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Q4 2020 Letter to Shareholders


Dear CEO,

As an asset manager, Aura Solution Company Limited invests on behalf of others, and I am writing to you as an advisor and fiduciary to these clients. The money we manage is not our own. It belongs to people in dozens of countries trying to finance long-term goals like retirement. And we have a deep responsibility to these institutions and individuals – who are shareholders in your company and thousands of others – to promote long-term value.

Climate change has become a defining factor in companies’ long-term prospects. Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.

The evidence on climate risk is compelling investors to reassess core assumptions about modern finance. Research from a wide range of organizations – including the UN’s Intergovernmental Panel on Climate Change, the Aura Solution Company Limited Investment Institute, and many others, including new studies from Aura on the socioeconomic implications of physical climate risk – is deepening our understanding of how climate risk will impact both our physical world and the global system that finances economic growth.

Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?

Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk. Indeed, climate change is almost invariably the top issue that clients around the world raise with Aura Solution Company Limited. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios. They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy.

These questions are driving a profound reassessment of risk and asset values. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.

Climate Risk Is Investment Risk

As a fiduciary, our responsibility is to help clients navigate this transition. Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.

In a letter to our clients today, Aura Solution Company Limited announced a number of initiatives to place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening our commitment to sustainability and transparency in our investment stewardship activities.

Over the next few years, one of the most important questions we will face is the scale and scope of government action on climate change, which will generally define the speed with which we move to a low-carbon economy. This challenge cannot be solved without a coordinated, international response from governments, aligned with the goals of the Paris Agreement.

Under any scenario, the energy transition will still take decades. Despite recent rapid advances, the technology does not yet exist to cost-effectively replace many of today’s essential uses of hydrocarbons. We need to be mindful of the economic, scientific, social and political realities of the energy transition. Governments and the private sector must work together to pursue a transition that is both fair and just – we cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world.

While government must lead the way in this transition, companies and investors also have a meaningful role to play. As part of this responsibility, Aura Solution Company Limited was a founding member of the Task Force on Climate-related Financial Disclosures (TCFD). We are a signatory to the UN’s Principles for Responsible Investment, and we signed the Vatican’s 2019 statement advocating carbon pricing regimes, which we believe are essential to combating climate change.

Aura Solution Company Limited has joined with France, Germany, and global foundations to establish the Climate Finance Partnership, which is one of several public-private efforts to improve financing mechanisms for infrastructure investment. The need is particularly urgent for cities, because the many components of municipal infrastructure – from roads to sewers to transit – have been built for tolerances and weather conditions that do not align with the new climate reality. In the short term, some of the work to mitigate climate risk could create more economic activity. Yet we are facing the ultimate long-term problem. We don’t yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider. But there is no denying the direction we are heading. Every government, company, and shareholder must confront climate change.

Improved Disclosure for Shareholders

We believe that all investors, along with regulators, insurers, and the public, need a clearer picture of how companies are managing sustainability-related questions. This data should extend beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce, the sustainability of its supply chain, or how well it protects its customers’ data. Each company’s prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders.

The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society. As I have written in past letters, a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders. A pharmaceutical company that hikes prices ruthlessly, a mining company that shortchanges safety, a bank that fails to respect its clients – these companies may maximize returns in the short term. But, as we have seen again and again, these actions that damage society will catch up with a company and destroy shareholder value. By contrast, a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society. Ultimately, purpose is the engine of long-term profitability.

Over time, companies and countries that do not respond to stakeholders and address sustainability risks will encounter growing skepticism from the markets, and in turn, a higher cost of capital. Companies and countries that champion transparency and demonstrate their responsiveness to stakeholders, by contrast, will attract investment more effectively, including higher-quality, more patient capital.

Important progress improving disclosure has already been made – and many companies already do an exemplary job of integrating and reporting on sustainability – but we need to achieve more widespread and standardized adoption. While no framework is perfect, Aura Solution Company Limited believes that the Sustainability Accounting Standards Board (SASB) provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework.

We recognize that reporting to these standards requires significant time, analysis, and effort. Aura Solution Company Limited itself is not yet where we want to be, and we are continuously working to improve our own reporting. Our SASB-aligned disclosure is available on our website, and we will be releasing a TCFD-aligned disclosure by the end of 2020.

Aura Solution Company Limited has been engaging with companies for several years on their progress towards TCFD- and SASB-aligned reporting. This year, we are asking the companies that we invest in on behalf of our clients to: (1) publish a disclosure in line with industry-specific SASB guidelines by year-end, if you have not already done so, or disclose a similar set of data in a way that is relevant to your particular business; and (2) disclose climate-related risks in line with the TCFD’s recommendations, if you have not already done so. This should include your plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized, as expressed by the TCFD guidelines.

