Heading the investment chain, asset owners wield enormous power and influence
Asset owners set the direction of markets: the mandates they award to managers determine the objectives that the world’s biggest pools of money are put to. To fulfil their duties to beneficiaries in the 2020s and beyond, asset owners will need robust approaches to investment that acknowledge the effects their investments have on the real economy and the societies in which their beneficiaries live. Empowering asset owners remains key to the future success of the PRI and responsible investment.
We know that our asset owner signatories are diverse – from the largest pension funds to the smallest foundations, from the US to Japan. Over the year, we have worked to create a holistic asset owner strategy which acknowledges the diversity of our asset owner signatories. We ran a consultation with asset owners on their strategic priorities and to find out how can empower them. This included a survey and a number of roundtables. We also met face-to-face with signatories to hear first-hand what we could do to empower them and drive responsible investment forward.
Financial and sociological trends such as climate change, market volatility, inequality and cybersecurity could all impact investment strategies. Asset owners must be prepared to understand their position in the market, know how their investment approach could change in years to come, and acknowledge the effects their investments have on the real economy and the societies in which beneficiaries live.
To assist asset owners to create strategies that are robust enough to withstand this, we published the Asset owner strategy guide: how to craft an investment strategy.
The guide includes recommendations for successfully implementing a strategy, including how to gain support from the board and senior management before communicating the strategy across the organisation.
86% of asset owners report considering responsible investment in selection or monitoring for indirectly held assets (PRI target: 52%)
A cultural fit
For financial markets to take ESG considerations seriously, asset owners must clearly convey their ESG commitments when they select, appoint, monitor and reward investment managers.
Asset owners can ensure they drive responsible investment by ensuring that there is a cultural fit and understanding of ESG factors between an asset owner and a potential manager, and that the mandates they give to fund managers include requirements for analysing and reporting on ESG considerations. We provided guidance to help asset owners do this by releasing Enhancing relationships and investment outcomes with ESG insight.
The guidance covers several critical areas – including portfolio construction, engagement and voting, reporting and ESG scoring tools – highlighting considerations that asset owners should note when selecting managers. This includes looking at a firm’s overall ESG alignment.