ANU Socially Responsible Investment policy 2016 report

1 May 2017

BACKGROUND

The Australian National University adopted a Socially Responsible Investment (SRI) Policy in July 2013, becoming at the time one of only a handful of Universities worldwide who use responsible investment to advance its objectives on social responsibility and sustainability issues.

In October 2015, the ANU Council approved the appointment an external portfolio manager for its domestic equities portfolio. This step was undertaken to improve the management of its investments. ANU makes no decision itself about individual stock selection. However, the external manager is required to meet the following conditions:

1. Exclude companies that derive more than 20 per cent of revenues from coal, gambling, tobacco or pornography.

2. Hold a portfolio with 25% less carbon intensity than the S&P/ASX 200.

3. Ensure that the portfolio demonstrates a 10 per cent improvement in the overall Environment, Social, Governance (ESG) rating relative to the benchmark.

These conditions were imposed on the external manager to decrease the University's investment exposure to CO2 intensive industries without increasing the University's exposure to volatility in the equities market. If this balance was not managed, it might adversely impact the University's financial stability, including its ability to meet obligations to pay superannuation liabilities.

The change to the way the University manages its domestic equities investments is a significant enhancement to the application of the SRI policy and puts ANU in a leading position compared to its domestic peers.

At 31 December 2016, the Australian equities portfolio amounted to $326 million or 26% of the University's Long Term Investment Pool (LTIP). The CO2 intensity of the domestic equity portfolio was 26.5% lower than the ASX200 Index. This was accomplished through investments in companies that are significantly lower carbon intensive relative to companies in the index. The ANU Enhanced Index portfolio returned 12.45% for the year compared to the S&P/ASX200 Index which returned 13.43% for the period resulting in an underperformance of 0.95%. Since ANU implemented a new investment structure for domestic equities, the CO2 intensity of its domestic portfolio has decreased from 276 tonnes/$1m sales (in Sep 2015) to 203.2 tonnes/$1m sales (in December 2016) a reduction of 26%. This compares to 154 tonnes/$1m sales (in Feb 2016) as announced in the 2016 update on the ANU SRI policy. This was 25.1% lower than the ASX200 Index at that time and is now 26.5% lower. This change in the CO2 intensity reflects the change in the relative weights of the companies in the underlying ASX200 index over the balance of 2016. More specifically, the resources sector rallied strongly compared to the rest of the index in the period from February to December 2016.

The total portfolio ESG exposure was tilted towards positively ranked ESG names and away from negatively ranked companies resulting in a total portfolio ESG exposure approximately 10.7% higher than the index as at 31 December 2016. A list of the individual stocks currently owned by ANU through the externally managed portfolio are found in Addendum X.

DISCUSSION

The University continues to evaluate its investment portfolio for carbon intensity and socially responsible investment practice while meeting its obligations to achieve a high and stable return on its investment to help improve the University's financial stability. These efforts are a part of an overall commitment to making ANU a more sustainable university, and to contribute to the overall goal of global carbon emission reduction.

Subsequently, a review of the overseas equity portfolio was undertaken. The table below shows the current overseas equities portfolio of $327 million (26% of the LTIP) is approximately 40% less carbon intense than the MSCI (Morgan Stanley Capital International) All Country World Index (ACWI). Although formal carbon intensity targets are not currently in place for the overseas equity portfolio, the current carbon intensity of the portfolio places the University in an attractive position to enter into more formal investment parameters for this asset class.

CO2 Intensity Comparison

Tons of CO2/ $M Sales

Portfolio Variance from Index

MSCI ACWI*

238

 

ANU Overseas Equities Total

142

-40%

*latest available data from MSCI

The ANU Overseas Equities portfolio had an estimated return of 8.3% before foreign currency hedging for 2016 compared to the MSCI ACWI return of 8.4% for 2016.

However, the comingled funds used within the overseas equity portfolio precludes the ability for ANU to exclude companies based on industries where revenue is sourced. As of 31 December 2016, $4.7 million (less than 1.5% of the asset class) was invested in companies where 20% or more of the revenues came from coal or gambling. There was no exposure to pornography or tobacco.

Looking for ways to improve the implementation of our SRI policy, an asset class review is being conducted for the overseas equity portfolio. Related to this review, the University is exploring the possibility of moving to segregated mandates for the overseas equity portfolio. Compared to comingled funds, segregated mandates will provide greater transparency within the portfolio and will allow for more effective implementation of the University's SRI policy including specific sector exclusions.