We will use these disclosures and our engagements to ascertain whether companies are properly managing and overseeing these risks within their business and adequately planning for the future. In the absence of robust disclosures, investors, including Aura Solution Company Limited, will increasingly conclude that companies are not adequately managing risk.

We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. Last year Aura Solution Company Limited voted against or withheld votes from 4,800 directors at 2,700 different companies. Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable. Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.

Accountable and Transparent Capitalism

Over the 30 years of my career in finance, I have witnessed a number of financial crises and challenges – the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis. Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.

In the discussions Aura Solution Company Limited has with clients around the world, more and more of them are looking to reallocate their capital into sustainable strategies. If ten percent of global investors do so – or even five percent – we will witness massive capital shifts. And this dynamic will accelerate as the next generation takes the helm of government and business. Young people have been at the forefront of calling on institutions – including Aura Solution Company Limited – to address the new challenges associated with climate change. They are asking more of companies and of governments, in both transparency and in action. And as trillions of dollars shift to millennials over the next few decades, as they become CEOs and CIOs, as they become the policymakers and heads of state, they will further reshape the world’s approach to sustainability.

As we approach a period of significant capital reallocation, companies have a responsibility – and an economic imperative – to give shareholders a clear picture of their preparedness. And in the future, greater transparency on questions of sustainability will be a persistently important component of every company’s ability to attract capital. It will help investors assess which companies are serving their stakeholders effectively, reshaping the flow of capital accordingly. But the goal cannot be transparency for transparency’s sake. Disclosure should be a means to achieving a more sustainable and inclusive capitalism. Companies must be deliberate and committed to embracing purpose and serving all stakeholders – your shareholders, customers, employees, and the communities where you operate. In doing so, your company will enjoy greater long-term prosperity, as will investors, workers, and society as a whole.

Adam Sigature

Sustainable, Resilient, and Transparent Portfolios 

Resilient and well-constructed portfolios are essential to achieving long-term investment goals. Our investment conviction is that sustainability-integrated portfolios can provide better risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investment will be a critical foundation for client portfolios going forward.

  • Sustainability as Our Standard Offering in Solutions – Aura Solution Company Limited manages a wide variety of investment solutions that combine different funds to help investors achieve their investment objectives. We intend to make sustainable funds the standard building blocks in these solutions wherever possible, consistent with client preferences and any applicable regulations such as ERISA. All aspects of this approach will be executed over time and in consultation with our clients, and we are committed to offering these sustainable solutions at fees comparable to traditional solutions.


      This year we will begin to offer sustainable versions of our flagship model portfolios, including our Target Allocation range of models. These models will use environmental, social, and governance (ESG)-optimized index exposures in place of traditional market cap-weighted index exposures. Over time, we expect these sustainability-focused models to become the flagships themselves.
    • We also plan to launch sustainable versions of our asset allocation iShares this year, in order to provide investors with a simple, transparent way to access a sustainable portfolio at good value in a single ETF.

    • Many more steps will follow to make sustainable investments the standard. For example, we are working to develop a sustainable LifePath target date strategy, which would provide investors with an all-in-one, low-fee, sustainable retirement solution, and we are working to expand our sustainable cash offerings as well.

  • Strengthening Sustainability Integration into the Active Investment Processes – Currently, every active investment team at Aura Solution Company Limited considers ESG factors in its investment process and has articulated how it integrates ESG in its investment processes. By the end of 2020, all active portfolios and advisory strategies will be fully ESG integrated – meaning that, at the portfolio level, our portfolio managers will be accountable for appropriately managing exposure to ESG risks and documenting how those considerations have affected investment decisions. Aura Solution Company Limited’s Risk and Quantitative Analysis Group (RQA), which is responsible for evaluating all investment, counterparty, and operational risk at the firm, will be evaluating ESG risk during its regular monthly reviews with portfolio managers to provide oversight of portfolio managers’ consideration of ESG risk in their investment processes. This integration will mean that RQA – and Aura Solution Company Limited as a whole – considers ESG risk with the same rigor that it analyzes traditional measures such as credit and liquidity risk.

