Defining and measuring how investment managers integrate responsible investment (RI) practices into their investment methodologies is complex. Many factors influence this assessment and individual managers place varying degrees of importance on each factor.
While it’s vital for managers to be able to measure and demonstrate the role of RI in their investment strategies, we believe it’s equally important that investors can accurately identify which strategies meet with their needs and align with their investment beliefs.
To better support our diverse client-base, we’ve built a framework which aims to provide clients with increased RI insights, empowering them to make more informed investment decisions. Our robust fund classification system helps investors understand the integration of a manager’s responsible investment themes into their processes and the associated impacts on the final portfolio outcome.
There are five tiers within our RI framework. All funds holding a current Zenith investment grade rating receive an RI classification, noting that classifications are fund-specific.
Seek to achieve a stated investment outcome, with little to no regard for RI/ESG factors
Seek to achieve a stated investment outcome, taking into consideration a broad range of factors including RI/ESG
Seek to achieve a stated investment outcome, expressly taking into consideration RI/ESG factors which materially alter the Fund's permitted universe and portfolio allocations
Seek to achieve an investment outcome that includes an explicit RI/ESG objective - both measurable and reportable
Target investments aimed at generating a positive, measurable social & environmental impact alongside a financial return
Traditional approaches comprise active strategies with little to no regard for RI issues, and pure index strategies that don't factor RI screens or scoring when modifying exposures relative to their underlying index.
Products in the Aware category broadly consider both RI factors and issuer engagement, but typically do so in a less structured and informal way.
Integrated products utilise RI as a key component of their security selection and portfolio construction approach. In addition, detailed and transparent issuer engagement is also treated as a fundamental component of the investment management process.
The Thematic and Impact categories are extensions of the Integrated classification, with both required to display a robust assessment of RI issues and formal engagement to be considered for progression. Thematic products invest specifically in themes or assets related to sustainability such as renewable energy, sustainable agriculture or affordable housing. While having many commonalities with Thematic products, Impact products must also be aimed at generating a positive, measurable impact alongside a financial return with full transparency.
The classification framework is underpinned by a set of principles which are overseen by an internal Responsible Investment Committee. We also use our role working right across the industry with a wide range of stakeholders to inform this framework and ensure it remains robust and relevant.
For more detailed information about our RI review process, classifications and implementation of the framework, please contact us via: RI@zenithpartners.com.au
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