Organisation name: Cardano
Region of operation: Global
Signatory type: Investment manager
Assets under management: We provide fiduciary management services to 30 UK pension funds with combined assets of £16bn and investment advice to 10 UK pension funds with combined assets of £50bn. We also provide LDI execution and derivative overlay to over 20 European pension funds.
Why we engage managers on sustainable investment
Sustainability has always been at the core of our culture and how we run our business. Our clients are overwhelmingly pension schemes and their youngest members may be more than 50 years away from retirement. Those members and their dependents should enjoy a quality of life similar to or better than that possible today – in a sustainable and less polluted environment within a fairer society where they can enjoy financial security.
There are additional compelling reasons to invest sustainably, including:
- better risk-adjusted returns;
- new investment opportunities;
- anticipating and preparing for sustainability-related policy and regulation.
In the last year, we have developed a new framework to take our sustainable investment approach further. We are focusing our resources where we are passionate, knowledgeable and can have real-world impact, prioritising:
- the climate crisis, including net-zero carbon emissions by 2050 in-line with the Paris Climate Agreement;
- promoting a fairer society;
- sustainable emerging market development.
How we implement our new framework with managers
We expect enhanced levels of engagement on ESG issues, including policies, investment process, stewardship and reporting. We have set out our expectations through direct written communication.
We will measure, monitor and oversee our managers’ sustainability footprint – and that of the companies in which they are invested – and are beginning to develop methodologies to measure positive and negative real-world impact.
We have begun to measure the carbon emissions of some of our managers’ invested assets using analysis from third-party data provider MSCI.
We have updated our annual ESG survey of external managers to reflect our sustainable investment approach, including aligning questions to the new PRI Reporting Framework. We believe this has two benefits:
- It allows current PRI signatories to maximise efficiencies.
- It supports managers who are not yet PRI signatories to join.
We will apply minimum standards to all managers and expect to see material signs of progress over the next six to 18 months. Below we outline a summary of the assessment criteria we now use.
1) Policies - clear demonstration of intent
We look for:
- investment policies providing clear statements of how ESG considerations are integrated into decision making;
- corporate policies addressing issues such as climate change, diversity/inclusion and governance;
- adherence to globally recognised standards, details of other initiatives managers are involved with that further sustainable goals e.g. the UN Global Compact, Climate Action 100+.
2) Incorporation – entrenched in the process, backed by evidence and examples
We look for:
- clear and structured integration of ESG factors and data (e.g. a company’s carbon footprint) into the investment due diligence and monitoring processes, multiple examples of where these have been considered;
- support of initiatives such as the Sustainability Accounting Standards Board, the Task Force on Climate-related Financial Disclosure, the UK green finance strategy and the EU action plan on financing sustainable growth.
3) Engagement – focus on positive change
We look for:
- engagement with companies on material ESG issues, including through management meetings, voting, or participation in discussions of terms and conditions of new debt issuance;
- stewardship outcomes that help achieve positive real-world impact rather than reports on number of engagements;
- collaboration with third parties to assist with voting and engagement;
- supporting collective initiatives e.g. Climate Action 100+ to engage with businesses and create change.
4) Reporting – don’t allow perfection prevent progress
We look for:
- communication around how policies are applied in practice;
- disclosure of voting and engagement records, including records of how shares were voted on and why, and what the outcomes were.
- evidence of other engagements – tracking how frequently material ESG issues were raised with management, what progress businesses are making in managing and measuring ESG risk;
- measurement of portfolio-level real-world impact, using internal or third-party data (MSCI, Sustainalytics);
- use of ESG benchmarks and the disclosure of ESG incidents (or principal adverse impacts).
High and low focus managers
Our approach encompasses all investment strategies, but we recognise that ESG issues have a greater impact on some investment strategies than others and that some managers are able to exert a higher degree of influence and engagement than others.
Our focus on investment strategies is divided as follows:
| Focus | Example strategies |
|---|---|
|
High |
|
|
Low |
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Example – engaging with managers to improve their sustainability ratings
Here we present three examples of our engagement in 2020. We are pleased with the progress made. In 2021, we will further engage our managers on carbon emissions and real-world impact.
| Manager A | Manager B | Manager C | ||||||
|---|---|---|---|---|---|---|---|---|
|
Before |
After |
Before |
After |
Before |
After |
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|
ESG score |
Weak |
Standard |
ESG Score |
Weak |
Standard |
ESG Score |
Weak |
Standard |
|
Momentum |
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↑ |
Momentum |
= |
↑ |
Momentum |
= |
↑ |
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Before engagement
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Before engagement
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Before engagement
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Following engagement
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Following engagement
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Following engagement
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Looking forward
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Looking forward
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Looking forward
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