Investments

Investors increasingly require environmental, social and governance (ESG) factors to be integrated into investment strategies and decision-making. The physical and transition risks associated with climate change and the shift to a low carbon economy – such as the transition from fossil fuels to renewable energy – should be understood and carefully considered when making investment decisions.

In 2016, a new Investment Policy committed UNSW to conduct investment activities in a way that reflects the commitments of the Paris Agreement, the University’s endeavors to find solutions to climate change; and a leading position among university peers. Implementing a Responsible Investment Framework and transparent reporting will enable the University to manage our investment climate risks and address stakeholder concerns.

Commitment:

  • Integrate best practice environmental, social and governance principles within our investment activities 

  • Assess and mitigate investment climate risks and invest in solutions to climate change

 

Target

  • Align investment portfolio emission intensity with Paris Agreement commitments by 2020.

Activities

  • Complete a climate risk assessment in line with the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD).
  • Establish a Responsible Investment Framework consistent with the Investment Policy and UN Principles for Responsible Investment.
  • Set an investment portfolio emission intensity target and report annually in line with TCFD recommendations.

2018 Insights

UNSW commissioned a review of the responsible investment policies and investment actions on climate change of UNSW and eight peer universities as at 31 December 2018 based on publicly available information.

The review assessed responsible investment practices on 32 ESG indicators based on 6 core assessment areas, with a total possible score of 45, with the results detailed below:

Peer Comparison ESG Practices

Where the data is available the peer positioning from 2016 is included.

Based on information provided by UNSW’s investment fund managers as at 31 December 2018, 8.1% or $21.4 million of the equities allocation were invested in companies that derive 20% or more of revenues from products or services that reduce greenhouse gas emissions, improve energy efficiency or support climate change adaptation.

Investment fund managers reported investments of $6.6 million or 4.6% of the Australian equities allocation, up from $2.1 million reported at December 2017, and investments of $14.8 million or 15.4% of the international equities allocation, from zero reported in December 2017.

Investments in companies that directly own fossil fuel reserves reduced from $29.5 million to $16.2 million in 2018, representing 2.9% of the long-term investment total portfolio, down from 5.3% in 2017. 

Of this, $7.7 million or 5.4% of the Australian equities allocation was invested in companies owning fossil fuel reserves, below the S&P ASX200 benchmark exposure of 5.9%, whilst 8.8% or $8.5 million of the international equities portfolio was invested in companies owning fossil fuel reserves, below the MSCI World ex-Aust index benchmark of 9.2%.

UNSW assesses the carbon footprint of its international and Australian equities allocations from information supplied by its Investment fund managers and compares the results to a composite benchmark of the $ weighted average of the MSCI World ex Aus and S&P ASX200 indices.

At 31 December 2018 the carbon footprint of equities investments remains higher than the composite benchmark for both Portfolio Emissions Intensity and Absolute Portfolio Emissions.

 

Carbon Footprint Portfolio Emissions Intensity

 

Carbon Footprint Absolute Portfolio Emissions 2017 v 2018

 

Term Definition
Scope 1 Emissions Scope 1 emissions are those from sources owned or controlled by the company, typically direct combustion of fuel as in a furnace or vehicle.
Scope 2 Emissions Scope 2 emissions are those caused by the generation of electricity purchased by the company.
Absolute Portfolio Emissions (APE)

The APE represents the absolute emissions of the sum of the companies held in the portfolio. This figure is not normalised, therefore large or energy intensive companies will always have a higher absolute emissions profile than small or less energy intensive companies. The benefit of the metric is its simplicity, it more accurately reflects actual emissions into the atmosphere and is more aligned with government targets to reduce emissions. APE reflects Scope 1 and 2 emissions for each portfolio company as a proportion of the portfolio, as follows: 

Sum of all holdings (Scope 1+2 emissions in metric tons) x weight in portfolio. 

Carbon Footprint

The carbon footprint represents the portfolio Scope 1 and 2 carbon emissions at a point in time based on portfolio holdings. 

The carbon footprint can be measured as either the absolute emissions of the companies held in the portfolio (see APE above) or as the emissions intensity of each dollar invested (see PEI below).

Portfolio Emissions Intensity (PEI)

The PEI represents the emissions intensity of each dollar invested. It reflects the Scope 1 and 2 emissions for each portfolio company, normalised by sales in US dollars, as a proportion of the portfolio. The benefit of using an Emissions Intensity target is that it normalises for size and does not penalise the Fund for investing in large companies which typically have higher emissions. PEI is calculated as follows: 

Sum of all holdings [(Scope 1+2 emissions in metric tons)/USD million sales] x weight in portfolio. 

Task Force on Climate-related Financial Disclosures The Financial Stability Board (FSB) formed the Task Force in Climate-related Financial Disclosures (TCFD) in December 2015 to address the impact climate change is having on companies and the global financial system through disclosure.