The self-styled #ESGolympics (Environmental, Social and Governance) caused a stir in sustainable investing circles earlier this year. Seeking to shed light on the usually closed process of selecting asset managers, Friends Provident, Joffe Charitable Trust and Blagrave Trust joined forces to select new managers for a combined investment of £33.5m. Their aim was to find investment solutions that deliver substantial social and environmental benefits. In addition, the selection process was made public so that other charities could share in the learnings.
Their approach is novel, refreshing and a much-needed jolt for the industry. With a mandate in excess of £30m, it was easy for them to get asset managers to listen. Nevertheless, charities with much smaller sums to invest can still champion ESG issues in their investments, simply by raising the right questions with fund managers. As with any industry, asset managers ought to be deeply respectful of their client base and will try hard to accommodate client views. whether a charity is selecting a new manager or already has funds invested, it’s surprising how a few simple questions on ESG issues can have an impact.
What ESG questions should charity trustees ask?
The investment house: Firstly, ask about the asset manager itself. What kind of organisation is it? What’s the culture like? How diverse is it? This can help a charity to understand whether an asset manager shares their values and would make a good partner over the long term.
The investment process: Next, ask about the investment process and how ESG factors are embedded into it, if at all. To what extent does the team take the time to really understand material ESG issues when they’re considering a new investment? How often are investment ideas rejected on ESG grounds alone? How are issues like climate change or human rights addressed prior to investment? This line of questioning should help trustees understand whether ESG factors are truly integral to investment decision-making.
Engagement and voting: Once invested, asset managers should be talking to companies on an ongoing basis and raising ESG concerns when necessary. Trustees often ask for examples of recent ESG engagements as well as for data on the number of engagements undertaken each year. It’s an opportunity too to gauge how asset managers vote at AGMs on high profile issues such as executive pay and question them on their approach.
Reporting: Finally, charities can ask for ESG updates to be included in their regular fund reporting. Requesting a steady flow of information will force reluctant fund managers to address ESG issues more systematically.
As a general rule, asset managers that are active on ESG issues usually welcome questions and requests for more information. From our perspective at Castlefield, client interest in ESG topics validates and strengthens the engagement we do with all firms to hold them to high social and environmental standards. In addition, our message to companies becomes even more powerful if we can say that our clients have contacted us explicitly on the issue in question. Indeed, charity clients often have deep knowledge on social and environmental issues and we welcome their insights.
You can find our answers to the questions above in our Charity Request for Information (RFI) document, available here.
With investment capital is at risk. Information is accurate as at 18.05.2020 This material may not be distributed, published or reproduced in whole or in part. Opinions constitute the author’s judgement as of this date and are subject to change without warning.