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 are working to include ESG in all our Investment Management Agreements (IMAs), to encourage managers to adopt the four elements we look for in selection (training and awareness, access to information, investment process, active ownership) and to ensure that information about the portfolio’s ESG performance is made available to the client.
The following is used as a template to introduce ESG language into IMAs:
“In pursuing the investment objectives set forth in the Investment Guidelines, the Investment Manager will have a process for assessing and monitoring current or potential investments in relation to relevant long-term factors such as environmental, social and corporate governance issues (the ‘ESG Factors’). The Investment Manager will ensure that its staff receives adequate training, access to relevant data and information, and applies due care and diligence to applying this process, including considering the extent to which the ESG Factors generate investment risks or opportunities. The Investment Manager seeks to act in the best long-term interests of by taking ESG Factors (identified as relevant) into account when making investment decisions. All else equal, Company Zurich Insurance Group Interviewee Manuel Lewin BACK the Investment Manager will prefer securities which, in the Investment Manager’s assessment, show superior environmental, social and governance practices.”
The ESG terms are not yet in all of our IMAs. This is ongoing work but generally we are having productive discussions with existing managers about getting ESG terms into IMAs, starting with the most substantial relationships. We started to include the ESG terms in new IMAs over a year ago and have managed to retroactively incorporate ESG terms into some of our existing IMAs.
We work with managers and allow them time to improve and achieve the goals across our four elements. It is a discussion, not an ultimatum, but we expect them to comply at some time in the future.