Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Martin Currie calls for asset management ‘coalition’
Martin Currie, the Australian and global active equity specialist, has called on other asset managers to create coalitions in order to drive change in the way firms and their clients invest. “Group efforts multiply the value of ESG investing”, Martin Currie, says, having been a leader in that space for many years.
In its recently published annual ‘Stewardship Report’ Martin Currie says that such engagements allow asset managers to influence companies in which they invest to encourage sustainable returns over the long term. The report details its efforts to address specific issues – namely water risks, cybersecurity and tax responsibility – collaboratively.
Julian Ide, Martin Currie’s Edinburgh-based chief executive, said: “The investment industry is at a critical juncture. We have reached a point where it is no longer possible, or acceptable, to think of our actions as simply defined by the binary outcomes of financial risk and return. As the pressures of human activity on our planet become increasingly impactful – whether through pandemic risk, climate threat or biodiversity loss – asset managers must make their voices heard.
“The value of these collaborative approaches comes from the forum they create to share insights and leverage collective expertise as well as set the terms and targets for discussion, to ensure we can develop constructive relationships with companies.”
Martin Currie has about A$20 billion under management in Australian and global and emerging markets mandates. In addition to its work globally with other asset managers on collaborative efforts, Martin Currie recorded 178 one-on-one engagements with corporate management teams in 2019, of which the 17-member Martin Currie Australia team based in Melbourne undertook more than 50.
Those activities, coupled with its proxy voting record – it voted on 6,931 resolutions across 665 shareholder meetings globally (194 meetings for the Australian team) – demonstrate the firm’s commitment to investing while considering environmental, social and governance (ESG) factors alongside financial statements.
David Sheasby, Martin Currie’s head of stewardship and ESG, said: “Looking beyond a company’s financial statements helps us understand how a business is evolving, how it is impacted by changes in the external environment and how it can deliver sustainable returns over the long term while creating value for all of its stakeholders,”
This month, as previously reported, Martin Currie also launched the ‘Australia Sustainable Equity’ strategy, which builds on the firm’s long-term experience in integrating ESG into Australian equity portfolios and positively influencing the sustainability practices of the companies it invests in, with a portfolio construction process that tilts towards companies that are on a ‘Sustainability Pathway’ towards healthier outcomes for all stakeholders.
New alignment with TCFD
For the first time, Martin Currie has aligned its activities with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which develops voluntary, consistent climate-related financial disclosures to provide information to investors and other stakeholders.
Sheasby said: “We believe the TCFD framework is a vitally important tool to understand how companies are managing climate-related risks… We’ve identified the key material risks and opportunities for each industry we invest in. We’ve also analysed the carbon footprint of our portfolios, identifying the overall profile and main contributors to the carbon footprint.”
This strategy analysis is one of the four key areas of disclosure called for by the TCFD. It also calls on investors to take into account a company’s governance, risk management, metrics and targets.
“As the effects of global warming become increasingly evident, businesses need to consider both the physical impacts of climate change and the implications of the transition to a lower-carbon environment. We believe asset managers have a hugely important role to play in this journey, not only in their duty of fiduciary care to clients on this issue, but also in guiding companies towards consistent and measurable practices.”
Other ESG highlights – Martin Currie:
- Implemented a proprietary ESG ratings system focused on governance and sustainability.
- Aligned with the U.K. Stewardship Code Principles, which establish a clear benchmark for the responsible allocation, management and oversight of capital.
- Received an A+ rating from the Principles for Responsible Investment (PRI) – the highest rating possible – across all three categories.
- Won the ‘Global Stewardship Disclosure Award’ for its 2019 stewardship report from the International Corporate Governance Network (ICGN).
The full report is available at https://www.martincurrie.com/insights/stewardship-report-2020
– G.B.
NOTE: Martin Currie is a sponsor of Investor Strategy News.
