Part of an interview series with Zurich Insurance Group, The Pensions Trust, California State Teachers’ Retirement System (CalSTRS) and Environment Agency Pension Fund on selecting, appointing and monitoring managers
Do you include ESG terms in IMAs?
We have covenants that require all managers to consider the ESG risks and opportunities that are financially significant for our fund. Active equity and bond managers are required to carry out annual environmental exercises including measuring a portfolio carbon footprint.
One of our covenants is:
“The Client has appointed the Manager because the Client and the Manager share the view that concentrating on fundamental performance of businesses, integrating sustainability, and the integration of environmental, social and governance (ESG) risks is most likely to deliver a successful long term performance outcome. The Client takes a long term view of its fiduciary duties and expects the Manager to act as if it were a fiduciary investing for the long term in operating this mandate.”
We have always included ESG terms in all our IMAs since 2005. We originally had ESG terms in our mandate, but reverted to some aspects being covered in our covenant as we felt that it improved dialogue and portrayed that the relationship between the client and manager is a partnership, where we work together to achieve the longterm investment objective of the portfolio.
We find it straightforward to use our own IMA in segregated mandates. When we use collective investment vehicles – pooled funds – we work with the providers to make sure we are able to monitor such portfolios from an ESG perspective.
Download the full report
A practical guide to ESG integration for equity investing