Asset owners should define the types of mandate that fit their requirements and ensure that those investment mandates align the investment managers’ approach with the asset owners’ investment principles and strategies. In forming mandates, the asset owner should emphasise the ESG capabilities required to successfully deliver on the mandate.

ESG risks and opportunities should be considered across all asset classes and mandates and asset owners should ensure that ESG factors are explicitly incorporated into the selection processes for investment managers and for other advisers.

What is the role of investment consultants?

Given their extensive knowledge of the investment management universe, investment consultants are often relied on by their asset owner clients in the investment manager selection process. They may be asked to advise on the types of mandates that should be searched for and provide views on which ESG considerations should be included.

The investment consultant should consider the following points in the mandate formation:

  • the asset owner’s investment principles and policy;
  • requiring that managers include ESG issues in their investment research, analysis and decision-making processes;
  • specifying time horizons and risks to portfolio goals;
  • asset class or investment style specific expertise;
  • active ownership on ESG factors;
  • reporting requirements regarding the manager’s actions and outcomes achieved, including ESG factors throughout.

Manager selections can be run to replace underperforming managers or to implement a new strategy. In both cases, the investment consultant should include advice on how complementary the style and approach of the selected manager on ESG is with the other managers in the portfolio.

Questions to ask the investment consultant

  • How does the investment consultant, given its knowledge of the asset owner and its approach to ESG, suggest that the asset owner take account of ESG issues in the design of investment mandates?
  • Can the investment consultant provide examples where clients adopted ESG considerations into mandates due to the consultant’s advice? What were the (dis)advantages or drivers for the client adopting such a process?
  • If a specific client ignored the investment consultant’s advice in relation to ESG incorporation, what was the key reason for this decision?