2022 ESG recap

It has been an eventful year for Alphinity – a productive one for the ESG and Sustainability team especially.

We published seven articles, produced six videos, conducted deep-dive research and shared our views on responsible investment through many webinars and events in the financial community. We attended conferences around Australia and internationally to expand our perspectives, looking to peers in Europe who are leading the drive towards sustainable finance. We strengthened our engagement efforts with third-party experts, industry organisations and academics to gain a more complete view on ESG thematics, which can be very complex at times. Expanding our collaborative engagement activities we joined two new initiatives related to antimicrobial resistance and human rights in the Australian mining sector. Building on our knowledge base, we held nine internal ESG teach-ins covering topics such as biodiversity, circular economy, COP27 and human capital.

While we feel we accomplished a great deal in 2022, we still have many exciting projects up our sleeves going into 2023. With ESG issues maturing and becoming more visible, we know that we need to keep up to date with best-practice. But, before we dive into the new year, we share below a recap of ESG in 2022.

ESG highlights

We published Alphinity’s second ESG and Sustainability Report.

It was the culmination of our work during the financial year and included a number of case studies and process enhancements that took place in FY22. We structured the report around a set of material ESG issues that were identified by the team, our internal ESG assessments and external stakeholders. A short summary of the report can be found here.

With growing focus on ESG and sustainability data, responsible investment products and greenwashing we recognise the importance of verifying the data and claims made in our disclosures. This year, we were pleased to receive limited environmental data assurance of the SDG alignment framework, SDG data and carbon metrics presented in the report by an external consultant. Accordingly, the SDG and carbon data has been verified by a third-party and ensures that our data management processes are in line with the claims and metrics presented in the report.

This year, we replaced our existing ESG policy with a suite of new policies and documents:

Stepping up our thought leadership, we shared a number of webcasts and articles that include:

  • A deep dive research project into the workplace culture of Australian mining and industrial companies (report here)
  • How we assess modern slavery, with insights from human rights expert Melissa Stewart on the Modern Slavery Act (article here, webcast here)
  • The sustainability of Big Tech and how we consider the development and application of responsible AI (Artificial Intelligence) (article here, webcast here)
  • The very real risk of greenwashing, and some of the risks we face as fund managers (article here)
  • Is Google’s LaMDA chatbot sentient? A dive into the ESG and sustainability issues of AI (article here)
  • ESG insights from the Australian AGM season, and our focus areas for the future when engaging with Boards (article here)
  • Highlights from our site visit to the BHP West Australian Iron Ore business (video here)

The centrepiece of our research efforts in 2022 was our Workplace Culture report, which consolidated the insights we gained from extensive one-on-one interviews with ten Australian mining and heavy industrial companies.

This project was catalysed by Rio Tinto releasing a report at the start of 2022 detailing a culture of sexual harassment, bullying and racism on its worksites. Rio Tinto’s report acknowledged that this harmful culture, and lack of psychological safety, probably pertains to other company environments. This led us to investigate the prevalence of those issues throughout the industry. We established a framework for assessing such risks, and shared our findings with the subject companies, encouraging them to greater efforts and improved reporting. In publishing this report, we hope that other stakeholders consider this issue, apply the workplace culture assessment framework and advocate for safe and inclusive work environments.

Exploring the world of ESG

There is great value in seeing company operations on the ground and attending in-person conferences, as it helps to expand our ESG perspectives and compare what we read in companies’ ESG and Sustainability reports with what we see in reality. We see this becoming increasingly important as ESG considerations move beyond just a company’s operations and into supply chain impacts. Our intention is to keep building out our knowledge and capability, speaking to NGOs, academics, taking part in site visits and supply chain tours, and looking to leading ESG markets such as the UK and Europe.

So with the lifting of Covid19 travel restrictions, the ESG team were excited to get back out on the road.

Company site visits

  • Mining site visit to the Pilbara region with BHP
  • Coffs Harbour to visit one of Costa Group’s blueberry farms
  • BlueScope steelworks visit in Wollongong to discuss its safety, diversity and energy management practices
  • A German recycling and sorting centre, exploring the practicalities and challenges of a circular economy and the technology, such as that offered by Norwegian company Tomra Systems, that could help address these

Navigating supply chains

  • A palm oil supply chain visit to Indonesia, speaking to a range of different stakeholders to gain a more wholistic view of the human rights issues at hand, and how companies are supporting industry change
  • A net zero transition tour to Newcastle to consider the “just transition” and implications of the shift away from fossil fuels for local business and communities in Australia

Conference landscape

  • We attended and/or presented at RIAA conferences in both Australia and New Zealand, the Community Trusts conference in NZ and the Investor Group on Climate Change conference here in Sydney
  • A member of the ESG team attended the Responsible Investor and Responsible Business conferences in London, to gain perspectives in leading ESG markets

Thematic research

We explored a number of thought-provoking areas like workplace culture, biomass energy, sustainable fertiliser systems, the rigour behind certain responsible sourcing certifications and antimicrobial resistance. Case studies on some of these topics can be found in our FY22 ESG and Sustainability report.

Collaborative engagement

Stewardship efforts are an important part of our responsible investment approach. A big part of this is to collaborate with other investors and specialists to accelerate progress in addressing large and complex ESG challenges.

We are involved in various industry groups such as the Principles for Responsible Investment (PRI), Responsible Investment Association of Australasia, Climate Action 100+ (CA100+), the 40:40 Vision and FAIRR. In 2022 there were some new and exciting developments including:

  • PRI: Just as the year was closing out we were selected to be co-lead of PRI’s inaugural human rights initiative ‘Advance’ with an Australian mining company. Although this collaborative engagement is still in its early stages, we are excited to see the modern slavery focus centring on the mining and renewables space and look forward to sharing the initiative’s progress in coming years.
  • CA100+: We joined an additional engagement as a support investor for a global company (Walmart), and saw two of our Australian target companies (Orica, Incitec Pivot) set net zero commitments and improve clarity on their 2030 reduction pathways.
  • FAIRR: We joined a new collaborative engagement on antimicrobial resistance, delving into the topic with one of our investee companies (Zoetis).

2023: Looking ahead

It is clear that ESG and sustainability is now more than just a “nice to have”.

Important areas of research going into 2023 will include climate change, biodiversity, cybersecurity, changing ESG regulation, greenwashing risk and people (including workplace culture, inclusion, labour management, health and safety).

The EU regulation and reporting framework is a space we are monitoring. Up until now, managers have taken different and sometimes inconsistent approaches to labelling products which make claims around sustainability. We consider ourselves relatively advanced in this area, with our Charter already clearly stating what our domestic and global Sustainable Funds are aiming to achieve so that investors are left in no doubt as to what they are “buying”.

We are encouraged to see the EU’s effort to introduce standards and hope that it will ultimately improve the transparency and integrity of financial products. We have seen the Australian market, alongside others such as the US and New Zealand, hinting at standardised non-financial reporting.

Demonstrating alignment of corporate strategy with their ESG and sustainability commitments is an ongoing discussion we have with companies, and we are increasingly seeing non-financial metrics being linked with remuneration.

We are proud of what we have brought forward in 2022, and look forward to enjoying another dynamic year of ESG and sustainability.

Author: Moana Nottage, ESG and Sustainability Analyst