Portfolio carbon metrics
Our portfolios tend to have significantly lower emissions intensity than their respective benchmarks. We recognise this is a complex topic and we cannot draw conclusions from these results alone. We believe the data is best viewed as an output of our investment philosophy rather than an intentional screen for low greenhouse gas (GHG) emitting companies. We expect to see a convergence between our portfolio and the index over time, as they both decline.
Ongoing angagement
Our decarbonisation process
Reassessment:
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Assessment
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Last year’s report, TSMC emissions have risen in recent years as the company has grown significantly, but in reality, 1kWH of energy used in TSMC’s production has enabled customers to abate 4kWH of energy through its energy saving semi-conductor dependent technology, so has been assigned as tier 1.
Grand Total:
74
7
28
33
6
2
1
3
Tier 1
Tier 2
Tier 3
Tier 4
Asia Pacific
Greater China
Hong Kong
China A
Japan
India
Global Emerging Markets
2023
Benchmark
47.50
250.15
2023
Benchmark
66.54
200.38
2023
Benchmark
86.77
294.12
2023
Benchmark
104.06
269.08
2023
Benchmark
44.93
81.64
2023
Benchmark
155.35
579.08
2023
Benchmark
42.14
298.58
Source: First Sentier Investors, ISS ESG. Data as at 31 December 2023.
The weighted average carbon intensity (WACI) in each of the above portfolios calculates a weighted average of each company’s greenhouse gas emissions intensity (Scope 1 & 2) per $M of revenue, weighted by the value in the portfolio using a mix of reported and modelled data. We compare this to the weighted average carbon intensity for the companies in the aggregated benchmark. It measures how efficient companies are in controlling their carbon emissions per unit of economic output. The benchmarks of the respective portfolios are MSCI AC Asia Pacific ex Japan Index, MSCI Golden Dragon Net Index, MSCI Hong Kong Net Index, MSCI China A Onshore Net Index, TOPIX Net Total Return Index, MSCI India Net Index and MSCI Emerging Markets Net Index. Although First Sentier Investors’ information providers, including without limitation, ISS ESG and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liabilities for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibilities of such damages.
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Company decarbonisation assessment by tier
We launched our decarbonisation process in 2021 with an assessment of how our holdings were positioned, how they performed at that point in time and their plans to achieve net zero. In 2023 we continued to review our investee companies’ net-zero commitments and made progress towards our climate targets for 2025, 2030 and 2050.
Progress
The 2022 data is based on approximately 75% of AUM calculated as at 1 December 2022. In 2023, we set 31 October as the date for Phase 1 of the decarbonisation process and covered approximately 78% of the team’s AUM. This included removing companies no longer held in our portfolios and adding new ones. We intend to adhere to this timeline going forward to allow sufficient time to conduct the analysis and plan for engagements in the upcoming year.
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2023
2022
Tier 1
Tier 2
Tier 3
Tier 4
7%
33%
44%
16%
9%
38%
45%
8%
Last year’s report, TSMC emissions have risen in recent years as the company has grown significantly, but in reality, 1kWH of energy used in TSMC’s production has enabled customers to abate 4kWH of energy through its energy saving semi-conductor dependent technology, so has been assigned as tier 1.
FSSA Portfolio
Benchmark
47.50
250.16
FSSA Portfolio
Benchmark
66.54
200.40
FSSA Portfolio
Benchmark
86.77
294.12
FSSA Portfolio
Benchmark
104.06
269.22
FSSA Portfolio
Benchmark
44.93
81.64
FSSA Portfolio
Benchmark
155.35
579.08
FSSA Portfolio
Benchmark
42.14
298.59
Decarbonisation
Our efforts to decarbonise our portfolios are focused on reducing the absolute carbon exposure of our investee companies. Rather than selling carbon-intensive assets or buying companies already meeting net zero claims through an abundance of offsets, we seek real-world reductions and abatement through a company’s underlying business practices. To do so we place less emphasis on the grand gestures and more on the integrity, action and evidence of a plan.
There are three phases to our decarbonisation process, which started in 2021 and will be repeated annually going forward.
The quality of management is a critical component of our investment process. We look for signs that there is a long-term owner who is passionate about addressing climate issues – or is incentivised to care about this multi-decade challenge.”
Emissions intensity by portfolio in USD, 2023
Unit of measurement: Tonnes of carbon dioxide equivalent (tCO2e) per $m sales
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Our decarbonisation process
Case study video
on engagement
Special report
keeping score
Case study video
on engagement
Asia Pacific
Greater China
Hong Kong
China A
Japan
India
Global
Emerging Markets
Our decarbonisation process
Case study video
on engagement
Special report
keeping score
Case study video
on engagement
Featured insight
Special report
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“Leader” is defined as either achieving net zero with current emissions intensity performance at, or close to, net zero emissions; or those aligned to net zero with adequate emissions reduction performance over three or more years
Tier 1 - FSSA definition
“Committed” is defined as aligning with short-, medium- or long-term goals (but not all), and disclosure of scope 1 and 2 emissions data for two or more years (with an option to include material scope 3 emissions data)
Tier 2 - FSSA definition
“Laggard, Planning” is defined as committed to aligning towards a net zero pathway with the intention to set clear targets, and disclosure of scope 1 and 2 emissions data for at least one year, but with little to no progress over time
Tier 3 - FSSA definition
“Laggard, Needs Support” is defined as not aligned and may have the intention to set targets but with no time frames or metrics defined. These companies have poor disclosures leading to the inability to measure progress and their business models may be structurally challenged due to a reliance on carbon intensive resources
Tier 4 - FSSA definition
Learn more about our climate targets and tiering system.