OTHER INVESTMENT TYPES

Renewable energy investments have been part of ANU's indirect infrastructure portfolio since 2013 (Mumbida Wind Farm, Western Australia) with additional indirect investments over the years in Hallett 4 Windfarm, SA and Bald Hills Wind Farm, east of Melbourne through externally managed funds. ANU undertook its first direct transaction in renewable energy in December 2016, as part of debt package to refinance a 50% stake in Macarthur Wind Farm in South-Western Victoria. The Macarthur Wind Farm is the largest in the southern hemisphere and consists of 140 turbines with a capacity of 420 megawatts. When the farm became fully operational in January 2013, Macarthur Wind Farm was estimated to avoid Australian carbon emissions by 1.7 million tonnes a year.

Transitioning to a low carbon economy will require a significant transformation of the electricity sector. Renewable energy sources including wind, will have a key role in moving Australia to the clean economy of the future. Australia has some of the world's best wind resources and ANU is helping drive innovation through its investment in this sector.

NEXT STEPS

To ensure adherence to the University's SRI policy, mandate compliance will be conducted monthly using Bloomberg ESG data. Carbon intensity exposure calculations would be included in the mandate reporting requirements.

Proxy voting is the process of voting an institution's shares on issues raised at corporate annual general meetings. Shareholder resolutions relating to companies' environmental, social and corporate governance policies and practices frequently appear on proxy ballots. Voting would reflect the University's SRI policy with disclosure reporting made available for compliance purposes.

Future investment mandates will continue to consider investments aligned with the SRI policy. Social impact bonds which are an innovative approach to financing social service programs would be considered. Such investment vehicles combine outcome-based payments and market discipline. They are designed to raise capital for intensive support and preventative programs which address areas of pressing social need. In addition, some private equity and assets such as farming land and forestry would be considered.

CONCLUSION

The University seeks to balance a strong commitment to socially responsible investment with a fiduciary responsibility to meet its obligations in respect of both superannuation liabilities and endowments. We will continue to look at methods available to simultaneously meet our obligations of achieving a high and stable return on the investment portfolio and decreasing the CO2 intensity. We are committed to improving the implementation of our SRI policy, and to remain a leader nationally and internationally in working pro-actively towards creating a greenhouse gas neutral future.

ANU Enhanced Index Holdings as of 31.12.16

Ticker

Sedol

Name

Weight

Value

CBA

 

Commonwealth Bank of Australia

9.62%

 $        30,793,650

WBC

 

Westpac Banking Corporation

7.08%

 $        22,673,039

NAB

 

National Australia Bank Limited

5.77%

 $        18,457,942

ANZ

 

Australia and New Zealand Banking Group Limited

5.74%

 $        18,356,432

BHP

 

BHP Billiton Limited

5.56%

 $        17,800,419

TLS

 

Telstra Corporation Limited

4.80%

 $        15,372,359

WES

 

Wesfarmers Limited

3.43%

 $        10,991,798

CSL

 

CSL Limited

2.71%

 $          8,688,176

MQG

B28YTC 

Macquarie Group Limited

2.65%

 $          8,497,336

WOW

 

Woolworths Limited

2.33%

 $          7,466,301

BXB

B1FJ0C 

Brambles Limited

1.95%

 $          6,232,488

RIO

 

Rio Tinto Limited

1.82%

 $          5,836,596

SUN

 

Suncorp Group Limited

1.60%

 $          5,129,299

WPL

 

Woodside Petroleum Limited

1.38%

 $          4,415,777

TCL

 

Transurban Group

1.38%

 $          4,405,298

AMC

 

Amcor Limited

1.29%

 $          4,143,019

SGP

 

Stockland

1.11%

 $          3,561,655

QBE

 

QBE Insurance Group Limited

1.10%

 $          3,535,117

S32

BWSW5D

South32 Limited

1.08%

 $          3,446,303

MGR

 

Mirvac Group

1.08%

 $          3,446,302

NCM

 

Newcrest Mining Limited

1.05%

 $          3,352,509

SCG

BLZH0Z

Scentre Group

0.99%

 $          3,159,715

AMP

 

AMP Limited

0.97%

 $          3,104,700

GMG

B03FYZ 

Goodman Group

0.92%

 $          2,935,949

FMG

 

Fortescue Metals Group Ltd

0.90%

 $          2,888,762

SYD

B70DWB 

Sydney Airport

0.88%

 $          2,815,072

ORG

 

