Sustainable investing isn’t a feel good exercise. Rather, it’s an investment approach designed to maximise investment returns. It recognises that economic, health, environmental, social and governance factors can impact a company’s long-term performance and therefore must be systematically integrated into the investment process. For example, if fossil fuels are eventually going to run out, then it makes sense to start analysing car firms in terms of their carbon intensity.

Generation buys high quality businesses whose securities are attractively priced, with strong management teams that they believe best understand and respond to factors such as these and have the potential to out-perform over the long-term.

Sustainability themes

Some of the themes considered in Generation’s sustainability analysis of companies.

• Climate change - the effect of global warming and associated regulation.
• Pandemics - how pandemics such as HIV, diabetes and obesity will affect a company’s bottom line.
• Human resources - staff acquisition, retention strategies and corporate culture.
• Corporate governance - a company’s ability to manage checks and balances and the relationship between shareholders and management.
• Stakeholder management - how well a company engages its relationship with suppliers, clients and the community.
• Future licence to operate - ability to respond to future regulation changes.

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Is sustainable investing different to ethical or socially responsible investing?

Yes. Sustainable investing is fundamentally different to ethical investing or socially responsible investing. Ethical or socially responsible investing often involves the screening of companies from what are often called ‘sin’ industries, such as tobacco and gambling, based on the moral convictions of the investment manager. Many people believe this negative screening process forces an unacceptable trade-off between ethical criteria and investment returns. For Generation, sustainability research plays a key role in achieving the primary aim - to maximise long-term returns for investors.

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Why should I consider the Generation Global Share Fund?

First and foremost, the objective of the Generation Global Share Fund is to deliver superior investment performance over the long-term by investing in global equities.

Sustainable investing is the explicit recognition that economic, health, environmental, social and governance factors affect a company’s ability to successfully operate over the long-term. Generation believes these sustainability factors will grow in importance over time. Generation invests in the companies that they believe best understand and respond to these factors and have the potential to profit most from these global changes.

Generation is one of a very short list of investment managers from around the world that has integrated sustainability research and fundamental equity analysis into the one investment process. Generation’s investment capability has been highly rated by leading investment consulting firm, Mercer.

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How has the Fund performed?

The Generation Global Share Fund is a new fund available to Australian investors through Colonial First State from 3 September 2007, so there are no past performance figures available. However, Generation’s investment managers have been investing in global equities since February 2005. In that time, Generation has been managing other global portfolios that have outperformed the relevant benchmarks since inception*.

*The newly established Generation Global Share Fund available to Australian retail investors from 3 September 2007 and is a newly created fund and will therefore have different returns to other global portfolios managed by Generation. Past performance and ratings are no indication of future performance for either the new fund or the other global portfolios managed by Generation.

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Why did Colonial First State form an alliance with Generation?

Colonial First State always strives to take the lead in delivering relevant investment opportunities to investors, so we were keen to partner with a global sustainability investment manager.

Colonial First State chose to form an alliance with Generation because they are one of the world’s leading sustainable investment managers.

This is the first time the Generation Global Share Fund has been offered to investors in Australia. It offers yet another option for investors looking at the wider global perspective of sustainable industries and investing which also delivers long-term investment returns.

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How is Colonial First State incorporating ‘sustainability’ into the funds for which it is investment manager?

Colonial First State deems ‘Responsible Investment’ to be investment decision-making that gives full consideration to environmental, social and governance (ESG) issues. This includes engagement with companies for disclosure of their ESG practices to identify sustainable business investments.

In line with this commitment to Responsible Investment, in March 2007 the investment management arm of the Colonial First State Group became a signatory to the United Nations Principles for Responsible Investment (PRI). The PRI provides a formal framework for incorporating ESG issues into its investment decisions.

We believe ESG issues are becoming more significant as factors that may place business value at risk. The failure to consider these factors would be to the detriment of the investments we hold on behalf of our investors. Through engagement on ESG issues, Colonial First State as investment manager is able to identify hidden and potential risks and opportunities in companies, and therefore better able to determine which of those matters are material and what is being done to manage them.

By implementing the PRI into the investment process, for the funds that are managed by Colonial First State, our fund managers will be better informed to make long-term investment decisions.

The UN Principles for Responsible Investment

1. To incorporate ESG issues into investment analysis and decision-making processes.
2. To be active owners and incorporate ESG issues into our ownership policies and practices.
3. To seek appropriate disclosure on ESG issues by the entities in which we invest.
4. To promote acceptance and implementation of the Principles within the investment industry.
5. To work together to enhance our effectiveness in implementing the Principles.
6. To report on our activities and progress towards implementing the Principles.

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