Invesco's Bonnie Saynay details key aspects of responsible investing approach

Jonathan Boyd
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Invesco's Bonnie Saynay details key aspects of responsible investing approach

In mind of the increasing focus on responsible, sustainable and impacting investing, along with ESG overlays and/or inclusion in investment analysis and execution, InvstmentEurope recently caught up with Bonnie Saynay, global head of Responsible Investment at Invesco to hear more about the manager's approach.

Saynay started by noting that the approach is guided by the manager's "purpose - to deliver an investment experience that helps people get more out of life."

This includes keeping in mind the various stakeholders - clients, communities and shareholders - and progressing a stewardship approach that underscores the manager's commitment to responsible investment, she says. "The momentum behind 'ESG' culminated in a series of activities and key achievements across our organisation."

CLIMATE CHANGE

How is Invesco reacting to this issue, both in terms of its own response as an organization, but also in terms of relevant portfolios/strategies?

"Invesco recognises the importance of cimate change as a corporate citizen and as part of a robust investment process. Invesco's ‘Investors First' approach means that Invesco is committed to adopting and implementing responsible investment principles in a manner that is consistent with our fiduciary responsibilities to our clients. As fiduciaries, our priority is to protect our clients' interests, while seeking to deliver strong, long-term investment performance. Invesco believes that incorporating environmental, social and governance matters into an investment process is and should always be about investing. We believe that a high-level principles-based approach is important to reflect the diverse approaches adopted by investment managers. This diversity is reflected within Invesco, which means that our investment centers and investment strategies will vary their approaches to climate change as well as all that is encompassed in ESG integration based on their strategy and investment style. Global resources, both in terms of external research input and a global team of experts, underpin and drive this effort alongside our investment centers."

"In addition to this integrated approach, Invesco has been implementing ESG dedicated strategies for over 30 years and has 10 investment centers and 16 investment teams managing over $67bn - 7% of IVZ AUM - in ESG pure play strategies." 

"Invesco has accreditations as CDP discloser and Principes of Responsible Investment signatory. Invesco has disclosed its environmental data to CDP for three years running, continuously improving its ranking while achieving a B score in 2018. As a PRI signatory, Invesco was awarded an A+ rating in 2017 and 2018 for Strategy and Governance. Invesco is also a Tier 1 UK stewardship code signatory, ESG Leader, and ESG innovation award."

Have you had to initiate any particular education of portfolio managers around evolving risk analysis of climate change related risks; or is this being served by a centralised function of risk analysis/analytics?

"Invesco's Responsible Investment Team has a centralised structure that supports decentralised decision making at the team level globally. The Responsible Investment Team provides investment and commercial support, offering data and tools for climate change and ESG integration in general, support in building proprietary views on climate change risk and opportunity assessment at team and product level, engagement support and guidance. The education of portfolio managers is organised at the investment center level on climate change related analysis and issues. The Responsible Investment Team coordinates and guides training sessions offered by our data vendors - MSCI, Sustainalytics among others - seminars with NGOs and investor organisations  - PRI, CDP, OECD. For example, we are in the process of arranging a seminar with CDP representatives at our London investment center. The Responsible Investment Team also offers thought leadership and advocacy - including whitepapers, panels, and media - collaboration with Cambridge University for ESG studies, and education programmes for both Invesco's professionals and clients."

Have you initiated any particular use of third party/proprietary metrics to facilitate the Invesco reaction to the climate change issue at the portfolio level, if so, which suppliers and what aspects of climate change are they helping address (eg, carbon scoring)?

"Invesco's investment teams use a number of data vendors and metrics providers. The most common are MSCI, Sustainalytics and Vigeo Eiris. Portfolio carbon foot printing is the most common analysis; however, we are more frequently implementing a forward-looking approach and gap analysis, as well as using more primary data for the creation of propriety scoring methods. Finally, TCFD and CDP disclosure by issuers and corporates are a guide in a more forward-looking assessment and gap analysis which leads to our active engagement approach."

IMPACT INVESTING

Is there a gap in standards on impact investing, and if so how is this acting as a brake to further investing in this area?

"Strictly speaking Invesco is currently not offering impact investment in its definition of investment generating positive measurable social or environmental impact alongside or over financial return. In practice, Invesco offers opportunities to investors to advance social and environmental solutions with positive financial return. The market of impact investing is still relatively new. There are collaborative international efforts helping to accelerate its development, and a primary role is played by developing financial institutions or private equity entities that target return even below markets."

