The SRI option is a Sector Specific option and is almost entirely invested in Australian shares. The investments of the option comprise a portfolio managed by Equipsuper based on the Australian Sustainable Asset Management (SAM) Sustainability Index (the AuSSI)*. The option utilises the AuSSI, a market capitalisation index, which is comprised of approximately 70 companies selected by SAM from a universe of approximately 200 of the largest Australian listed companies.
The companies selected by SAM for inclusion in the AuSSI are assessed as leading their industry peers in terms of sustainable business practices, (‘Australian Sustainable Leaders’). The AuSSI is designed to create a portfolio that captures the performance of Australia’s Sustainability Leaders with characteristics similar to those of the broader Australian equity market (as represented by the S&P/ASX 200 Index).
How the AuSSI works
The AuSSI includes leading stocks in terms of sustainable business practices from approximately 21 industry sectors. About a third of the companies from each industry sector are included in the AuSSI. Most companies have a primary listing on the Australian Securities Exchange (ASX) but others may be included if they have adequate liquidity on the ASX and have a significant part of their business operations in Australia.
The process used by SAM to select companies for the AuSSI is called the Corporate Sustainability Assessment. This is a proprietary methodology designed to score companies in terms of corporates sustainability with a focus on their ranking within industry sectors. SAM carries out the Corporate Sustainability Assessment by asking ASX listed companies (excluding investment companies) to complete a questionnaire and provide supporting documentation. SAM also uses publicly available information and data and carries out a media and stakeholder analysis. The media and stakeholder analysis involves SAM analysts reviewing final assessments and scores to determine if they are fair and accurate given more recent developments and news.
The criteria and weightings which SAM uses to assess and rate companies in terms of corporate sustainability include both general and industry specific criteria, and cover the economic, environmental and social or labour dimensions outlined below:
> Economic
Economic criteria not only reflect the financial robustness, strategic planning processes and governance but also how a company adapts to changing market demands, sustainability trends and macro-economic driving forces. These criteria measure a company’s ability to make use of the economic benefits from sustainability opportunities and risks.
> Environmental
Environmental criteria covers the environmental management and performance of a company. These criteria measure a company’s efforts to reduce and avoid environmental pollution.
> Social and labour
Social criteria covers both internal (employee relations and labour practices) and external (stakeholder and community relations) aspects. Social criteria are based on worldwide minimum standards and best practices and also take into account the manner in which companies deal with human rights issues internally, in their supply chain and in the communities in which they operate.
Weighting and portfolio construction
The weighting given to economic, environmental and social considerations can vary substantially over time. As an example, SAM currently ascribes approximately equal weight to the economic, environmental and social criteria set out above. As noted above, the Corporate Sustainability Assessment includes both industry specific and general criteria. While the composition of the Assessment may change over time, based on SAM’s ongoing research, at present, approximately 57% of the Assessment is measured against industry specific criteria and 43% against general criteria.
Based on SAM’s Corporate Sustainability Assessments, companies are ranked within their industry group and selected for the Australian SAM Sustainability Index, if they are among the sustainability leaders in their field.
* The AuSSI will vary over time due to a range of influences including but not limited to changes made by SAM to the Corporate Sustainability Assessment and due to other changes that Australian equity portfolios are typically subject to, such as market movements and company related events. In addition, there may be modest variations between the Equipsuper portfolio and the AuSSI due to a number of influences such as rounding and timing differences.
