Responsible Investing

We believe that the purpose of engagement is to provide feedback and signal concerns to companies about issues that will affect long term company performance. We view company engagement as the first step to affecting positive change. Engagement discussions may cover 'how' the company is operating, 'why' it chooses to operate in that way and 'what', if anything it will change to satisfy the concerns of investors.

The degree to which our investment managers may engage with companies will depend on the strategy and nature of their investment process. On top of engagements that our investment managers may undertake, CFS may choose to engage with companies according to the engagement plan across all our holdings.

To assist us with our engagement of global investee companies, CFS has appointed a stewardship provider, EOS at Federated Hermes. With our engagement framework in mind, EOS will engage with companies on our behalf and keep us informed of their progress. 

If you would like to read more about the engagements undertaken throughout 2023, please see our Annual engagement report. 

As a result of our monitoring or widespread public concern, we may encourage our investment managers to engage with the company management or collaborate with other investors in an engagement. These issues may relate to climate change, human rights, environmental and resource management amongst others.

As a PRI signatory, we also use the PRI’s collaboration platform, a global online tool for collaborative initiatives, as well as being involved in several industry wide initiatives. 

We recognise that within a diverse group of individuals there will be various ethical beliefs and values that will shape the approach to investing.

In general, we will not take a position on, or make judgement of, an ethical or socially responsible issue unless it is specific to our investment strategy. However, there may be some ESG risks, ethical issues and circumstances in which we believe it is appropriate to take action, whether that’s through the use of negative screens, exclusions or active engagement with our investment managers. These decisions are not made lightly, and before doing so, we aim to first influence company behaviour through other means. See our engagement and proxy voting approaches for further information.

During the regular monitoring of your investments, there are many questions that concern us. The following need to be asked if we are considering an exclusion:

• Does the investment contravene global norms, international treaties or conventions?
  
  
• How severe and/or material is the ESG risk?
  
  
• Can the company or its activities be influenced through engagement and/or proxy voting?
  
  
• Will this investment achieve sustainable, long-term wealth protection?

If we decide that the risk is great enough to warrant exclusion, we must be satisfied that your investment is not unduly affected. The following need to be answered satisfactorily:

• Will your investment still be adequately diversified?
  
  
• Will the investment objectives still be met?

CFS has two investment exclusions in place across all FirstChoice portfolios. These are exclusions against controversial weapons manufacturers and tobacco producers.   

Due to the labour, environmental and social risks associated with the production of tobacco and manufacture of controversial weapons, we do not allow investment managers to invest in equity and debt securities¹ issued by companies who are involved in these practices. Whilst we make every endeavour to exclude these companies, there may, from time to time, be unintended exposure due to lack of data, corporate activity, indirect exposure or exposure through index derivatives or third party managed pooled unit trusts.  

For publicly listed assets we rely on third party data² to assist in creating and monitoring our exclusion list. For private assets, our investment managers assess the exclusions individually and CFS will monitor on a best endeavour basis.  

From December 2019, Colonial First State will not invest in equity and debt securities1 issued by companies that are manufacturing controversial weapons and tobacco producers. The list of companies is reviewed and updated each calendar year. Our current exclusion list can be viewed here.³  

^{1. The list of companies provided is of the parent company only. There may be subsidiaries that sit under the parent company that are not highlighted in the list above. CFSIL as a Responsible Entity has instructed Investment managers not to purchase or hold a short position in equity or debt securities (or single name derivatives that would otherwise provide effective exposure to the excluded securities) issued by the above companies or their subsidiaries. Whilst we make every endeavour to exclude these companies, there may, from time to time, be a small level of unintended exposure due to lack of data, corporate activity, indirect exposure or exposure through  index derivatives or third party managed pooled unit trust.  If CFSIL discovers it is holding an excluded security, they will instruct the manager to sell down in an orderly manner.}

^{2. We rely on our third party data provider, MSCI, for its data and methodology when making decisions around the exclusions.} 

^{3. Note that the stated exclusions do not apply to cash, derivative instruments, exchange traded funds and pooled unit trusts.}

^{4. Cluster Munitions Manufacturers definition excludes ‘Delivery Platforms’} 

^{5. Incendiary Weapons are defined as per ‘The Convention on Certain Conventional Weapons of 1980 under Protocol 3’.} 

^{6. Human Rights Watch, 2018, 'A bitter harvest – child labour and human rights abuses on tobacco farms′. A Bitter Harvest: Child Labor and Human Rights Abuses on Tobacco Farms in Zimbabwe | HRW}

^{7. Child Labour: No Quick End to Children Trapped in Tobacco Production — Global Issues}

^{8. World Health Organisation (WHO), 'Tobacco Free Initiative'.}