"As a universal owner, with most of our portfolios in public equities or fixed income, Invesco's 'ambition to impact' is embedded in our ESG integration philosophy and acted upon through our active engagement with corporate and issuers. Alignment with the Sustainable Development Goals (SDGs) offers one of the best indicators guiding our impact philosophy as well as assessing the path to transition that corporate or issuers are implementing in their strategies towards reaching SDG's impact or divestment from riskier assets - ie, divesting from fossil fuel or coal into innovative renewable energy to satisfy SDG #13 on climate change. We also assess how corporates make impact through their supply chain, for example on supporting accessible housing, healthcare and education for all their employees. As part of our ESG integration, we monitor our portfolios and identify the areas where our direct engagement would be needed allowing us to help steer the impact agenda of our invested corporate and issuers. That said, when we strictly talk about quantitative valuation standards for impact investing, we agree that there are still gaps."

"Yes, we believe there is a gap in standards of impact investing. SDGs were not originally designed with business and investment management in mind, which has led to challenges in seamlessly incorporating SDG factors into mainstream investment funds. Additionally, there are no market standards in the impact measurement space. For example, it may be argued that The Hershey Company - which sits in the global food products industry deriving most of its revenues from selling chocolates and other types of sweets - does not contribute to SDG #2: Zero Hunger - since it doesn't eliminate hunger for people under the poverty line. Hence, different asset managers will have to make their own judgement on which company is/isn't making an impact." 

Do you find that impact investing is more suited to certain types of investor, eg, insurers looking to balance long term assets/liabilities, which might lead them to areas such as impact investing in infrastructure?

"The spectrum of impact investing targets a range of returns from below market to market rate depending on investor's strategic goals. Some investment is more suited to developing financial institutions or for a blended private/public partnership. Investment in infrastructure, research, housing, education or basic services are predominantly made by such entities or private/public partnership. When looking at SDGs for example, we believe different types of entities can heavily contribute to one or more of the SDGs. Insurers could contribute heavily to SDGs such as #9: Industry, Innovation and Infrastructure and #11: Sustainable Cities and Communities, while banks/asset managers could contribute better to goals such as #3: Good Health and Well Being, by coming up with innovative products that invest in cancer research - and research funding for other global health problems-  and #5: Gender Equality. Governments should unite to make laws around plastics, waste disposal and carbon emissions to contribute to goals #13, #14 and #15."

GOVERNANCE PRINCIPLES

Do you apply a top down house view on governance that you expect all portfolio managers to adhere to?

"The importance of good corporate governance does not rely on empirical evidence for support but leads to strong financial results. As an institutional investor, our first mandate is to generate strong returns for clients. This is achieved by investing in high quality corporate issuers that demonstrate good corporate governance. As stewards of good governance, our fund management teams frequently engage with and visit portfolio companies, challenge boards, and drive for change where and when it is appropriate."

"Invesco has a democratised and differentiated approach. Our global policy statement sets forth a framework for Invesco's corporate governance practices which equips our global fund managers to make independent, unique and informed decisions when responding to shareholder engagement and voting proxies. This establishes credibility to our authentic approach towards active ownership."

"Our Global Invesco Proxy Advisory Committee - Global IPAC - comprised of representatives from various investment management teams provides a unique forum for investment teams to monitor, understand and discuss key proxy issues and voting trends within the Invesco complex, especially dealing with matters of conflict of interest."

"Invesco developed a proprietary proxy voting platform marking a fundamental change in how we think of voting and governance. Invesco recently received a patent for the proprietary proxy voting platform, which is unique and pioneering in the industry. Called the Fund Manager Portal, this unique platform that has been actively used in the US for five years and was rolled out globally in early 2017. This has enabled fund managers to vote in an efficient manner, increase transparency, share knowledge and effectively influence corporate practices and behaviours."

Presumably, the ability to obtain governance data may depend on the asset class, geographic exposure, EM/DM and other factors; if so, how does Invesco seek to maximise insight into relevant governance data and governance risks

"ESG investing is a holistic framework for risk assessment that is becoming an ever-more important theme in investment management. There is broad acceptance of the need to take such criteria into account, as evidenced by, for example, the widespread adoption of the PRI principles."

