AIA's approach to sustainable investment

 

AIA believes that robust governance underpins good corporate behaviour. We continue to align the investment programme with recognised and meaningful ESG principles, adopting best practices such as the integration of ESG factors into our investment process.

 

ESG is fully integrated as part of the investment programme, aligns with AIA’s Purpose and is focused on driving sustainable behaviour and delivering sustainable long-term outcomes. This has been reflected through the specific inclusion of sustainability in the AIA Investment Mission Statement:

 

“Consistently and significantly impacting the long-term financial results of AIA and its customers by driving sustainable behaviour and outcomes with world-class investment solutions expertise, industry leadership and best practices in process, controls and systems.”

 

Hence, ESG has been mandatorily and structurally embedded into the ESG Investment Standard, AIA’s Group-wide Investment Governance Framework, which establishes minimum standards that AIA business units, AIA licensed asset management companies and AIA’s collective investment schemes must meet. Investment Standards are organised under subject matters and constitute a core component of the Investment Governance Framework architecture. Our Investment Governance Framework applies to all asset classes within our directly managed investment portfolios, including the fixed income and equity research processes, development and redevelopment of real estate assets, the selection of external investment managers and the exercise of voting rights.

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:

 

 

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.

Details relating to ownership by our major asset classes (fixed income, equities, real estate, and external managers) are outlined below. This approach applies to all AIA’s directly managed invested assets, and ensures that the relevant information is used so that risks and opportunities are adequately identified, assessed and considered throughout the investment process, and in the investment decisions made by AIA portfolio managers. 

 

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.

As noted above, analysis and engagement are 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.

 

Consideration of ESG issues is included as part of our equity investment criteria, applicable to both listed and private equity investments We seek to invest in companies which have demonstrated sound ESG performance, risk management, 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.

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.

 

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, at a minimum, we incorporate green building 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.

Voting at company meetings is an important part of the dialogue between a company and its shareholders. AIA’s Proxy Voting Investment Standard (Proxy Voting Standard) outlines a list of mandatory ESG issues that must be considered in our voting decisions. The Proxy Voting Standard is applicable across our business units where we have operational control.

 

The Proxy Voting Standard is based on principles of good corporate governance, which serve to protect the long-term interests of shareholders. It outlines a consideration of governance and ESG criteria, including, but not limited to, the company’s governance around its environmental risks and opportunities, commitments and practices towards transitioning towards a low-carbon economy, environmental commitments, board diversity, human capital management practices, whistleblowing practices and policies, social contributions to communities where the company does business and the treatment of minority shareholders.

 

Senior investment management at our business units will decide on whether the voting event or transaction is significant enough for review by AIA. If a review is justified, the relevant research analyst and portfolio managers will provide an analysis of the voting decision and resolution, considering a range of issues, including the ESG factors. The relevant portfolio managers will then determine whether AIA will participate in voting. 

AIA is committed to helping people live Healthier, Longer, Better Lives across the region, and will, from time to time, exclude certain sectors which have been determined to be inconsistent with our investment programme. Our investment exclusions are set out in our ESG Investment Standard and operationalised through the Investment Governance Framework.

 

In line with our Purpose of helping people live Healthier, Longer, Better Lives and our commitment to addressing the risk factors associated with non-communicable diseases. As such, we exclude any institutions involved in tobacco manufacturing from our directly managed investment portfolios.

 

The Oslo Convention on Cluster Munitions outlines commitments to prohibit the use and manufacture of cluster munitions. Cluster munitions are controversial weapons that pose a high risk to civilians, with some of our markets having signed this treaty. AIA therefore excludes investment in any issuers manufacturing cluster munitions from our directly managed investment portfolios.

