PRI working group issues paper looking at Strategic Asset Allocation and ESG

SAA is a bedrock of institutional portfolios but has so far had little overlap with ESG

A new discussion paper from the Principles for Responsible Investment (PRI) looks at how environmental, social and governance (ESG) issues can be embedded into Strategic Asset Allocation (SAA) – the portfolio management technique that involves setting target allocations for various asset classes and rebalancing periodically.

The paper, prepared by a signatory working group at UN-backed body, provides the basis for wider discussions across the PRI’s signatory base over the next year or so.

SAA is sometimes seen as the bedrock of institutional portfolios but hitherto there has been little overlap between it and ESG.

The PRI intends to publish a guidance document in 2020 to help signatories to embed ESG into SAA decision-making frameworks.

The new paper includes discussion of aligning ESG aspirations more broadly, specifically in terms of climate change, as well as alignment with the UN’s Sustainable Development Goals (SDGs).

“While at present it is not currently standard practice to consider ESG issues when setting SAA objectives, there is potential for asset owners to also specify an additional ‘real world impact’ criteria at this stage of the decision making process that could act as a signpost for subsequent stages of the SAA decision-making process,” the paper says.The issue is the subject of a session at the PRI in Person event in Paris on September 12 with speakers including Helga Birgden, Global Business Leader, Responsible Investment at consulting firm Mercer, Helena Charrier, Head of RI at France’s Caisse des Dépôts, Craig Mackenzie, Head of Strategic Asset Allocation at Aberdeen Standard Investment and Michael Waldron, Senior Energy Investment Analyst at the International Energy Agency.

The paper was written by Kris Douma, Director of Strategic Projects at PRI with input from Danyelle Guyatt, the former Global Head of Research, Responsible Investment, at Mercer who now runs her own firm called Climate Insight. The working group contains 22 members including representatives from asset owners like Canada’s bcIMC, Australia’s CBUS and Denmark’s MP Pension alond with asset managers like State Street Global Advisors, Vontobel and Fidelty to name a few.

The paper refers to the ‘Inevitable Policy Response’ (IPR) project that is looking at the “inevitable, rapid and forceful climate policy response”.

The aim here is to help investors take action and implement processes to build resilience across investment portfolios, now and into the future.

“The potential implications of IPR for SAA is part of an ongoing workstream that is underway, supported by the PRI, with results expected towards the end of 2019,” the paper says.

Note: The paper has been removed from the PRI website but a PDF is available. Please email.