"Invesco analyses the magnitude of governance risks impacting a company's financial integrity, brand/reputation, long term profitability and value creation by gaining deeper insights into ESG ratings and risk parameters. As a part of our ongoing portfolio monitoring and risk management, we leverage multiple ESG research vendors and risk rating providers to systematically deliver data on governance risks to our global network of more than 700 investment professionals. Our research capabilities include:

  • MSCI
  • Morningstar
  • ISS
  • GL
  • Sutainalytics
  • ISS climate solutions
  • Ethix
  • Vigeo Eiris
  • IVIS
  • Nikko Research Centre

"Most of our investment teams are developing their own risk rating platforms for a focused screening of potential risks in a given portfolio."

"In addition, our in-house and centralised RI team provides consultative support to our global investment teams including but not limited to providing the fund managers with access to research, resources, and training around E, S & G criteria so they can be incorporated diligently into the robust investment process. We ensure the investment teams have all the tools necessary to allow them to assess and evaluate specific ESG criteria at investee companies."

DIVERSITY

What is Invesco doing in this area? (Not just about gender, but possibly other diversity issues, eg, disabled persons working in the AM industry)

"At Invesco, we're committed to improving diversity of all types, at all levels, and in all functions across our global business.  All diversity is important; however, as diversity is very country and cultural specific, at an enterprise level Invesco has an enhanced focus on gender diversity. Today, we have a diverse talent pool across our global firm and aspire to have more women at senior levels and across all functions."

"Invesco has also demonstrated commitment to improving diversity at all levels and in all functions across our global business. Although diversity is very country and cultural specific, gender diversity is a constant across the globe, and why this is an enterprise level commitment, including:

• Adopted a four-point pledge - modelled on the UK Women in Finance charter;

• Demonstrated senior-level accountability:

CEO and SMD pledge:

1.    We are supportive of this initiative and will apply this to Invesco globally with the CEO and each SMD as the senior executives responsible and accountable for gender diversity and inclusion;

2.    Globally, we've set a target for female representation of senior managers to be between 30% - 40% by 2020 - currently 27%;

3.    We will share high-level diversity and inclusion activities that will aid our achievement of the target and support having greater diversity across the globe; and

4.    Goals on gender diversity will be included for senior managers, defined as the CEO and the SMDs, as part of their overall performance goals, and to be in support of gender diversity and inclusion activities.

5.    Senior Managers are defined as members of the regional group(s) leadership team(s) and their direct reports.

•  Focused activities to engage and develop diverse talent. Examples:

1.    Developing the next generation of women leaders;

2.    Training efforts intended to strengthen our inclusive culture;

3.    More robust recruitment practices to attract talent into the firm.

 •  Dedicated Resources have stepped into the role for EMEA and North America to support focused diversity initiatives.

 •  Build partnerships and networks

 1.    Invesco Women's Network, founded in 2010 with i8 chapters across the globe;

 2.    D&I Programs: Engage, Develop & Attract;

 3.    Membership to regional public or industry initiatives such as the UK and North America Asset Management Diversity Project.

•  Published a whitepaper on 'Broad Diversity as a Driver of Meritocracy'.

"Our business success relies on engaging a highly diverse team of people across the globe who are client-focused, think differently and draw on a range of backgrounds and experiences to contribute a unique perspective and a diversity of thought. Ensuring a broad range of different experiences and backgrounds helps us create this diversity of thought needed to deliver an investment experience to help our clients get more out of life and ensure an engaging work environment for our people.

WATER

Access to clean water is understood to be one of the UN SDGs; how is this theme being addressed by Invesco?

"According to United Nations Global Environment Outlook by 2030 global demand for water could exceed supplies by 40%.  Invesco is committed to making progress in this direction."

"For more than 15 years, our Invesco Quantitative Strategies (IQS) team has implemented ESG strategies.  The team offers various concepts for equities and bonds and uses the research of external ESG providers. These concepts range from best-in class approaches to the implementation of positive, negative and exclusion criteria as well as country ratings. In addition, our IQS team conducts (in coordination with an external vendor) targeted engagement on key ESG themes, including, water scarcity. In addition, Invesco has four ESG ETFs focusing on water: 

  • PowerShares Global Water UCITS ETF
  • PowerShares Water Resources Portfolio
  • PowerShares Global Water Portfolio
  • Invesco S&P Global Water Index ETF

"From a corporate standpoint, Invesco is a signatory to the Carbon Trust Standard (UK) where we exceeded our global objective of achieving the triple standard, and instead achieved the quadruple.  The carbon trust standard requires a minimum 3% year on year reduction in carbon, waste and water, along with zero waste to landfill.  Invesco has achieved an actual carbon reduction of 36.9% - a waste reduction of 11%) and a water reduction of 29.6% over the 3-year compliance period - making us the only investment / financial firm in the UK to achieve the quadruple results/standard!"

