Brunel outlines ESG stance in “reverse roadshow” for fund managers

£28bn pension pool sets out plan for responsible investment mandates

Brunel Pension Partnership, one of the UK’s eight nascent national pooled local government pension scheme funds worth £28bn (€31.7bn), has outlined its preferences for future fund managers in an engagement presentation document that sets out clear ESG requirements.

In a rare presentation document which reflects the highlights of meetings and webinars already held with at least 50 interested fund managers, Brunel stated that “all managers should be responsible”, expecting from them ESG risk integration, stewardship and good governance, and impact reporting of carbon footprinting and the UN Sustainable Development Goals.

According to Mark Mansley, Brunel’s Chief Investment Officer, such unusual initial meetings with potential suppliers are a sort of “reversed roadshow” where Brunel is articulating its needs and values.

Overall, the document sets high standards and expectations for fund managers, who when responding to tenders are encouraged to “avoid clichés and waffle” as well as not to “let your RFP [request for proposal] department standardise it”.

Brunel, which aims at being authorised by the Financial Conduct Authority in the first quarter of this year, might set up about 25 portfolios, of which one (the Sustainable Global Equities) aims at “going beyond standard responsible investment”.

Mansley described this portfolio as “one explicitly ESG mandate” and said that Brunel “will be looking to build on the experience of the Environmental Agency Pension Fund and Avon in doing that.”

Brunel, is formed by ten LGPS funds, including Avon Pension Fund and notably the EAFP, whose former CEO, Dawn Turner, is now the head of Brunel; as well as Mansley (formerly EAFP’s CIO) and Faith Ward who joined Brunel as Chief Responsible Investment Officer.

Regarding the other portfolios, Mansley said: “We do expect our managers to be broadly responsible. There is simply no excuse for not doing that. We would see that now as what a mainstream manager should do anyway.Any manager should be looking at broader ESG risks, undertaking their stewardship responsibilities, looking at good governance and be able to report on these issues.”
Pending definitive figures, the Sustainable Global Equities would be worth about £850m and would look for managers who are “[ESG] leaders that would be going further on sustainability, and understand it more strategically,” Mansley said.

According to Brunel’s plans, by April 2018 it will have appointed managers for passive equities and passive fixed interest, worth a combined £6.5bn; and for active equities and active fixed interest, worth a total £12.5bn, by the first quarter of 2019.

Within the overall passive framework there is a low carbon equity portfolio, worth about £550m. Mansley said that beyond the selection of the index, a manager with a focus on responsible investment would be very important.

Brunel’s presentations followed on the heels of the EAPF’s new climate change policy which called for an improvement of responsible investment at the pooled LGPS and that suggested “selective disinvestment” of carbon intensity companies could be considered.

In addition, Mansley said Brunel expects all managers to have a responsible approach to stewardship, using “their vote wisely, and challenging management”. He added that Brunel is working on a voting and stewardship policy that will be developed in due course.

Asked about the use of investment consultants for the selection process of fund managers, which have not seemingly been employed in the “reversed roadshow”, Mansley said there is no “predetermined approach” about it.

“Brunel is going to have far more professional resources than the underlying funds. Hopefully we will not need to rely on help as much as we were, but we will be able to use consultants, particularly for more specialist mandates.”