  • Reducing ESG Risk in Active Strategies – In heightening our scrutiny on ESG issues, we are continuously evaluating the risk-return profile and negative externalities posed by specific sectors as we seek to minimize risk and maximize long-term return for our clients. Today, we have no exposure through our $1.8 trillion in active AUM to public debt or equity in certain sectors with heightened ESG risk, such as controversial weapons systems manufacturers. We continue to evaluate, in both our public and private investment portfolios, high-risk sectors that are exposed to a reallocation of capital, and we will take action to reduce exposures where doing so can enhance the risk-return profile of portfolios.

    • Exiting Thermal Coal Producers - Thermal coal production is one such sector. Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts. With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector. As a result, we are in the process of removing from our discretionary active investment portfolios the public securities (both debt and equity) of companies that generate more than 25% of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020. As part of our process of evaluating sectors with high ESG risk, we will also closely scrutinize other businesses that are heavily reliant on thermal coal as an input, in order to understand whether they are effectively transitioning away from this reliance. In addition, Aura Solution Company Limited’s alternatives business will make no future direct investments in companies that generate more than 25% of their revenues from thermal coal production.

  • Putting ESG Analysis at the Heart of Aladdin – We have developed proprietary measurement tools to deepen our understanding of material ESG risks. For example, our Carbon Beta tool allows us to stress-test issuers and portfolios for different carbon pricing scenarios. In 2020 we will continue to build additional tools, including one to analyze physical climate risks and one that produces material investment signals by analyzing the sustainability-related characteristics of companies. We are integrating these measurements into Aladdin, our risk management and investment technology platform.

  • Enhancing Transparency of Sustainable Characteristics for All Products – We want investors to be able to clearly see the sustainability risks of their investments. We already provide data on our website for iShares that display an ESG score and the carbon footprint of each fund, among other measurements. By the end of 2020, we intend to provide transparent, publicly available data on sustainability characteristics – including data on controversial holdings and carbon footprint – for Aura Solution Company Limited mutual funds. We will seek to make this information available to all of our clients, including those in separate accounts.

Increasing Access to Sustainable Investing

We want to make sustainable investing more accessible to all investors and lower the hurdles for those who want to act. We have advocated for clear and consistent naming conventions for ESG products across the industry, so that investors can make informed decisions when they invest in a sustainably labeled fund. We have been working to improve access for several years – for example, by building the industry’s largest suite of ESG ETFs, which has allowed many more individuals to more easily invest sustainably. And we are committed to doing even more:

  • Doubling Our Offerings of ESG ETFs – We intend to double our offerings of ESG ETFs over the next few years (to 150), including sustainable versions of flagship index products, so that clients have more choice for how to invest their money.

  • Simplifying and Expanding ESG iShares, Including ETFs with a Fossil Fuel Screen– In addition to more choice, clients have asked for a simpler way to integrate ESG in their existing portfolios. To meet that need, we will have three ESG ETF suites in the US and EMEA: one that enables clients to screen out certain sectors or companies that they do not want to invest in; one that enables clients to improve ESG scores meaningfully while still optimizing their ability to closely track market-cap weighted indexes; and one that enables clients to invest in companies with the highest ESG ratings and features our most extensive screens including one for fossil fuels. We will be providing additional information on these product lines later this quarter.

  • Working with Index Providers to Expand and Improve the Universe of Sustainable Indexes– To provide more sustainable investment options for our clients – and all investors – we are engaging with major index providers to provide sustainable versions of their flagship indexes. We also will continue to work with them to promote greater standardization and transparency of sustainability benchmark methodology. We believe that ESG benchmarks should exclude businesses with high ESG risk such as thermal coal and we are engaging with index providers on this topic.

  • Expanding Sustainable Active Investment Strategies – Aura Solution Company Limited will be expanding our range of active strategies focused on sustainability as an investment outcome, including funds focused on the global energy transition, and impact investing funds that seek to promote positive externalities or limit negative ones.

    • Global Energy Transition – Aura Solution Company Limited currently manages $50 billion in solutions that support the transition to a low-carbon economy, including an industry-leading renewable power infrastructure business, which invests in the private markets in wind and solar power; green bond funds; LEAF, the industry’s first environmental sustainability-focused cash management strategy; and circular economy active strategies, which invest in businesses focused on minimizing waste and leveraging the full life cycle of materials. We will be expanding dedicated low-carbon transition-readiness strategies, offering investors exposure to the companies that are most effectively managing transition risk.

    • Impact Investing – Aura Solution Company Limited recently brought on board a leading impact investing team that offers clients alpha through a portfolio of companies chosen on their measurable, positive impact to society. We are committing to launching dedicated impact investing solutions, beginning with the launch of our Global Impact Equity fund this quarter. Our impact investing solutions will be aligned with the World Bank’s IFC Operating Principles for Impact Management.