 

Since confirming our support for the Paris Agreement in 2018, AIA has taken a phased approach to addressing our investments in carbon-intensive sectors, including becoming one of the first Asian asset owners to carbon footprint their investment portfolio in 2019. After further research, and in line with AIA’s overarching objective of achieving long-term sustainable outcomes, AIA will divest all of its equities and fixed income investments in coal mining and coal-fired power generation within our directly managed investment portfolios. Such divestment will be completed by the end of 2021 for equity exposure, and by the end of 2028 for fixed income. Moreover, AIA will not permit any new investments involved directly in either mining or generating electricity from coal.

 

Acknowledging the growing importance of green and social bonds in the transition to a sustainable global economy, AIA will apply its robust assessment process to increasing investments in those green and social bonds issued by coal mining or coal-fired power companies which have been assessed by AIA as bona fide, including use of proceeds and objectives, in order to support the important transition being made in many of our communities towards a more sustainable future.

AIA has also expanded its portfolio inclusions, disclosing in our ESG Report the USD invested amounts in green bonds, ESG bonds, renewable energy and infrastructure, recognising their contribution to sustainable outcomes including climate change and the energy transition. We will continue to measure and disclose these proof points in our ESG Report.

ESG issues can affect the performance of investment portfolios and therefore investment managers should incorporate ESG reviews in their research activities in accordance with this approach.

As required under our ESG Investment Standard, we consequently take ESG factors into consideration, including ESG-related policies and practices, as well as ESG credentials, when selecting third party investment managers at AIA and continue to engage with these managers on how they address material ESG issues. The monitoring of ESG policies and practices by external managers is led by the Group Investment department. 

 

Any investment exclusions applied to AIA’s directly managed portfolios are also contractually extended to those third party investment managers to whom AIA has outsourced discretionary investment management authority, ensuring that AIA holds such third party investment managers to the same degree to which we hold ourselves accountable.

AIA participates in various external reporting forums to align our sustainable operations and investment approach with international standards and best practices.

 

We became a signatory to the UN Global Compact in 2016, voiced our support for the Paris Agreement in 2018, endorsed the Task Force on Climate-related Financial Disclosures (TCFD) recommendations since 2018 and began reporting as part of our annual ESG Report in 2019. In addition, we are also a UN Principles for Responsible Investment (PRI) signatory since 2019 and began reporting in the 2021 reporting cycle. Our PRI submission is produced by the Group ESG and Investment ESG teams.

 

Embracing best practices, AIA has measured the carbon intensity of issuers in our directly managed equity portfolio using the weighted average carbon intensity. This is calculated based on the portfolio companies’ emissions (or estimates of these emissions where this information is not publicly available) relative to their sales, using sales information based on publicly available sources, weighted by the percentage that each portfolio company’s market capitalisation represents in the market capitalisation of the whole directly managed equities portfolio. AIA engaged an independent external third party to measure the weighted average carbon intensity for our directly managed equity portfolio as at the end of 2018 and have continued to measure and disclose this for 2019 and 2020. There has been a decrease of 24 per cent since 2018 due to our ambitious efforts to divest from the coal mining and coal-fired energy sectors. AIA will continue to monitor its portfolio carbon footprint going forward, expanding to include other asset classes. For more details, please see our ESG Report.

 

In addition to the thematic engagement efforts AIA has made, AIA is a member of collaborative frameworks such as Climate Action 100+, supporting collective engagement with the world’s largest emitters. We are also part of the UN Investor Working Group on Sustainable Palm Oil.

 

AIA has been included on various ESG indexes since 2017 onwards including, without limitation, the FTSE4Good Global Index Series, the Hang Seng Corporate Sustainability Index, MSCI Low Carbon All World Index and the Solactive L&G ESG APAC ex Japan NTR Index. AIA has received other external recognition in the form of ESG ratings from, without limitation, CDP, Sustainalytics and MSCI. For more details on our ESG credentials and recognition, please see our ESG Report. 

AIA is continually reviewing and enhancing our investment ESG practices, requirements and controls. We will update this document in line with any revisions to our ESG position in accordance with regulation, stakeholder feedback, international best practice, or any international charters or principles.

 

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