, the remaining 30% exclude at least thermal coal.

Role Role
Australian Equities Real Assets
Australian Ethical Australian Shares Fund ESG / Sustainable / Impact Resolution Global Property (Hdgd) ESG
Alphinity Sustainable Share Fund ESG / Sustainable ATLAS Infrastructure Australian Feeder Fund AUD Heged ESG
Ausbil Active Sustainable Equity ESG / Sustainable VanEck Vectors Australian Property ETF Passive
BetaShares Australian Sustainability Leaders ETF ESG / Sustainable
Global Equities Fixed Income
AXA IM Sustainable Equity Fund ESG / Sustainable Pendal Sustainable Australian Fixed Interest Fund ESG / Sustainable / Impact
BNP Paribas Environmental Equity Trust ESG / Sustainable / Impact Altius Sustainable Bond Fund ESG / Sustainable / Impact
Pengana WHEB Sustainable Impact Fund ESG / Sustainable / Impact PIMCO ESG Global Bond Fund ESG / Sustainable / Impact
BetaShares Global Sustainability Leaders ETF ESG / Sustainable Vanguard International Fixed Interest Index ETF Heged Passive

Outlook

The last quarter has seen a sharp rotation into some of the more cyclical and value orientated sectors of the market. We expect this rotation to be relatively short lived. Longer term, we see the thematics that have underpinned the strong performance of the ESG/Sustainability sector over the last 18 months to remain intact.  Companies that are focused on delivering solutions to the challenges facing society and the environment are particularly well placed in a low-growth world and one boosted by a green recovery. Regulatory tailwinds and green fiscal policy initiatives are now providing good support. Companies that perform well on ESG metrics, that is companies that understand and factor in the risk of climate change, companies that are well-governed and maintain their social license to operate by meeting stakeholder expectations, should also outperform. Opportunities abound as we emerge from COVID-19 pandemic with the chance to ‘rebuild better’.

Watch the recording.

Many of you will be aware that your clients are increasingly seeking out investments that align with their personal values.

Further to the launch of the Lonsec Sustainability Score, the Lonsec Sustainable Managed Portfolios will utilise Lonsec’s extensive portfolio construction experience, together with detailed sustainable investing (and ESG) research, to provide a solution that genuinely caters to the needs of investors.

Listen to the key members of the Lonsec investment team to find out more about how the portfolios are formulated and how they can help deliver what your clients really need.

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.