Ausbil's in-house ESG research team has matured to the point where it's leading investment strategy creation and attracting a wider international audience.
The asset manager's call to develop its own ESG team and not buy research "off the shelf" means there have been opportunities to make better informed investment decisions and participate more in active ownership.
About 12 months ago the $11 billion manager quietly launched the Ausbil Active Sustainable Equity Fund. It invests in 30 to 45 companies - mainly from the ASX 200 - with "sound sustainability profiles and avoids companies that are vulnerable to long-term earnings risk from sustainability weaknesses." But arguably more important is that investment decisions are drawn from Ausbil's specialist environmental, social and governance (ESG) research team.
Throughout 2018 Ausbil also launched its first foray into global listed infrastructure as well as a revamped lineup for its Australian small-caps strategy. Chief executive Ross Youngman said Ausbil's client base (predominantly institutional investors) want fewer managers and ones with a range of solutions. He added each of these strategies is actively managed and ESG aware.
At a December 2018 media briefing in Sydney, Ausbil head of ESG research Mans Carlsson-Sweeny said the asset manager can capture ESG risk opportunities that might be overlooked by the market and "do so before it's too late."
Carlsson-Sweeny explained the majority of a company's value is increasingly coming from intangible drivers and they're often ESG drivers, such as corporate culture and corporate governance. A proprietary ESG research team has the capability to learn more about a company's values, he said.
"A couple of years ago we found, through trawling social media and independent staff reviews online, anecdotes about underpaid staff in certain companies. We could action it before journalists started writing about it, and of course when it came out in the media the share prices fell heavily," Carlsson-Sweeny said.
He accepts not all ESG issues have an impact on company earnings but adds the way a company deals with ESG issues is "a bit of a proxy for management quality" and would affect investment decisions.
And the investment manager is not the only Aussie boutique with an internal ESG research platform. Last year Financial Standard reported on a revamped ESG process at Platypus Asset Management.
Ausbil's history predominantly lies in Australian equities. Carlsson-Sweeny points out the country's small pool of stocks means it's hard to invest only in the companies who are leaders. However, this means the asset manager is almost "naturally incentivised to engage." One recent area of focus has been human rights in the supply chain and modern slavery.
"It's something we've had a lot of positive feedback from, even internationally. If a company's business model relies on underpaid workers in the supply chain, it's not going to be sustainable over time," Carlsson-Sweeny said.
Ausbil strongly supported the recent assent of the Modern Slavery Act in Australia, engaging both the Federal Government and individual businesses.
"There are about 40 million people living in modern slavery conditions in the world. That makes it more prevalent than ever in human history," Carlsson-Sweeny said.
In Australia it's estimated about 15,000 people are in slavery, he added.
"Our engagement with companies is very much focused on encouraging what we think is industry best practice - adopting what leaders are doing in the field to mitigate risk.
"We've done field trips to factories in China and Bangladesh in the past and recently we went to Cambodia. When you go on field trips you never get to see the worst factories, but that's good value too because you can learn what the leaders are doing and take that to other meetings."
Ausbil chief investment officer and head of equities Paul Xiradis said the manager can show its active ownership by selling or reducing its stake; or take a formidable position in its long-short fund, which can potentially add alpha even though it might be a slow burn.
Speaking at the G20 forum in Buenos Aires last month, Principles for Responsible Investment (PRI) chief executive Fiona Reynolds said too many investors are not fully integrating sustainability issues in their investment practice.
"And too many cite fiduciary duties, as currently written in some countries, as the barrier to doing so," she said.
She called for G20 leaders to consider and ultimately commit to:
- Regulation that requires integration and disclosure of sustainability or ESG issues
- Strengthened policy design as unclear drafting that isn't explicit means sustainability is often easy to disregard in the investment process
- Improved monitoring and supervision of investors' ESG integration practices
Ausbil is a signatory to the PRI. It is owned by its employees and multi-affiliate manager New York Life Investment Management, a subsidiary of New York Life Insurance Company - a firm with more than US$600 billion in assets under management.