Investment consultants advise on how trillions of dollars are invested worldwide, but most consultants are failing to consider the role that environmental, social and governance (ESG) issues play in investment performance1 – despite growing evidence demonstrating the financial materiality of ESG issues to portfolio value.2
Consultants neglecting ESG issues can lead to asset owners mispricing risk and making poor investment decisions.
Asset owners should therefore ensure that the services they get from their consultants, whether covering specific assignments or the full-service suite, are aligned with their own responsible investment objectives, strategies and policies, to ensure that they are best fulfilling their fiduciary duty to beneficiaries.
This document guides asset owners on how to do this.
Each section covers a specific part of the investment process, and includes a set of questions to ask existing consultants (as part of a regular review), or prospective consultants (in a tender process for selecting a new one).
The questions proposed are intended as a menu for asset owners to choose from, according to which areas are most relevant to them. Consultants should be prepared to explain differences between their approach and that of the asset owner client, and to offer solutions. Consultants’ answers to the questions will provide the basis of a gap analysis that can be used to compare consultants, or for an in-depth conversation on missing areas.3
In this way, an asset owner can assess issues such as:
- Are the investment consultant’s ESG-related principles aligned with those of the asset owner?
- Are the investment consultant’s senior management team and the business as a whole committed to ESG investment services and responsible investment?
- Does the investment consultant have the systems and processes it needs to support the implementation of the asset owner’s ESG-related principles?
- Does the investment consultant have the resources, competencies and experience it needs to support the implementation of the asset owner’s ESG-related principles?
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1 PRI (2017), Investment Consultant Services Review
2 Friede, G., Busch, T. and Bassen, A. (2015). ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), pp.210-233.
3 PRI signatories can use the PRI Data Portal to find analysis of service provider responses to PRI reporting.
Investment consultants and ESG: an asset owner guide
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