"Invesco is also a member of UN Clean Seas campaign and advisory for PRI Investor Working Group for Plastics, Invesco is deeply committed to removing single use plastic water bottles from our corporate properties. In practise, we have now removed more than 4 tonnes of single use plastic from our properties to date."

"We also conduct a webinar on investing in clean water."

 SDGs

Are other UN SDGs being addressed in any particular way by Invesco?

"Invesco believes that focusing on Sustainable Development can be helpful in aligning client priorities with investment opportunities. Invesco further applies the UN's 17 Sustainable Development Goals both as a responsible global employer and as a responsible investor. Invesco's authentic approach and commitment to SDG's was published in Reuters Plus' "Business Debate on SDG in Business" initiative: https://www.reuters.com/brandfeatures/17-goals/investment-experience-to-get-more-out-of-life"

Invesco is also a part of the PRI working group for SDGs helping PRI provide research and education, and facilitates collaboration, to help investors align their responsible investment practices with the broader sustainable objectives of society - as currently best defined by the SDGs."

"From an Investment process, our global responsible investment team has developed a concept framework for SDG Integration into its investments that is comprised of:

•             Linking Operational ESG Risks to the SDGs

•             Linking Company level Products and Services to the SDGs

•             SDG to Portfolio Holding Mapping

•             Benchmark relative portfolio exposure by region

"According to this concept framework, each portfolio and benchmark holding could be mapped to one or more SDGs if possible (not all holdings would have a link to the SDGs) and the Portfolio exposure could then be compared with benchmark exposure one SDG at a time. A portfolio with higher relative ESG score and higher relative exposure to the emerging/non-developed markets may signal positive benchmark relative overall SDG performance."

"From a corporate standpoint, Invesco has a focused action plan in place to target Goal numbers: 1, 5, 6, 7, 13, 14 &17. Brief on each goal below:

Goal #

Topic

Action

1

Poverty

  • Active Ownership - supporting investees where board motions enables SDGs.

5

Gender Equality

  • Japanese Strategy focused on Women
  • Signed  the UK Charter for gender equality
  • Invesco Women's Network
  • CSR

6

Clean Water &  Sanitation

  • The Carbon Trust Standard (UK) - we exceeded our global objective of achieving the triple standard, and instead achieved the quadruple.  The carbon trust standard requires a minimum 3% year on year reduction in carbon, waste and water, along with 0 waste to landfill.  Invesco has achieved an actual carbon reduction of 36.9% (a waste reduction of 11%) and a water reduction of 29.6% over the 3 year compliance period - making us the ONLY investment / financial firm in the UK to achieve the quadruple results/standard!

 

  • For more than 15 years, our Invesco Quantitative Strategies (IQS) team has implemented ESG strategies.  The team offers various concepts for equities and bonds and uses the research of external ESG providers. These concepts range from best-in class approaches to the implementation of positive, negative and exclusion criteria as well as country ratings. In addition, our IQS team conducts (in coordination with an external vendor) targeted engagement on key ESG themes, including, water scarcity. 

7

Affordable & Clean energy

  • Invesco Real Estate team's holistic ESG approach includes investing in sustainable buildings with goals towards clean energy
  • Procurement of green renewable energy in the UK, significantly reducing our carbon impact in the UK.  Along with installation of electric car charging points in Henley

13

Climate Action

  • Invesco is a signatory of CDP
  • 21% support to climate risk S/H proposals
  • Invesco Cares & Green Teams - Environmental events this year have included: participation in world environment day, recycling days, planting trees and engagement with local groups and communities on topics such as traffic related emissions reduction.  Additionally, more than 500 employee volunteer hours were dedicated last year to environmental projects, including shoreline clean-ups, and street and park clean ups in North America alone.

14

Life below Water

  • PRI Investor working group for plastics
  • UN Clean Seas campaign: we have committed to removing single use plastic water bottles from our corporate properties and have now removed more than 4 tonnes of single use plastic from our properties (annually).

17

Partnership for the goals

  • Invesco on UN SDG working group committee
  • Global ISO 14001 recertification (14 offices globally, meeting the requirements of the new ISO 14001 Environmental Management Standard)
       

 

Jonathan Boyd
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Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.