Environmental, Social and Governance (ESG)

Customer return objectives and environmental, social and governance (ESG) considerations

CSC’s investment objective is to maximise long-term returns above inflation to provide a reliable income for customers in retirement.

To achieve this, we consider traditional financial matters as well as many that are less-widely recognised as financially relevant, for example trends disregarded by investors with short term objectives. Many environmental (E) and social (S) risks fall into this category. Together with the governance (G) features that enable these risks to be managed, these are often referred to as “ESG”.

Examples of common ESG issues include:

• pollution
• occupational health and safety
• modern slavery
• climate change

However, critical to our objective is to see beyond the issues recognised by financial markets at any given time, because not every relevant risk is properly valued by markets. Therefore, instead of being oriented to specific ESG issues or goals, we expand our sources of insight and enable diverse thinking to enrich our analysis, within the rigours of our disciplined investment and risk management framework. This applies equally to issues that some do not consider to be “ESG,” for example:

• pandemic and other global shocks;
• geopolitical tensions;
• the threats and opportunities of technology;
• changes in economic, regulatory and financial market conditions;
• vulnerability in supply chains;
• how well a business is managed, including how its management team:
  • understands its competitive environment;
  • supports, trains, manages and aligns its employees to its purpose and values; and
  • considers and manages its impact on the environment; and the community in which it operates.

"Do what we say we do"
— Alison Tarditi, Chief Investment Officer

Risk management through investment selection

There is significant variation in the relevance of ESG issues to investments, based on features such as the nature of a company’s products, the markets in which it operates, or how its supply chain is changing. Analysing this and using this analysis to improve estimates of investment risk and return is what global standard setters call “ESG integration”.¹

ESG integration can enhance our ability to find attractive investment opportunities and to manage risks holistically. It is therefore a part of the investment and risk processes we use for all customer investment options, informing our assessment of how investments would affect the risk and return of the portfolios and, where appropriate, related decisions such as:

• The price at which we buy or sell an asset;
• The extent to which we hedge exposure to a region or industry;
• The funds we allocate across asset types and investment methods (e.g. a low-cost equities index or a few chosen stocks picked by specialists in the field).

Since we apply ESG integration for the purpose of achieving our investment objective, we consider ESG factors only to the extent that it is both cost effective and in the financial interests of customers to do so. Importantly, ESG integration does not mean that asset-specific ESG risks will be analysed in respect of every asset in which we invest.

While ESG integration activities by the external managers whom we engage to select investments for CSC are based on their own ESG approach, we expect them to:

• take relevant ESG-related information into account when weighing expected risks against expected returns (net of costs) in active investment decisions;
• report to us on ESG risks in their investment positions and on how these risks are being managed.

We also systematically review third-party data for an independent view of ESG issues relevant for investments in the portfolio.

We review CSC’s approach to ESG integration with our Board every 3 years.

Risk management through stewardship

Stewardship involves using the formal rights we hold as owners of companies and the opportunities that result from these rights, to support the value of the assets in customers’ portfolios. 

CSC has been a pioneer in innovative implementation of stewardship for more than 20 years. This includes advancing our stewardship priorities by:

• Systematically using our formal rights and relationships (e.g. casting votes at company meetings; our external partners including investment managers);
• Selectively using other channels (e.g. “engagement” communication with company leaders; industry collaborations to improve corporate transparency) when these offer cost-effective opportunities to support value for our customers.

Since our stewardship is aimed at achieving more dependable retirement outcomes, we engage in stewardship activities only where we consider such activity is both cost-effective and in our customers’ best financial interests.

For more information, see FAQ and Stewardship.

¹ Definitions for Responsible Investment Approaches

² Source: MSCI <0.005% of revenue.