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.

Please describe your monitoring process.

Our monitoring process involves analysing investment reports and holding regular meetings with managers. Our investment team also have ad-hoc meetings with managers, which allow us to discuss specific issues in more detail.

What information do you source during the monitoring process?

The monitoring process gives the opportunity to investigate any changes to the organisation, and the investment team and to really understand the manager’s philosophy and process and how it is being applied within the portfolio. In particular, we talk about:

  • anything significant that has happened/was anticipated in the market and how they were/are positioned for that;
  • the rationale behind investment decisions that they have made over the last six to nine months;
  • examples, including reasons, of buying and selling certain stocks;
  • any ESG issues we know are affecting a particular company.

How do you assess the ESG integration practices of your portfolio managers?

To complement our existing manager rating system, we have developed an ESG rating framework that rates all our managers across asset classes and strategies. The ESG manager rating is based on four pillars:

  1. Values & Investment Philosophy
  2. ESG Integration
  3. Stewardship
  4. Transparency & Reporting (in document)

We review the scores at least annually and disclose how many of our managers have scored A, B, C and D in our annual reports and on our website.

The rating system allows us to monitor the ESG performance of our managers and our portfolio.

Our expectation is that, over time, more of our managers will be either A or B, as we become more confident about expressing our expectations with regard to ESG and responsible investment.

We also request the manager’s PRI Assessment Reports, quarterly voting records and information on their engagement activities.

How do you identify which of your portfolio managers are fully integrating ESG factors into their investment decisions?

It is a good indication that managers are integrating ESG factors when the portfolio managers are willing and capable of discussing ESG issues and how they are integrated into the portfolio, referring to specific holdings/assets. We also look for evidence of ESG integration throughout the discussion, rather than simply as a separate conversation at the end, which is where a number of managers continue to put information related to questions on ESG and responsible investment. We believe it needs to be embedded throughout.

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