The report identifies challenges in measuring impact investing, but opportunities for companies to improve ESG reporting.

Danielle Kutchel 12 December 2022 at 6:21 pm

Altius Asset Management’s inaugural impact report for 2022 uses global best-practice ESG reporting benchmarks to assess climate risk in its domestic bond portfolio.

The report covers Altius’ three sustainable cash and fixed-interest funds and is believed to be Australia’s first bond impact report.

According to the report, impact was measured through four criteria:

• Measuring the Combined Fund’s portfolio carbon emissions to approved industry standards
• Aligning the fund to International Energy Agency climate scenarios for decarbonisation;
• Ensuring transition risk is managed as part of climate risk analysis
• Analysing and measuring the physical climate risk on companies from both an operational and macro market level.

Altius is the boutique fixed income manager for mutual Australian Unity.

According to the analysis, Altius’ combined fund has a predictive temperature increase of 1.5°C, aligning it with a Paris benchmark that seeks to limit a potential global temperature increase to 2.0°C by 2050.

Matthew Moore, Australian Unity’s head of responsible investment and stewardship, told Pro Bono News that the impact report fits within Australian Unity’s mission to implement a responsible investment framework.

“This report is showing how we’re trying to uplift that reporting framework,” Moore explained.

Some areas of reporting relied on disclosure of data from holdings, especially around measurement of scope three emissions.

Moore admitted that “availability of data” is a challenge in the industry, but noted that “data is becoming more readily available”.

“If you took a step back a couple of years, that data just [wasn’t around], but it’s really starting to improve. And that’s certainly been enhanced by regulatory changes offshore and potential regulatory changes here,” he said.

He added changes to regulations would soon force companies to disclose all relevant data.

Engaging on ambition

Altius also assessed the combined fund according to the declared climate targets of companies. The majority of companies — 78 per cent — within both the Combined Fund and Combined Benchmark were found to have no target or non-ambitious targets.

The holdings include domestic and international banks.

“To transition to a low carbon economy, companies need to commit to alignment with international climate goals and be able to clearly demonstrate future progress. Currently, 21 per cent of the Combined Fund’s portfolio value is committed to such a goal,” the report states.

Moore said the non-ambitious or non-existent targets would be a point of discussion for Altius’ sustainability advisory committee.

“We’ll take this away and think about it and look at strategies [to] engage with companies and… have a conversation around what sort of targets [they have],” he said.

According to the report, climate change and so-called natural capital (renewable and non-renewable resources like plants, animals, air, water, soils and minerals) are a focus for the committee.

Altius is also concerned about corporate misconduct, and has previously divested from Commonwealth Bank of Australia (CBA) and AMP following revelations at the Banking Royal Commission and investor concerns.

But excluded borrowers can return if they address their failings, the report adds — and CBA was welcomed back into the fold after taking action on climate and the environment.

Altius currently has programs to engage with banks and mining companies to encourage more sustainable practices.

Moore said Altius and Australian Unity want holdings to align with sustainable development goals too, to achieve positive community and social impact.

Future measurements

Moore explained Australian Unity and Altius would likely roll out similar responsible investment reports for other asset classes, especially around carbon profiling, as the mutual seeks to transition to net zero and take stock of its “broader group environmental approach”.

He said Altius would run an impact report again in 2023 and would “evolve” the reports according to feedback from investors.

“We want to report on what our outcomes are. And I think that as the market is changing, people really do want to see what the outcomes are. They want to see where the allocation of capital has gone to,” he said.

“I think for both Altius and Australian Unity, we’d like to see other people join us and help us develop these sorts of reports so people are more informed. That’s really important for us so we can inform our investors and inform the public about what we’re doing, how we’re allocating capital and what… the positive outcomes for our investment are.

“And if there are some negative impacts, we want to really try and address those. I’d love to see other people or other organisations start reporting on this as well”

Read the full report online.