Investment quality and sustainability

We have been pioneers in considering non-financial Environmental, Social, and Governance (ESG) issues for many years.

We engage with industry participants, specialist managers and service providers to increase the disclosure, transparency and availability of quality data to price and quantify these emerging risks.

We apply a very comprehensive and wide view of risks that can potentially impact your savings in the long-term. We believe that the most successful companies are those that consider all strategic influences on the long-term sustainability of their business, not just the short-term operational drivers of current profitability.

We assess the ecosystems that businesses operate in, because they can create substantial benefits or costs over time, sometimes dramatically and suddenly. These include environmental and social factors such as:

• carbon footprint
• pollution
• modern slavery
• supply chains
• occupational health and safety
• pandemic and other global shocks
• geo-political tensions
• changes in economic, regulatory and financial market conditions.

Consistent with the United Nations guidelines, CSC uses a principles-based assessment of how our investment agents identify, pre-empt, mitigate or remedy the consequences of portfolio activities on natural (environmental) and human (social) capital.  We believe that the capacity to strategically pre-empt and manage natural and human-capital considerations is a critical component of building and sustaining franchise value.  These principles are set with reference to evolving international standards of responsible investing; our own internal standards; and developments across regulatory bodies and social attitudes.

For example, we invest in private healthcare companies that are providing a range of critical healthcare services to support the pandemic front-line such as clinics, pathology, aged care and pharmaceuticals. One of these companies is running a clinical trial for a potential COVID-19 vaccine. This investment also contributes to the United Nations Sustainable Development Goal (SDG) 3: Good health and well-being.

We aim to take a long-term sustainable view, not knee-jerk short-term reactions.

As a responsible asset owner, we believe our responsibility for our customers is to actively engage and support robust transitions from lower- to higher-quality practices over time within companies and assets.

Divestment is a last resort

We use divestment only when engagement with companies cannot reduce the risks to the long-term viability of the business and/or because the activity is contrary to Australian government regulations, sanctions, treaties or conventions such as tobacco manufacturers, cluster munitions, or undiversified companies that derive 70% or more of their revenue from thermal coal production/extraction.

Pure divestment strategies, based on thematics, leaves companies in the hands of short-term investors, with no net impact. Shorter-horizon investors may not support the decisions that company management need to take to forego some earnings today, for more sustainable earnings into the future.  This philosophy is now widely acknowledged as an important responsibility for long-term investors by the following global best practice initiatives*:

• World Economic Forum’s blueprint for institutional investors
• UN-supported Principles for Responsible Investing (PRI) global responsible investment standards
• OECD guidelines for multinational enterprises

*CSC’s Chief Investment Officer (CIO) has served as the co-Chair of the World Economic Forum Global Future Council on Long-term Investing for many years – a role reflecting CSC’s proactive, thought leader approach to responsible investing and including ESG risks in our whole of portfolio risk assessment. She continues to contribute to global thought leadership through publications including the London School of Economics and Political Science library. Read her article about why organisational success depends on valuing higher quality, rather than simply lowest-cost routes to economic growth.