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UK pension fund coalition in project to stimulate dialogue with managers on ESG

Initiative from a group of leading asset owners

A group of UK pension funds is working on a project to stimulate dialogue with their asset managers about how they report back to clients on their environmental, social and governance (ESG) activity.

The initiative was unveiled by Leanne Clements, Responsible Investment Officer at the West Midlands Pension Fund and Faith Ward, Chief Responsible Investment and Risk Officer at the Environment Agency Pension Fund at RI’s ESG in Manager Selection and Monitoring event in London last week.

It takes its cue from the ‘Aligning Expectations: Guidance for Asset Owners on Incorporating ESG Factors into Manager Selection, Appointment and Monitoring’ document published by the Principles for Responsible Investment in February 2013. Both Ward and Clements (then with the London Pension Fund Authority) were involved in the report.
Ward said the idea is to build trust with managers in the context of “an increasingly sophisticated beneficiary and media audience” and the feeling that current ESG reporting from the asset management community is “not fit for purpose”.

“What we get at the moment is simplistic,” Ward said. “It’s the whole picture that we’re trying to get to.” The initiative, which has the backing of around 15 UK funds, is hoped to be a “conversation starter” between asset owners and managers. Ward went on: “What I’m not asking for is ‘more’ reporting. We don’t believe in one-size fits all for a framework.”The project is in its early stages and the group hopes to release a more formal document “this side of Christmas”. It is set to be discussed at RI’s ESG in Manager Selection and Monitoring conference on October 21 by Daniel Ingram, Head of Responsible Investment at BT Pension Scheme Management.

It’s hoped it will complement the existing PRI Reporting Framework and Ward said: “Reporting needn’t be a hard copy every quarter. It could be blogs or online portals.” She added the funds plan to apply the project to existing managers and mandates.

Clements said the asset owner group wanted managers to demonstrate how they identify ESG risks in a portfolio and deal with them: “We want this to be a live discussion over time to foster trust. Show us how these things are material.”

The move is in response to frustration at a lack of information from fund managers on stewardship, engagement and voting. Clements, who also floated the notion of ‘real time’ engagement data, added it would be nice for managers to be able to link engagement outcomes and shareholder value.

There would be “no benchmarking, no medals” Ward concluded. “We’re not looking for metrics. If you want to put numbers around it, OK. Just demonstrate how your activity has added value.”

Link to ESG in Manager Selection and Monitoring, New York.