RI Research ‘ESG Do You, Don’t You’ interview: Jane Firth, Head of Responsible Investment, Border to Coast Pensions Partnership.

RI Research: Can you tell us about the Border to Coast pool and its ESG journey?
Jane Firth: Border to Coast Pensions Partnership went live in July 2018 and we’ve collectively achieved a great deal on the Responsible Investment front in a relatively short space of time. It was essential that we had a Responsible Investment Policy and Voting Guidelines in place ahead of the first assets being transitioned across from our LGPS Partner Funds. Although the responsibility for stewardship remains with the Partner Funds, the day-to-day administration and implementation is done by Border to Coast on those transitioned assets. The size of assets under management leads to a greater voice and influence. We worked together with our Partner Funds to develop collaborative RI policies to ensure we made the most of that scale. The policies were approved in October 2017 with Partner Funds aligning their own policies, well ahead of assets beginning to transition in July 2018, and our first annual review took place in October 2018. Acting as a responsible investor is at the core of our investment beliefs so alongside practicing active stewardship, we are embedding ESG into our investment processes as sub-funds are launched across different asset classes. This includes external manager procurement where ESG is an important factor in the selection and appointment process as well as for on-going monitoring of portfolios. We are using third party specialist ESG research alongside our own analysis and research to achieve this. We also appointed a third party voting and engagement provider, Robeco, so that we could vote global holdings and engage across our internally managed portfolios. We have supported a number of RI investor initiatives that are aligned with our policies as we believe working in collaboration with other large institutional shareholders can have real influence in changing company behaviours. We were also pleased that we gained Tier 1 status from the FRC for our UK Stewardship Code compliance statement. So, you can see it’s been quite a busy year!
RI Research: Did you encounter any hurdles on your ‘ESG journey’ and if so, which ones?
Jane Firth: To be honest, we didn’t really encounter any big hurdles: our Partner Funds have been very supportive. We worked with them to develop collaborative policies and have undertaken our first annual review. This has seen
some substantial changes to the content but not the principles of both policies. To be successful we need to work with our Partner Funds, giving support on Responsible Investment and ESG when required; communication and collaboration being key. We still have challenges ahead of us as we make sure ESG is fully integrated into the investment processes for new sub-fund launches in other asset classes. We are also aiming to become a signatory to the Principles for Responsible Investment during 2019 to further demonstrate our commitment to Responsible Investment.RI Research: What do you think is most needed in the ESG space at the moment?
Jane Firth: We need better information on how to measure and demonstrate the impact of ESG factors on our portfolios and the investment outcomes for our Partner Funds. We can see the behaviour of portfolio companies changing but we are still lacking a comprehensive way of measuring and monitoring how non-financial factors become financial factors in the longer-term. As investors we need to have ESG data which is consistent and comparable across companies. There are many different standards and frameworks currently in use with companies disclosing different data. This makes it difficult to compare companies on a like-for-like basis. We need a standardised approach to nonfinancial disclosure and reporting with a globally recognised set of standards. The other area is the role played by consultants in advising pension funds. Given UK pension funds’ reliance on consultants in general, it’s really important that they step up to the plate with good quality, consistent advice on ESG issues. There’s some great work being done, but this doesn’t always filter down to the client consultants working with pension funds, resulting in a bit of a disconnect. For example, climate change risk is an area that needs to be better covered by consultants, looking at the risk to liabilities and funding as well as to assets.
RI Research: Can you give any advice any to pension funds starting to think about ESG?
Jane Firth: For funds at the start of their RI journey it’s important that trustees have an understanding of ESG, as there are still some misconceptions that it’s about ethical investing. There are some fantastic initiatives being led by asset owners who have already started on this journey: trustee boards may wish to identify the elements important to their pension fund and consider joining these initiatives in order to leverage their impact and to learn from others.
For those working with external managers, make sure that you are engaging and holding them to account on how they are acting as responsible stewards on your behalf: what are their voting policies, how are they engaging with the companies in which they invest, and how are they taking these longer-term risks into account investment decision making? The ongoing pooling of funds in the LGPS will strengthen responsible investment in this important part of the UK’s institutional investor industry. Previously, funds may not have had the resources to be as effective in this area, which is where the pools will be able to give support. In order to make the most of pooling, it’s important that we work together to align RI approaches to give a consistent message.

Click the link to take a look at the top-line data or buy the full RI Research report, titled: ESG: Do You or Don’t You

Questions the RI Research ‘ESG Do You, Don’t You’ Asset Owner report answers:

• How does the integration of ESG impact financial performance in practice?
• At which steps do investors integrate ESG into their investment process?
• First-hand experiences of the ‘ESG-journey’ from asset owners
• What are the drivers of and barriers to ESG integration?
• How is ESG approached in DC pensions?
• Is ESG influencing asset manager selection?
• What is the role of consultants?
• Do asset owners measure the non-financial impact of their investments?
• What are the implications of ESG developments for future asset owner strategy?