The Acadian Wholesale Sustainable Global Equity Fund aims to maximise risk-adjusted, long term active returns from a diversified portfolio of global securities while actively incorporating a range of Environmental, Social and Governance (ESG) investment criteria and reducing exposure to carbon intensive companies relative to the benchmark. The fund aims to outperform the MSCI World (ex Australia) Index over rolling four year periods before fees and taxes.
Using a systematic investment approach, Acadian incorporates a range of ESG criteria to select stocks. This includes having no exposure to stocks that derive any revenue from the production or manufacturing of tobacco and controversial weapons; or more than 10% of revenue from the production or manufacture of products or services in alcohol, gambling and adult entertainment; derive more than 20% of revenue from thermal coal and tar sands oil; and stocks involved in notable ESG controversies such as human rights abuses or corrupt business practices. Acadian will target a reduction in carbon intensity of the portfolio relative to the MSCI World ex Australia index of at least 20%. The fund will also have a positive (at least 10% above the index using third party ratings) exposure to companies providing environmental solutions such as clean technologies and renewable energy. The fund does not hedge currency risk.
The Acadian Wholesale Sustainable Global Equity Fund’s strategy is based on the belief that markets are inefficient, creating price anomalies that can be exploited by a disciplined, objective investment process. The option’s sustainability focus also reflects Acadian’s belief that well-governed, sustainable businesses have the potential to make a positive contribution to active returns in portfolios over time. Using a quantitative approach and sophisticated portfolio construction techniques, Acadian identifies the socially responsible global equity universe by limiting exposure to stocks that receive significant revenue from activities not deemed socially responsible (e.g. gambling and weapons) and stocks involved in notable ESG controversies, for example human rights abuses or corrupt business practices. Acadian also targets a reduction in carbon intensity of the portfolio relative to that of the broad global equity index (MSCI World ex Australia). The option does not hedge currency risk.
Acadian takes the philosophy that the stocks likely to generate the best risk-adjusted returns are characterised by strong financial health, solid business prospects, effective corporate governance and upside potential. Our investment process is quantitative, built on the philosophy that market inefficiencies exist because of behavioural errors. We seek to exploit resultant market mispricings by identifying mispriced securities, in a systematic way, on the basis of underlying corporate fundamentals. As we develop a fundamental view of a company, we evaluate a variety of signals, including both traditional investment factors and non-financial, ESG signals that provide a more holistic view. Acadian believes that ESG issues go hand-in-hand with traditional investment issues. To this end, we were an early adopter, having implemented ESG issues in our core process since the 1990s and being the first quantitative firm to sign the UN PRI. over the years, we have invested in new ESG data sets, conducted ESG-related alpha and risk management research, signed and participated in the development of country-level Stewardship Codes, and integrated a portfolio-specific ESG characteristics report for every account that we manage, whether ESG is a focus of the client or not. Our efforts in this space have been well rewarded, as we were awarded "A+" ratings in 2019 review period on Strategy & Governance and Incorporation by the PRI and we received an "A" score on Active Ownership
We believe that our approach to ESG integration is distinct relative to other investment managers. Specifically:
- We hold ESG related factors to the same high standards as other factors and we have a framework to establish materiality. All ESG factors must pass the same rigorous hurdles for model incorporation as other factors. ESG factors, as with any factor, need to provide statistically significant, consistent, and meaningful improvements to a model to warrant inclusion. Our focus on materiality means factors must be based on sound economic and fundamental rationale.
- We integrate factors into our core global alpha model, used for the majority of our assets under management. This enables all stocks to be evaluated on ESG metrics and portfolios to have exposure. Our portfolio alpha themes (including ESG factors) impact the exposures at the total aggregate portfolio level by impacting individual stock return forecasts and therefore, individual stock holdings.
- Rather than applying ESG factors in a generalist fashion, we pay careful attention to the formulation of the factors as well as the application of these factors to regions where they have the most efficacy.
- We incorporate factors across each of the Environmental, Social, and Governance themes. This contrasts with some managers that claim that while “G” may add value, integrating “E” “S” themes is costly.
- For all our portfolios we assess portfolio-level ESG characteristics compared to their benchmarks. We evaluate the overall ESG rating, individual Environmental, Social, and Governance characteristics, as well as stock specific drivers of these exposures and make reports available to clients.