Environment Agency fund awards global sustainable equity mandates after sweeping search process

Results of extensive search process finds ESG integration now becoming mainstream

The Environment Agency Pension Fund of the UK has appointed Union Investment, Mirova and Hermes to run global sustainable equities following a sweeping search process that it says provided a detailed insight into the state of the global sustainable equities market.

Germany-based Union has been awarded a £90m mandate while Mirova (part of Paris-based Natixis) and Hermes Investment Management, which is owned by the BT Pension Scheme, have been appointed without standby funding. The appointments follow an earlier £90m awarded to Ownership Capital, the Amsterdam-based boutique headed by Alex van der Velden, the former Head of Responsible Equity Investments at PGGM.

They join an existing roster including Generation IM, Steward Investors, Impax AM, Standard Life and Robeco. “Between them they set demanding standards for the new managers,” the EAPF says. In all, 12 managers were taken through to a full tender process.

The appointments follow a wide-ranging review of the market as it looked to move on from its incumbent manager.

This year marks the 10th anniversary of the implementation of responsible investment for the EAPF and the fund thinks the market for sustainable equity managers has moved on a long way in the last decade – with ESG integration now standard at most good equity managers. It means there are “no constraints” to stop asset owners ensuring their equity managers are engaging with responsible investment, though the fact that more managers are integrating ESG means there is a risk the market will discount this quickly.As part of this process, the fund reckons there are now a large number of managers that are now integrating environment social and governance (ESG) factors into their investment process in a “reasonably thorough way”. It says: “This means that for asset owners, implementing responsible investment is easier than ever before.”

“Implementing responsible investment is easier than ever before.”

And it found that several specialist and ‘mainstream’ managers are leading the way on innovation. One development was managers seeking to directly link their engagement and active ownership activities with portfolio construction.

The EAPF search paid focused on the link between ESG analysis and financial return: to find managers who are able to use sustainability to add value. It was aided in this analysis by the FLAME tool from consulting firm Prius Partners. The EAPF says this helps identify those managers who are good at adding value.

The fund has some tips for asset owners. They include: good examples and case studies; asking the fund manager (not the ESG specialists); challenge them about whether they are ahead of the market in terms of understanding ESG factors; explore the links between stewardship and the investment process; use the PRI transparency reports. For more information, contact Mark Mansley via email.