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.
We require all our managers to report quarterly or annually (largely depending on what suits their investment process) on how they have been integrating ESG factors. We will ask for different information for different types of asset classes.
In addition to formal annual reviews, we expect our managers to maintain regular dialogue, such as when we meet up at events.
What information do you source during the monitoring process?
With every manager, we look at any changes to policies, processes and personnel, and predominantly investment performance – since inception and over one, three and five years. The longer time periods are considerably more important in assessing performance.
We expect each fund manager to regularly outline any ESG considerations or analysis that have arisen, and explain any controversial investments or any engagement and voting on ESG issues that it has conducted with investee companies. This includes asking for examples of specific companies and specific ESG issues.
We ask for in-house or external broker research on environmental issues that are currently financially material, and for an account of their engagement and voting undertaken on environmental issues.
Active equity and bond managers are required to provide data and reporting as part of their commitment to carry out annual environmental exercises including measuring a portfolio carbon footprint. This has helped us to reduce our carbon footprint by 50% since we started measuring it in 2008.
How do you assess the ESG integration practices of your portfolio managers?
We regularly evaluate our managers’ performance against similar, but more detailed, criteria to those used to select them. The manager is assessed, in multiple areas, on a five-point scale from “excellent, exceeding expectations” to BACK INTERVIEW “potential breach of IMA” (as many of our ESG requirements are part of our investment management agreements).
Although the areas are the same for each manager, the ratings are relative to their mandate. The areas assessed are:
- ESG integration
- thought leadership
- research (RI/ESG)
- added value.
Each manager’s performance is reported to the investment sub-committee three times a year, although the factors contributing to the assessment are over the longer term. We also ask for and review managers’ PRI Assessment Reports and scores. These are also reported to our investment committee annually, alongside our own PRI Assessment report.
How do you identify which of your portfolio managers are fully integrating ESG factors into their investment decisions?
It is really a matter of instinct. You can tell when a portfolio manager is really integrating ESG factors by their passion when they talk about responsible investment, ESG issues and their portfolios’ carbon footprint. Another good sign is when there is evidence of internal ESG-integrated research reports and strong collaboration and advocacy within the responsible investment industry
Download the full report
A practical guide to ESG integration for equity investing