New guidance on integrating ESG into mandate agreements published by the PRI

Set of case studies from leading global investors

The UN-backed Principles for Responsible Investment (PRI) has published a set of case studies showing how leading institutional investors worldwide are integrating environmental, social and governance (ESG) factors into their contracts with fund managers.

“This new guide provides a framework for asset owners who appoint and monitor external managers to assess whether their managers’ investment policies and processes are consistent with their ESG expectations,” says the PRI’s Director of Responsible Investment, Rob Lake.

Lake says only around a third of the PRI’s asset owner signatories currently include specific clauses about ESG integration in their agreements with fund managers – while a third make no reference at all.

The 38-page document is called ‘Aligning Expectations: Guidance for Asset Owners on Incorporating ESG Factors into Manager Selection, Appointment and Monitoring’. It covers four elements: expectations, selection, appointment and monitoring. The guidance is also relevant for fund-of-fund managers, the PRI says.

The case studies feature some of the leading responsible investment institutions: the London Pensions Fund Authority (UK), Catholic Superannuation Fund (Australia) and CalSTRS (US), PGGM (Netherlands), RobecoSAM (Netherlands) and Co-op Asset Management (UK).‘Aligning Expectations’ refers to existing guidance, such as the International Corporate Governance Network’s (ICGN) model mandate project and a similar initiative from the Australian Council of Superannuation Investors (ACSI).

The PRI says it hopes the guide will assist asset owners by demonstrating how their peers are working with their managers to embed ESG risks and opportunities into the investment chain.

The initiative is also publishing the results of a working group which was set up in 2011 to look at how investors integrate ESG into valuations.

The group was chaired by Neil Brown, Investment Manager, Sustainable & Responsible Investment Team at Alliance Trust Investments. Brown says: “For the first time in the decade that I’ve been doing this we have a document that shows unequivocally that integrated analysis can be done and is being done.” The document, called Integrated Analysis, concludes that there’s “no doubt” that the high quality integrated analysis demanded by investors is now being delivered. But the difficulty of acquiring “consistent, comparable, audited” ESG information remains a significant hurdle.
The two publications come as the PRI is holding an event for signatories in London today (February 13).
Link to PRI Publications page