AIA’s approach to assessing ESG factors from an investment perspective commences with an assessment of ESG factors as they relate to risk management, profitability and continues with engaging with management at investee companies.
Our initial priority is to assess performance against a number of specified ESG criteria, including but not limited to water shortage, energy supply, climate change, environmental regulations, labour supply and relations, human rights, resource scarcity/bottleneck, management capability and integrity, and financial management.
Investment analysts are required to assess ESG issues, as required and outlined by our Investment Governance Framework, and specifically the requirements under the ESG Investment Standard. Every research report prepared by AIA research analysts must contain an assessment of the ESG risks and opportunities relating to the issuer covered in such report. Investment teams across countries where we operate should be able to demonstrate compliance against these internal standards.
As ESG issues are often highly country and industry-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.
AIA research analysts shall refer to any company ESG reports as a proxy for how ESG issues are being managed by the relevant issuer. Analysts are encouraged to stay up to date on contemporary ESG research and risk uses, whether through attending internal or external training courses or through considering ESG research produced by, or received from, third party research providers in their assessment.
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 responsible for considering the aforementioned factors and analysis, guarding against risks associated with investments, the potentially negative impact on society and the environment, and continually pursuing sustainable long-term outcomes.
Our analysts are required to remain vigilant in monitoring ESG criteria for the companies that they cover, throughout the investment process, and provide timely update reports to their AIA business unit portfolio manager(s) on their assessments.
Should any ESG-related concerns or queries arise with our local business units, dedicated channels exist for issues to be escalated to AIA’s Group Investment team for further discussion or consideration.
The specific ESG criteria in our analysis and monitoring process includes the following:
- 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.
- 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.
- Important corporate governance issues include board structure (for example, the separation of the roles 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.
AIA continues to engage with companies on any ESG-related concerns before or after an investment decision, regardless of asset class. AIA believes that active engagement with investee companies, particularly those in emerging market economies, is an effective mechanism for improving ESG awareness and practices, driving sustainable behaviour and in securing sustainable, long-term outcomes.
Investee engagements at AIA are also conducted on specific themes or sectors and therefore may touch all of our investee companies and issuers, or only those within the sector engaged, for example, the palm oil sector. Such thematic engagements are centrally coordinated by AIA’s Group ESG and Investment ESG teams on themes for engagement, the preparation of any materials, assessment and/ or scoring methodology, and briefing of research analysts who engage regularly with our investee companies and issuers. AIA’s proposed thematic engagements will be reviewed by an investment advisory body chaired by the Group Chief Investment Officer and comprised of the senior members of the AIA Investment management team. Upon approval from the Group Chief Investment Officer, the Investment ESG team will then commence briefings of the thematic engagement, materials and scoring methodologies with the AIA research analysts, who will execute the thematic engagement and are the interface with the in-scope investee companies and issuers. AIA has previously engaged with its investee companies and issuers on climate change, sustainable palm oil and COVID-19. More details can be found in our ESG Report