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Governance: World Class Governance
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  • Responsible Investment Policy

    Introduction

    At AIA, the consideration of ESG matters is an integral part of our operating model. Business owners and asset managers are increasingly aware of the potential risk and value impact of ESG factors, and their effect on bottom lines and investment returns. AIA understands that companies looking to create long term stakeholder value must ensure a sound approach to the planning and management of ESG aspects. Ignoring ESG risks is likely to have financial consequences alongside other key considerations like ignoring credit, currency and commercial risks, or other reputational issues.

    This document sets out our ESG focus in four main domains: fixed income investment, equity investment, real estate investment, and external manager selection. We also recommend that our investee companies have their own ESG policies.

    This document also provides a description of AIA’s approach, monitoring process, functional ownership of ESG issues in each of our major asset classes (fixed income, equities, and real estate) and with respect to external investment managers.

    Our Approach

    At AIA, our approach to assessing ESG factors in investments starts with an assessment of ESG factors as they relate to profitability and continues with engagement of management of our invested companies. Our initial priority is to assess performance against a number of ESG criteria, including but not limited to water shortage, energy supply, climate change, environmental regulations, labour supply and relations, resource scarcity/bottleneck, management capability and integrity, and financial management. Where possible, we employ a process of engagement to both improve and clarify details of ESG performance before making an investment decision.

    Our Monitoring Process

    As ESG issues are often highly country-specific, AIA’s in-country fixed-income and equity analysts, with their understanding of local markets, will employ their “on the ground” knowledge to analyse and monitor ESG issues when and where they arise. Our analysts are vigilant in monitoring ESG criteria in companies that they cover and provide timely updates to their portfolio managers.

    Analysts are also required to incorporate an analysis of ESG risks into their credit proposals to be considered by Group Credit Research when initiating or renewing credit limits.

    Portfolio managers are charged with considering the aforementioned factors and analysis, guarding against risks associated with investments and the potentially negative impact on society and the environment.

    The specific ESG criteria in our analysis and monitoring process includes the following:

    Environmental

    • Issues include climate change, environmental policies, environmental management, pollution, release of toxic chemicals, water availability, water consumption, water sourcing, energy consumption, packaging and other materials, and genetic engineering.

    • Sectors with a more significant impact on the environment include electric utilities, coal and minerals, oil and gas and chemicals. These sectors may be subject to waning demand by trends for energy conservation and the development of more environmentally friendly alternatives.

    Social

    • Issues include stakeholder (including labour) relations, working conditions, child and forced labour, health and safety, product safety, anti-corruption and anti-money laundering, community investment, treatment of customers and supply chain management.

    Governance

    • Important corporate governance issues include board structure (e.g. separation of Chairman and CEO, number of independent directors and their length of service), board skills, board diversity, management turnover, executive remuneration, shareholders’ rights, accounting quality, audit quality, the extent of related party transactions and management turnover, as well as regulatory issues.

    Ownership by Asset Class

    Details relating to ownership by our major asset classes (fixed income, equities, real estate, and external managers) is as follows:

    a. Fixed Income

    AIA’s investment objective is to produce stable and consistent income and returns, which means that we allocate a large proportion of our investment portfolio to fixed income securities, especially long-dated debt securities.

    The financial impact of ESG issues can be material on fixed income assets. We aim to actively invest in companies with lower ESG risk -- this should not only generate alpha but create a more sustainable business in the long term. We believe that the consideration of ESG issues is consistent with the responsibility of an investment manager to maximise returns.

    As noted above, analysis and engagement is performed primarily at the country level for fixed income investment. Coordination of ESG analysis and engagement, however, is performed at the Group level by the Group Investment department.

    b. Equities

    Consideration of ESG issues is included as part of equity investment criteria. We seek to invest in companies which have demonstrated sound ESG performance and who have noted their commitments to further improvement. ESG factors are considered during our research analysis and are evaluated together with our corporate financial and earnings forecasts before an investment decision is made.

    In developed markets, academic research has documented a high correlation between sustainable ESG practises and higher returns. We are therefore quite focused on ESG practises in our equity analysis, particularly as long-term investors.

    Similar to fixed income, most of our equity ESG analysis is performed at the country level. As we also have regional equity analysts, coordination of both country and regional ESG analysis and engagement is performed at the Group level by the Group Investment department.

    c. Real Estate

    At AIA we understand the significant impact that both the construction and operation of buildings may have on the environment. The consideration of ESG issues is one of our key strategies to execute over the life cycle of an investment, which includes acquiring the land or asset, developing building(s), and implementing high quality property management with ongoing reporting of asset performance.

    The overall sustainability and environmental impact from a building is always a key consideration in our real estate acquisition. For new developments, we incorporate green standards as an integral part of the design concept and implement these in the construction phase.

    Green and sustainable initiatives also extend to our property management, where we pursue sustainable initiatives in the operation of our buildings. This can reduce the environmental footprint created from our buildings while also helping to lower day-to-day operational costs.

    As investment in real estate assets is coordinated between country and Group Investment teams, the ownership of the ESG assessment and engagement process is led by the Group Investment department.

    External Managers

    Many managers, through their ESG practices, commit significant resources to people, capital and ideas to create a lasting impact on society and the environment. ESG issues can affect the performance of investment portfolios and therefore managers should incorporate ESG reviews in their research activities. We consequently take ESG factors into consideration when selecting third party managers at AIA. The monitoring of ESG practises by external managers is led by the Group Investment department.

    Conclusion

    AIA will update this document in line with any revisions to our ESG position, which may be impacted by international charters or principles.

    If you have questions on this document, please contact our ESG team at esg@aia.com.


     

    Last updated: 28 September 2016

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