Introducing a new toolkit for long-term sustainable investment mandates, the UK’s Prince Charles has said that responsible investment is “simply the right way forward” for the finance industry.
“I hope you will share my commitment to a future in which we judge the performance of our investments not only by their financial returns, but by the way they add value socially and environmentally and in long term stability,” the heir to the throne said.
“I also hope that you will be heartened by the prospect of asset-owners expressing their interest in long-term, sustainable investment mandates,” he added. He was speaking at the launch of a series of reports coordinated by the Investment Leaders Group (ILG), the high-level investment body that is housed at the Cambridge Institute for Sustainability Leadership.
The ILG comprises 10 leading investment firms. They are: Allianz Global Investors, First State Investments, Loomis, Sayles & Company, Natixis Asset Management, Nordea Life & Pensions, Old Mutual Group, PensionDanmark, Standard Life Investments, TIAA Asset Management and Zurich Insurance Group. It is chaired by Philippe Zaouati, the CEO of Mirova.
Keynote speakers at the event this week included Corien Wortmann-Kool, board chair at Dutch civil service pension giant ABP.
Perhaps the key document released was Taking the long view: a toolkit for long-term investment mandates.
It’s hoped the 36-page document, which draws on the 2012 Kay Review of UK equity markets and long-term decision-making, will help asset owners to design investment mandates with varying ‘strengths’ of ESG. Torben Möger Pederson, CEO at Pension Danmark, tweeted it was “recommended reading”.
The investor body hopes to “make a significant contribution to countering the negative business and economic effects of short-termism, and to promoting environmental and social sustainability”.
The toolkit does not prescribe the specific features that an investment process and mandate ‘must’ have in order to encourage long- termism and sustainability. Rather, it allows investors to assess the extent to which various features of an investment strategy, individually and in combination, promote more sustainable business practicesA key focus is on the relationship between asset owners and asset managers. It calls for a “high degree of understanding and trust” between them to promote LTRSI – ‘long-term, responsible and sustainable investment’. The toolkit suggests patience and suggests asset owners should clearly communicate their investment beliefs on long-termism and sustainability. This information could even be set out in a “non-contractual covenant” alongside the formal legal documentation for the mandate.
The report was put together by Rob Lake, the independent consultant formerly with ABP, and Will Oulton, Global Head of RI at First State Investments.
It’s the latest attempt to put a framework around long-term mandates: indeed, Lake was one of the team at Henderson that won the ‘long-term mandate’ competition organized by the Universities Superannuation Scheme (USS) and the consulting firm then known as Hewitt Bacon & Woodrow back in 2003. It sought to award those who could successfully respond to an imaginary €30bn mandate “that operated in a genuinely long-term and genuinely responsible manner”.
The latest report, focusing on listed equity, says asset owners should expect their managers to explain the relationship between portfolio turnover (overall turnover and names – i.e. buying/selling entire positions in companies), holding periods and the objectives of LTRSI, and any deviations from the expectations agreed at the inception of the mandate.
The toolkit addresses:
• investment beliefs
• risk, tracking error and active share
• turnover and holding periods
• portfolio size
• investment process/culture
• performance monitoring/reporting
• fund manager incentives
• client/manager relationship