Origin Energy Limited

0.86%

 $          2,768,512

CASH

Cash

Cash

0.85%

 $          2,728,169

DUE

B01WT6 

Duet Group

0.83%

 $          2,653,783

AZJ

B87CVM

Aurizon Holdings Limited

0.83%

 $          2,648,669

DXS

B033YN 

Dexus Property Group

0.81%

 $          2,587,203

WFD

BMMVVX

Westfield Corporation

0.72%

 $          2,320,499

JBH

 

JB Hi-Fi Limited

0.71%

 $          2,285,961

IAG

 

Insurance Australia Group Limited

0.69%

 $          2,219,505

SHL

 

Sonic Healthcare Limited

0.67%

 $          2,153,760

LLC

 

Lend Lease Group

0.67%

 $          2,148,818

CTX

 

Caltex Australia Limited

0.66%

 $          2,115,356

HVN

 

Harvey Norman Holdings Limited

0.65%

 $          2,070,829

GPT

 

GPT Group

0.64%

 $          2,045,022

BEN

 

Bendigo and Adelaide Bank Limited

0.63%

 $          2,027,804

CGF

 

Challenger Limited

0.63%

 $          2,020,120

CCL

 

Coca-Cola Amatil Limited

0.62%

 $          1,987,568

CPU

 

Computershare Limited

0.60%

 $          1,935,649

QAN

 

Qantas Airways Limited

0.59%

 $          1,901,170

DOW

 

Downer EDI Limited

0.58%

 $          1,859,691

RHC

 

Ramsay Health Care Limited

0.57%

 $          1,832,421

BLD

 

Boral Limited

0.54%

 $          1,742,307

IOF

 

Investa Office Fund

0.53%

 $          1,709,471

APA

 

APA Group

0.51%

 $          1,646,606

ORI

 

Orica Limited

0.51%

 $          1,633,508

FBU

 

Fletcher Building Limited

0.46%

 $          1,465,445

BSL

 

BlueScope Steel Limited

0.44%

 $          1,399,758

CSR

 

CSR Limited

0.42%

 $          1,339,971

OZL

 

OZ Minerals Limited

0.40%

 $          1,265,966

CIM

BX17Q1

Cimic Group Limited

0.39%

 $          1,252,983

ASX

 

ASX Limited

0.37%

 $          1,195,004

AGL

B0ZNPN 

AGL Energy Limited

0.37%

 $          1,184,355

DLX

B3VL4P

DuluxGroup Limited

0.36%

 $          1,151,286

PPT

 

Perpetual Limited

0.35%

 $          1,123,382

OSH

 

Oil Search Limited

0.34%

 $          1,097,075

TWE

B61JC6

Treasury Wine Estates Limited

0.34%

 $          1,072,795

SUL

B01C7R 

Super Retail Group Limited

0.33%

 $          1,066,516

SPK

 

Spark New Zealand

0.33%

 $          1,043,825

SEK

B0767Y 

Seek Limited

0.31%

 $              998,865

ANN

 

Ansell Limited

0.30%

 $              956,178

ALQ

B86SZR

Als Limited

0.29%

 $              924,790

SIP

 

Sigma Pharmaceuticals Limited

0.26%

 $              818,490

TME

B78LNF

Trade Me Group

0.25%

 $              814,407

AWC

 

Alumina Limited

0.25%

 $              800,310

HSO

BP46PW

Healthscope Ltd  

0.24%

 $              770,452

CYB

BD6GND

CYBG PLC

0.24%

 $              761,613

MTS

B0744W 

Metcash Limited

0.23%

 $              752,044

GMA

BMNQCT

Genworth Mortgage Insurance

0.23%

 $              738,876

RMD

 

ResMed Inc.

0.23%

 $              721,707

GEM

B29631

G8 Education Limited

0.22%

 $              706,896

BOQ

 

Bank of Queensland Limited

0.22%

 $              705,268

NST

 

Northern Star Resources Ltd

0.22%

 $              692,991

SVW

B432QW

Seven Group Holdings Limited

0.21%

 $              682,354

SXL

B1FQWB 

Southern Cross Media Group Limited

0.21%

 $              682,033

FLT

 

Flight Centre Limited

0.21%

 $              679,022

WOR

 

WorleyParsons Limited

0.21%

 $              662,233

AST

BPXR7J

AusNet Services

0.20%

 $              651,353

IFL

 

