Monitoring

An asset owner’s objectives for manager monitoring will include:

• assessing whether the appointed manager is managing the asset owner’s portfolio in a way that is aligned with the agreed ESG policies and practices – this could include evaluating whether a manager is improving their systems for identifying and managing ESG factors, as agreed upon during the manager appointment process;
• understanding if there are any material changes to the ESG risks and opportunities in the asset owner’s portfolio;
• remaining informed of any ESG-related incidents/events in the asset owner’s portfolio – the asset owner should agree with their appointed manager which incidents/events should be disclosed and how/when this information should be communicated.

Asset owners may also develop an evaluation framework to assess the extent to which their appointed manager is fulfilling their ESG-related expectations.

4.1 Including ESG-related expectations in reporting and discussions

Asset owners will have varying approaches for requesting information from their appointed managers which may include formal reporting and discussions between the asset owner and investment manager to follow up on the information disclosed in the report. The information that an asset owner requests during monitoring may be similar to the information requested during selection.

Reporting

The amount, frequency and type of information asset owners request from investment managers depend on the mandate, the agreed ESG policies and practices, and the asset owner’s capacity to review the information. Below are some of the things asset owners should keep in mind.

• At a minimum, reporting should cover all aspects of what was agreed upon in the IMA or other documents. Responsible investment reporting may be built into existing manager reporting obligations.
• Reporting requirements should be legally agreed upon before any commitments are made. It may be difficult to make changes to reporting requirements after legal documents are signed and the transfer of funds has taken place. If an asset owner requests additional information beyond what was agreed upon, they should be prepared to provide a justification.
• asset owners could also ask to be kept informed of specific ESG incidents and how the manager or portfolio company will resolve them.
• If the manager is a PRI signatory, an asset owner may use the PRI Reporting Framework as a starting point to avoid duplicating reporting processes.
• An asset owner may need to decide if they require bespoke and mandate specific reporting from the appointed manager or if it is sufficient to receive a generic report that is sent to all the manager’s clients.

Suggested actions for discussion with managers

An asset owner may meet with their appointed managers to follow up on information disclosed in reports and to discuss other issues. An asset owner could consider:

• Focusing on investments that represent a major part of its portfolio.
• Integrating the discussion on ESG performance with regular financial performance meetings. During these meetings, the asset owner should ensure they are meeting with the key decision-makers such as investment analysts, the portfolio manager as well as the ESG team.
• Working with an external research and engagement provider to (1) assess whether the appointed manager is systematically identifying and managing ESG risks and opportunities in the asset owner’s portfolio and (2) analyse the ESG developments of companies in their portfolio.
• Identify (either directly or with the help of external analysis) two or three companies in the portfolio with specific and relevant ESG risks. Discuss the investment manager’s assessment of those companies and of the specific ESG risks that those companies face. During these discussions, seek to understand how those risks have in practice been incorporated into the investment manager’s investment decision-making. For related guidance, refer to the ‘requesting evidence/concrete examples’ section of this guide.

4.2 Some approaches for evaluating appointment managers

This section provides examples of how some PRI signatories approach evaluating their appointed managers.

Regardless of approach, asset owners seeking to help the appointed manager improve their systems for identifying and managing ESG factors should consider the following actions:

• Provide feedback on how the manager performed in the monitoring assessment. This feedback could include how the manager was rated and some key actions that the manager could take to improve their performance.
• Share good practices/standards with the manager.