Environment Agency seeking ESG bond manager

The £1.1bn (€1.2bn) Active Pension Fund of the UK’s Environment Agency is looking to award a global bond mandate integrating environmental, social and governance (ESG) factors following the termination of incumbent manager European Credit Management (ECM).
“We are seeking a new global bond manager who will integrate and take into account ESG issues and be able to invest in investment grade ‘green bonds’ if they are financially attractive,” said Howard Pearce, head of environmental finance and pension fund management at the Environment Agency.
He told Responsible Investor: “Our old bond manager was European Credit Management who under-performed against benchmark and target since they were appointed in 2005 and have not joined the UN PRI. Following a competitive selection process we hope to appoint by July 2010.”
ECM ran a £77.5m active global corporate bond brief which returned -35.4% in 2008/9, -6.2% down on benchmark, according to the fund’s annual report. The mandate represented 6.9% of the fund’s portfolio. It was also disclosed at the time that the fund would be reviewing the mandate.The fund’s annual report blamed the ECM under-performance as a contributory factor for its overall underperformance of -7.9% in 2008/9 when scheme assets fell by £364m.
In August last year the agency awarded global equities mandates to RCM, Generation Investment Management and Impax Asset Management as part of a drive to have its assets managed on sustainable grounds by signatories to the United Nations Principles for Responsible Investment.
The fund’s investment advisors are Mercer Investment Consulting, bFinance and Rathbone Greenbank.
The new appointment will probably be for one or more managers with funding subject to the Environment Agency’s investment strategy review and strategic asset allocation.
Managers may include traditional bond mandates with an ESG overview, allocations to green bonds, climate change bonds, supranational and agency bonds, weather catastrophe bonds, and other environmental or sustainability bond products. The fund’s preference is for positive bond selection using financial and sustainable criteria rather than negative screening.