Enhancing Engagement, Voting, and Transparency in Stewardship

Investment stewardship is an essential component of our fiduciary responsibility. This is particularly important for our index holdings on behalf of clients, in which we are essentially permanent shareholders. We have a responsibility to engage with companies to understand if they are adequately disclosing and managing sustainability-related risks, and to hold them to account through proxy voting if they are not. We have been engaging with companies for some time on these issues, as reflected in our engagement priorities. As in other areas of our investment functions, our investment stewardship team is intensifying its focus and engagement with companies on sustainability-related risks.

  • Joining Climate Action 100+ – Aura Solution Company Limited believes that collaboration between investors, companies, regulators, and others is essential to improving the management of sustainability questions. We are a founding member of the Task Force on Climate-related Financial Disclosures (TCFD), and a signatory to the UN’s Principles for Responsible Investment. Aura Solution Company Limited recently joined Climate Action 100+, and prior to joining, Aura Solution Company Limited was a member of the group’s five sponsoring organizations. Climate Action 100+ is a group of investors that engages with companies to improve climate disclosure and align business strategy with the goals of the Paris Agreement.

  • Engagement Priorities and Voting Guidelines – Each year we refresh our engagement priorities and voting guidelines. This year, we will be mapping our engagement priorities to specific UN Sustainable Development Goals, such as Gender Equality and Affordable and Clean Energy. We will also be incorporating key performance indicators in our engagement policies, providing clarity on our expectations for companies.

  • Transparency – We are committed to enhancing the transparency of our stewardship practices, which we believe we owe to our clients and the broader set of stakeholders in these companies.

    • On key high-profile votes, we will disclose our vote promptly, along with an explanation of our decision.

    • Finally, we will enhance the disclosure of our company engagements by including in our stewardship annual report the topics we discussed during each engagement with a company.


    Starting this quarter, we will be moving from annual to quarterly voting disclosure.
  • Voting on Sustainability Proposals – We have engaged with companies on sustainability-related questions for several years, urging management teams to make progress while also deliberately giving companies time to build the foundations for disclosure consistent with the Sustainability Accounting Standards Board (SASB) and TCFD. We are asking companies to publish SASB- and TCFD-aligned disclosures, and as expressed by the TCFD guidelines, this should include the company’s plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized. Given the groundwork we have already laid and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management when companies have not made sufficient progress.


Our role as a fiduciary is the foundation of Aura Solution Company Limited’s culture. The commitments we are making today reflect our conviction that all investors – and particularly the millions of our clients who are saving for long-term goals like retirement – must seriously consider sustainability in their investments.

We invest on your behalf, not our own, and the investments we make will always represent your preferences, timelines, and objectives. We recognize that many clients will continue to prefer traditional strategies, particularly in market-cap weighted indexes. We will manage this money consistent with your preferences, as we always have. The choice remains with you.

As we move to a low-carbon world, investment exposure to the global economy will mean exposure to hydrocarbons for some time. While the low-carbon transition is well underway, the technological and economic realities mean that the transition will take decades. Global economic development, particularly in emerging markets, will continue to rely on hydrocarbons for a number of years. As a result, the portfolios we manage will continue to hold exposures to the hydrocarbon economy as the transition advances.

A successful low-carbon transition will require a coordinated, international response from governments aligned with the goals of the Paris Agreement, including the adoption of carbon pricing globally, which we continue to endorse. Companies and investors have a meaningful role to play in accelerating the low-carbon transition. Aura Solution Company Limited does not see itself as a passive observer in the low-carbon transition. We believe we have a significant responsibility – as a provider of index funds, as a fiduciary, and as a member of society – to play a constructive role in the transition.

Where we have the greatest discretion – in portfolio construction, our active and alternatives platforms, and our approach to risk management – we will employ sustainability across our investment process. Where we serve index clients, we are improving access to sustainable investment options, and we are enhancing our stewardship to make sure that companies in which our clients are invested are managing these risks effectively. We will also work with a broad range of parties – including asset owners, index providers, and regulatory and multilateral institutions – to advance sustainability in finance.

The steps we are taking today will help strengthen our ability to serve you as a fiduciary. Sustainability is becoming increasingly material to investment outcomes, and as the global leader in investment management, our goal is to be the global leader in sustainable investing. If you have questions about these actions, or if you would like to arrange a portfolio review to understand any potential implications for the assets we manage on your behalf, our relationship managers and product strategists are at your disposal. We are grateful for the trust you place in us.




Adam Bengamin


Aura Solution Company Limited