Benchmark
Asia Pacific:
Greater China:
Asia Pacific
China A
Japan
India
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We believe that ESG is synonymous with quality; and in our search for good companies we have integrated ESG analysis into our investment decisions.
Just as we wouldn’t outsource or confine our analysis of the quality of a company’s financials to a team of accountants, we believe there is no reason to separate the ESG and sustainability elements from our research process. The variables are intertwined and a complete assessment of quality is necessary.
Just as we wouldn’t outsource or confine our analysis of the quality of a company’s financials to a team of accountants, we believe there is no reason to separate the ESG and sustainability elements from our research process. The variables are intertwined and a complete assessment of quality is necessary.
This environmental, social and governance (ESG) report covers our activities over 2023. Our extensive engagements with portfolio companies form the bulk of our activities and as such, we aimed to illustrate the report with a series of case studies organised within our three focus areas. We hope these engagement stories exemplify the approach and progress we are committed to as long-term investors.
People and communities
The decisions companies make can potentially affect the lives of numerous people across different communities. As quality-focused and long-term investors, we believe corporate culture is a key signifier of whether a company is likely to do the right thing in taking care of its people and surroundings.
Climate change and the environment
We believe every company and every investor must consider the impact of climate change. For our part, we have invested in and continue to seek out companies that are actively taking steps to solve the climate change problem.
Corporate governance
In our search for quality, we value the governance of a company most highly and thus look for founders and management teams with high standards, whose interests are aligned with minority shareholders and where the execution track record is exemplary.
Our focus areas
We have begun to pilot a system to house certain quantifiable environmental and social metrics, such as employee safety metrics, board gender representation and effective tax rates. We anticipate this will help focus our engagement efforts and improve the benchmarking on material topics.
4 of 4
Our ability to track and report on our ESG activities will allow us to track the evolution of our engagement with companies. This will allow for better coordination across multiple companies and portfolios, meaning we can engage on similar issues more deeply and methodically.
3 of 4
At the firm level, we are exploring which ESG metrics and data from third-party data providers can be automated throughout the year. This should aid our regulatory reporting requirements, as well as that of our clients.
2 of 4
We strive to improve the way we report on ESG integration and our related engagement with companies by better aligning our centralised engagement tracking system, launched last year, with the reporting systems our stakeholders use.
1 of 4
2
Tracking and reporting
We will continue to engage on other relevant issues on a company-by-company basis as they arise, however we intend to make a concerted effort on these two particular themes in the coming year and build on them in the years to come.
4 of 4
We aim to build out our approach to modern slavery risks, leveraging First Sentier Investor’s Modern Slavery Toolkit to identify and address these risks in our portfolios.
3 of 4
Our first priority is to continue the work on climate change and decarbonisation. As a multi-decade undertaking, we will review our decarbonisation commitments and targets each year to ensure that we continue to make progress.
2 of 4
In our company engagements, we intend to target the areas we are most exposed to and knowledgeable in, which will allow us to be more effective in our engagement plans.
1 of 4
1
Determining key engagement themes
Our priorities for 2024 are a continuation of those we set in 2023. They reflect our ongoing commitment to refining our process, being more effective in our engagement activities and continually improving the way we articulate our approach.
Moving forward
FSSA ESG Report 2023
Download full report
Environmental, Social and Governance Report
Our views on responsible investment
Our approach
Climate change
Carbon footprint
Exclusion policy
Keep up to date with our latest research and developments on social media
Important information
Any targets (including, but not limited to, the net zero targets) on this webpage are based on (i) available information and representations made to First Sentier Investors by third parties, including, but not limited to, portfolio companies; and (ii) assumptions made in relation to future matters such as the implementation of government policy in climate-related areas, enhanced future technology and the actions of portfolio companies. Such information and representations may ultimately prove to be inaccurate and such future matters may not ultimately be realised. As such, First Sentier Investors cannot guarantee the achievement of these targets. These targets are subject to ongoing review and may change without notice.
Any ESG related commitments, are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any ESG related commitments are continuously reviewed by the relevant investment teams and subject to change without notice.
To the extent this material contains any measurements or data related to ESG factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate and may not be independently verified or audited. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this data and no reliance should be placed on it by any third party.
Moving forward
Portfolio carbon metrics
Decarbonisation
Our focus areas
Our views
Download report
use toggle to compare 2022 and 2023 data
use toggle to compare 2022 and 2023 data
We divided our portfolio holdings into several priority groups and assessed each investee company’s emissions performance and decarbonisation plans. Each company is assigned to one of four net zero maturity tiers ranging from leader to laggard. In mid-2021 we covered approximately 50% of the team’s AUM, rising to 75% by the end of 2022. In 2023 we covered 78% of AUM1. We aim to cover 100% of AUM by 2030.
Phase 1: Assessment
Previously assessed companies will be reviewed annually going forward (unless they are no longer held in our portfolios).
Phase 2: Reassessment; expand scope
We prioritised engagement with investee companies based on their assigned tier and conducted those meetings throughout the year.
Phase 3: Ongoing engagement
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