Responsible Investing

ESG integration is defined as ‘the explicit and systematic inclusion of ESG issues in investment analysis and investment decisions’’. ¹ Whilst each of our appointed external investment managers will have their own approach and philosophy towards ESG risks and opportunities, we need to understand the extent to which the manager integrates these factors into their investment strategy and processes. This is done prior to appointment on the FirstChoice platform through an analysis of the manager’s third party ESG rating, climate metrics and manager meetings. Discussion in these meetings will follow the manager’s approach towards our own six strategic pillars. 

_{1 What is ESG integration? | Article | PRI (unpri.org)}

We believe it is part of our stewardship role to exercise our rights as shareholder. This includes voting on how a company operates its business and engaging with them to encourage change. To do this we use a third-party stewardship provider, EOS at Federated Hermes, our external investment managers and in collaboration with our industry peers.

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.

Across the entire FirstChoice platform we have two exclusions, tobacco producers and controversial weapons manufacturers. For definitions and more information on our exclusions please see Active ownership (cfs.com.au).

Our exclusion framework is further explained in our Responsible Investment Policy.

As it states in the Responsible Investment Policy, we believe that climate change is a financial risk that will have economic and social impact and needs to be managed. Poor company management of climate change risks could result in financial losses, litigation liabilities, and the devaluation of tangible and intangible assets – all of which could impact shareholder value and increase the volatility of investor returns.

At Colonial First State, we believe modern slavery has no place in society and we all share the responsibility to eradicate it as a matter of priority. Aside from the huge impacts on society and, of course, the individuals involved, modern slavery has negative repercussions for companies and future development. Any company that profits from using forced labour is doing so illegally. Unfortunately, that doesn't mean it isn't happening. In fact, according to the International Labour Organisation (ILO), total profits obtained from the use of forced labour in the private economy worldwide is estimated to be around US$236 billion per year.²

_{2 Profits and Poverty: The economics of forced labour ILO March 2024 wcms_918034.pdf (ilo.org)}

These are values that seek to promote fair treatment and full participation of all people, particularly those groups who have previously been underrepresented. Many organisations now attempt to embody these values through frameworks within their organisations.

Whilst the environment in ‘ESG’ has been prominent for some time, many organisations are now also focusing on nature and biodiversity. By this, we mean the variety of all living things on Earth and how they participate in and contribute to life, through providing everything necessary for our survival, such as food, water and oxygen.