First State Promote Long-Term Responsible Investment

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First State Investments (First State) has published a report cementing its promise to tackle climate risk by implementing strategies to its business. Their 2016 report highlights how the company will achieve responsible investments and stewardship practices.

First State has published its ninth annual Responsible Investment & Stewardship Report, in which it further enhances its reporting on environmental, social and governance (ESG) issues, including disclosing its climate risk exposures across a number of asset classes for the first time. The report includes 34 case studies to illustrate the firm’s approach to stewardship.

The report lays out First State’s plans to further develop ESG integration into its investment strategies and highlights the approaches taken to deepening the understanding of how climate risk may impact long-term returns.

Mark Lazberger, Chief Executive Officer at First State Investments said: “This year’s report provides our clients with many examples of how we are striving to achieve the highest standards of responsible investment and stewardship practice and disclosure on their behalf, across our investment business. 

“We believe that ESG issues comprise sources of long-term risk and return and therefore directly impact the investment outcomes we deliver for our clients. Although we have achieved many of the goals we have set ourselves, and continue to deliver strong investment performance, we still have much work to do to improve our understanding and knowledge of emerging ESG issues and to improve our practices in response to our clients’ increasing interest and scrutiny.”

In the 2016 report, First State has made a commitment to improving climate risk disclosure with active equity teams disclosing fossil fuel (gas or other) and non-fossil exposures for the first time, both by percentage of companies and by assets under stewardship. This is accompanied by statements on how teams see and manage climate change issues and risk.

First State has an integrated approach to responsible investing, but encourages each team to implement this in the most effective way for their asset class and investment strategy. Investment teams highlight some of the challenges and opportunities facing them as investors including:

Emerging Markets Debt – the economic transformations required in response to climate change can become an opportunity for emerging markets. For example, Morocco has large potential in solar energy and has been able to operate the world’s largest solar power plant, reducing its dependency on high carbon fossil fuel imports.

Listed Infrastructure – for energy utilities, energy infrastructure and railways, carbon exposure has the potential to lower a company’s overall quality score. Carbon risk is accounted for within the team’s financial models as it has direct implications for the earnings potential of an infrastructure business. For example, with the use of coal declining in the US along with tax incentives for renewables, the team have adjusted their freight rail volume numbers to take this structural change into account.

Will Oulton, Global Head of Responsible Investment at First State Investments said: “Our approach to responsible investment and stewardship continues to be client focused and investment driven. We believe the varied approaches of our individual investment teams are a key attribute of our business, and are enhanced by our improving systems for ESG risk assessment and our strengthened RI governance structure.

“We believe that climate change will impact the long-term performance of our clients’ assets in different ways. As allocators of capital, shareholders and stewards, the analysis, engagement and subsequent decisions we make will have an influence on our clients’ long-term interests.”