Our approach to responsible investing
We are focused on ensuring material investment risks, including environmental, social, and governance (ESG) risks, are taken into account when investing on behalf of our members.
Our ESG policy outlines our beliefs and approach to including ESG factors in our investment process. Here’s a summary of our ESG policy.
What ESG means in terms of our investments
ESG factors are any environmental, social, governance or other sustainability-related factors which have the potential to materially impact the financial performance of an investment.
Failure to consider ESG issues can lead to mispricing investment risk and poor investment decisions. Effective management of ESG issues is an important part of our investment strategy, and reflects our Board's duty to consider the risks associated with different kinds of investments.
Recognising ESG risks helps us to achieve our investment goals
As a Western Australian statutory authority, we operate within the State Government's policy framework, legislative and regulatory requirements, and aim to adopt industry best practice.
We believe that ESG and climate change-related factors can impact the ability of some assets or securities to meet investment objectives and provide optimal outcomes for our members. It’s appropriate that we give clear recognition to the risks that ESG factors represent to potential investment outcomes.
We believe that taking ESG risks into account during the investment process can improve returns or reduce risk for our members over the long term.
We integrate ESG into our investment process
We aim to consider ESG factors when setting our investment strategy, during portfolio construction, when selecting and overseeing our investment managers, through these managers’ engagement activities, and through our own engagement with our asset consultant.
Our investment strategy takes ESG issues into account
When formulating investment strategy, we consider, measure and manage investment risk. We take into account ESG risks as part of setting our investment strategy, which gives us insight into the impact of material risk on performance.
We are currently exploring ways to better understand and assess the potential impact of issues such as climate change on the expected risk and return of our investment options.
We aim to understand ESG risk at portfolio level
At GESB, we acknowledge the importance of understanding the level of ESG risks at portfolio level. We have taken steps to measure the combined ESG risks of our Australian and International Shares portfolios.
Our investment managers identify material ESG risks
We expect our external investment managers to identify, understand and assess any material ESG risks.
Understanding these risks assists our investment managers in engaging with investee company management to ensure that ESG issues are appropriately managed and good ESG practices are adopted.
We consider ESG factors when appointing and monitoring investment managers
When selecting and appointing active investment managers, together with our asset consultant(s), we apply the following due diligence principles in relation to ESG:
- We review the manager's philosophy in relation to ESG and how this translates to consideration of ESG factors in their investment process
- We seek to understand how a manager thinks about ESG, regardless of the language they use to describe their approach
- We look for consistency between the way in which an investment manager considers ESG factors and their approach to other factors that may influence investment decisions
- We seek to ensure that ESG-related risks and considerations are taken seriously and are given material weight in a manager's investment decisions
- Although not a formal requirement, we encourage our investment managers to be signatories to the Principles for Responsible Investment, or otherwise to adopt these principles as part of their investment processes
- An assessment of a manager's approach to ESG is an element of our formal manager evaluation process, together with other investment considerations
- We will not consider working with managers who demonstrate insufficient or inadequate consideration of ESG-related issues
We discuss ESG issues as part of investment manager reviews
We regularly review our investment managers to ensure that our portfolios are managed in accordance with our expectations and requirements.
We discuss ESG matters as they relate to specific investments and decisions with our investment managers as a way to understand ESG integration in their process.
Our investment managers promote good ESG practices
Engagement with companies about ESG issues is an important way that our investment managers integrate ESG factors into their investment activities. This engagement aims to have a positive influence on outcomes, rather than merely avoiding investments that rank poorly, or companies with sub-standard existing practices. In some cases, engagement with poor-ESG credentialed companies can promote change and yield strong investment returns as the company’s ESG practices improve.
Investing in equities provides investors with ownership and in most cases, voting rights. We request that our equity investment managers manage our investments according to our objectives and, where appropriate, to promote good ESG practices by investee company boards and management. This may involve meeting with company management to raise issues and concerns, and exercising voting rights for the benefit of our members in accordance with our proxy voting policy.
Fixed income managers globally are increasingly engaging with bond issuers on ESG matters that may affect the credit risk profile of fixed income securities. We monitor our fixed income managers to understand whether these risks are taken into account when managing investments on our behalf.
From time to time, investment managers may invest in companies with poor ESG histories. However, we expect our managers to take these factors into account when determining the suitability of the investment for our objectives. Similarly, we expect our investment managers to promote good ESG practices and improved ESG outcomes. This may be either through dialogue with senior company management or by exercising voting rights.
Our investment managers report on ESG issues
Our investment managers are requested to report to us on ESG issues relating to their portfolio.
Similarly, our investment managers are requested to exercise their right to proxy vote on securities they manage on our behalf and in accordance with our obligations and objectives. Investment managers report on all proxy voting actions they undertake on our behalf, which our Investment team then reports to the Board.
Our asset consultant(s) assess investment managers on ESG factors
We expect our asset consultant(s) have suitable expertise and capacity to evaluate investment managers' ESG capabilities, and apply the above principles when researching and monitoring managers, and carrying out investment due diligence, in relation to our portfolio.
We recognise the benefit of collaboration with others
We may seek opportunities to participate in broader industry forums with the aim of promoting best practice, sharing knowledge and increasing awareness of ESG and climate change as it applies to investment decision making.
Thank you for printing this page. Remember to come back to gesb.wa.gov.au for the latest information as our content is updated regularly. This information is correct as at 21 January 2021.