Creating a more sustainable future
Fidelity International’s approach to sustainable investing is built on drawing together three complementary elements: integration, engagement and collaboration. It is a philosophy that has earned the company recognition in Asia Asset Management’s Best of the Best Awards 2022 for Best ESG Engagement Initiative for the second consecutive year, and Best ESG Manager (Singapore). The company was also awarded Best Retail House (Singapore) and best performance award in the Asia Pacific Equity ex-Japan (10 years) category.
“We integrate sustainability research and proprietary ratings into our research process to get under the skin of every investment opportunity. Our ESG analysis complements our financial analysis to provide a complete view of every company we research and monitor,” explains Singapore-based Tan Jenn-Hui, global head of stewardship and sustainable investing at the firm.
For Tan, engagement is key to improving corporate behaviour over the long term.
“We use our corporate access, research capabilities and investment scale to promote change, and engage with companies on issues such as the climate crisis, diversity and inclusion, governance and remuneration, and board composition,” he adds.
Having engaged globally with an impressive 1,113 companies, and conducted 1,464 engagements with companies in 2021, Fidelity also seeks to drive positive change through its involvement and collaboration with regulators, partners, peers and other key shareholders. The company also works closely with external ESG-related bodies that seek to improve the way industries are regulated and how companies are managed.
Ever mindful of the changing world and regulatory landscape, Fidelity is increasingly witnessing investors wishing to balance their financial results alongside environmental and social impact. Fidelity’s development of its proprietary ESG research system is designed to target double materiality objectives that impact on the environment as well as the environment’s impact on companies. The company’s proprietary ratings are further complemented by third-party providers to provide a clearer, more nuanced view. “Our approach complements that of third-party providers, providing a holistic view of third-party ratings alongside our own, with the goal of creating a clearer, more nuanced picture.”
Implemented in 2021, the enhanced Sustainability Ratings system also included moves from relative to absolute scoring, incorporating quantitative measures in addition to qualitative research measures, as well as distinct E, S and G scores for individual indicators as compared to an overall output and trajectory ratings.
Tan is confident that these updates ensure that sustainability assessment is “comprehensive, granular and forward-looking.” He is also clear that on a macro level, the incorporation of ESG factors into the investment process can help mitigate risk and that asset managers have a duty to ensure that capital is directed in a responsible way to opportunities that have an overall positive effect on society.
“As stewards of our clients’ assets, the asset management industry in particular has a vital responsibility to ensure its capital allocation decisions reflect the transition to a more sustainable future. We cannot do it alone, but in collaboration with others, we can make a real difference,” says Tan.
In the last few years, Fidelity has focused on strengthening and integrating ESG considerations into all of their funds. Indeed, of the close to 90 funds that Fidelity has registered in Singapore, more than 55 are classified under Article 8 of the European Sustainable Financial Disclosure Regulation (SFDR), where a minimum of 50% of the assets in the fund are invested in sustainable securities.
In 2019, the firm launched its Sustainable Family range of funds, which specifically focus on various sustainability themes. As at December 31, 2021, Fidelity manages more than 30 sustainable strategies globally, covering US$15.42 billion assets under management across assets classes, with more set to launch this year. The number of funds registered in Singapore alone has also more than doubled from six at the end of 2021 to 13 as of the end of the first quarter 2022.
Fidelity’s global ESG initiative in Singapore includes pledges to achieve net zero emissions in the company’s own operations by 2030, and to ensure its investment portfolios achieve net zero by 2050.
From a regional perspective, Asia accounts for almost a third of Fidelity’s engagements globally. However, it is clear that Asia has several unique challenges to overcome when it comes to ESG. For Tan, these include a lack of standardised regulatory reporting requirements, framework and guidelines on ESG reporting within the region. Concentrated shareholding structures leading to a lack of minority shareholder participation and protection is also a concern.
“We want to create a more sustainable future where ESG ranks high among investors who until recently have believed that sustainability is diverged from performance.”