IOOF Holdings Limited

0.20%

 $              635,858

DMP

B07SFG 

Domino's Pizza Enterprises Limited

0.20%

 $              635,342

MPL

BRTNNQ

Medibank Private Limited

0.20%

 $              624,912

STO

 

Santos Limited

0.19%

 $              621,653

MND

 

Monadelphous Group Limited

0.19%

 $              616,145

CCP

 

Credit Corp Group Limited

0.19%

 $              597,851

PMV

 

Premier Investments Limited

0.18%

 $              581,369

MYR

B50YPZ 

Myer Holdings Limited

0.18%

 $              561,217

SDF

BCT5FD

Steadfast Group Ltd

0.16%

 $              522,787

RSG

 

Resolute Mining Limited

0.16%

 $              513,759

COH

 

Cochlear Limited

0.15%

 $              494,734

GUD

 

G.U.D. Holdings Limited

0.15%

 $              484,709

ORA

BH4TCW

Orora Limited

0.15%

 $              470,533

GXL

B1XK7D 

Greencross Limited

0.15%

 $              470,425

KMD

B59HM7

Kathmandu Holdings Limited

0.14%

 $              457,533

API

 

Australian Pharmaceutical Industries Limited

0.13%

 $              410,919

FXJ

 

Fairfax Media Limited

0.13%

 $              409,352

IVC

 

InvoCare Limited

0.12%

 $              391,758

VCX

BY7QXS

Vicinity Centres

0.12%

 $              378,271

ECX

BWSWBT

Eclipx Group Limited

0.12%

 $              376,016

NUF

 

Nufarm Limited

0.11%

 $              361,215

SHV

 

Select Harvests Limited

0.11%

 $              357,484

SKI

B0T9JZ 

Spark Infrastructure Group

0.11%

 $              352,376

SFR

 

Sandfire Resources NL

0.10%

 $              310,899

OML

BSXN8D

OOH! Media Limited

0.09%

 $              299,212

SKT

B0CKS9 

Sky Network Television Limited

0.09%

 $              287,237

CNU

B54F6S

Chorus Limited

0.08%

 $              269,984

CHC

B15F6S 

Charter Hall Group

0.08%

 $              255,581

BTT

B2931P 

BT Investment Management Limited

0.08%

 $              255,226

CKF

B6QCFP

Collins Food Limited

0.08%

 $              244,614

SGM

B0LCW7 

Sims Metal Management Limited

0.07%

 $              234,494

SPO

BMJJMM

Spotless Group

0.07%

 $              221,090

SXY

 

Senex Energy Limited

0.06%

 $              205,046

AHG

BX99WB

Automotive Holdings Group

0.06%

 $              205,037

BAP

BLD2CY

Burson Group

0.06%

 $              202,796

WEB

 

Webjet Limited

0.06%

 $              202,471

GNC

 

GrainCorp Limited

0.06%

 $              199,077

MLD

B4V14H

MACA Limited

0.06%

 $              197,764

TGA

B1JVD5

Thorn Group Limited

0.06%

 $              192,910

PRY

 

Primary Health Care Limited

0.06%

 $              186,195

AAD

 

Ardent Leisure Group

0.06%

 $              182,527

TGR

 

Tassal Group Limited

0.06%

 $              181,874

IRE

 

IRESS Market Technology Limited

0.06%

 $              181,243

IPL

 

Incitec Pivot Limited

0.06%

 $              179,694

AOG

BGDW13

Aveo Group Trust

0.05%

 $              170,304

VTG

B0LX4B 

Vita Group Limited

0.05%

 $              165,085

TPM

 

Tpg Telecom Limited

0.05%

 $              153,007

BKW

 

Brickworks Limited

0.05%

 $              151,841

LNK

BYZBCY

Link Administration Holdings

0.04%

 $              131,718

TNE

 

Technology One Limited

0.04%

 $              128,125

ALU

 

Altium Limited

0.03%

 $                81,410

SLK

BF10HN

Sealink Travel Group

0.02%

 $                76,396

SYR

B23HV2 

Syrah Resources Limited

0.02%

 $                67,274

CCV

 

Cash Converters International

0.02%

 $                65,720

MVF

BMSK74

Monash IVF Group

0.02%

 $                55,299

MYX

B1BHXL

Mayne Pharma Group Ltd

0.02%

 $                51,590

SSM

B04KLG 

Service Stream Limited

0.01%

 $                30,097

 

 

 

 

 $      320,075,710