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 been including wording on ESG and responsible investment in our IMAs for the last two or three years. We still find that ESG is more applicable to some asset classes and strategies than others so we tailor the wording that we incorporate into IMAs, carefully supported by the advice from our lawyers. Below is an example of the type of wording we have included in our IMAs to reflect our expectations on ESG.
The manager should:
- research, analyse and incorporate material environmental, social and governance (“ESG”) factors into the credit research and lending process;
- explicitly consider how climate change regulation and the transition towards a low carbon economy might impact the longer-term risk and return of investments and demonstrate to the Investor how it has applied the Investor’s policy on climate change when making investments to high carbon sectors.
- continue to monitor material ESG performance of Underlying Investments and, in the event of poor performance, seek to engage with the relevant Investee Company;
- develop and implement an appropriate and regular reporting process to communicate ESG information back to the Investor as part the quarterly and annual performance reports.