Significant challenges exist for asset stewards in terms of assessing whether pertinent ESG factors have been identified and integrated into the investment process of their asset managers, according to Niall O’Shea from Discern Sustainability.

At Minerva’s recent ESG Educational Event in London, Niall explored the topic of the growth of ESG and Climate Change factor awareness, and looked specifically at how Trustees could have some faith that their investment managers are incorporating these factors at a fundamental level into the investment decision-making process.

Niall set the scene by charting the history of ‘ESG’ as a topic – covering the rise of SRI and how few people realise that SRI has been perhaps the ultimate ‘stronger for longer’ theme since 2003, with its growth not even deflected by, and probably benefitting from, the financial crisis.

With the majority of empirical studies supporting the claim that investment strategies incorporating ESG factors deliver improved investment metrics, the debate has moved on to not ‘if’ ESG factor integration is required, but ‘how’ it can be achieved in a way that maximises the potential to improve the investment selection and monitoring process.

Niall highlighted one of the key challenges facing asset managers – that ESG ‘intelligence’, whilst increasing in quantity and range over time, has not necessarily increased in quality. Most of the information available is not investment grade, and overall the ESG data is ‘messy’. Against this background, he offered some thoughts on how Trustees and other asset stewards might assess how their investment managers are doing in terms of identifying pertinent ESG factor information and placing it at the core of their investment selection process:

  • Before the hiring process – ensure that you have consistent messaging and aligned ESG beliefs and behaviours from the top, starting with your SIP;
  • In the selection process – the RFP document that you or your consultant uses should be interrogative and not just ‘box-ticking. What do the Trustees really want to know about the investment process and ESG factors;
  • At the interview stage – move away from any investment examples provided by managers, and ask about ones that are of interest/relevance to you/your Scheme; and
  • After their appointment – be an informed nuisance, continuing to ask questions, and ensuring Trustee training and CPD is ongoing and reflects current thinking.

For more information on how Minerva is helping asset steward get to grips with their new ESG responsibilities, and stay up to date on latest developments, say

Last Updated: 11 February 2020
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