Asset managers face rising expectations from asset owners, a panel session at the Principles of Responsible Investment’s APAC Digital Symposium has revealed.
With a growing focus on responsible investing among asset owners in the Asia-Pacific region, asset managers now need to step up their game, according to panellists at a dedicated session on manager selection at this week’s Principles of Responsible Investment (PRI) APAC Digital Symposium.
It is no longer good enough for asset managers to sign up to PRI principles or draft broad statements of policy, attendees heard.
Increasingly, asset managers in the APAC region must go through strict assessments to demonstrate they are incorporating ESG values when investing.
According to Kim Chong, head of risk management and compliance, Hong Kong Monetary Authority, Hong Kong’s de facto central bank, managers are “severely assessed” if their ESG performance falls way below requisite expectations.
Chong added that demonstrable commitment from senior management and the board is a key criterion. “We want to look for evidence on how committed the senior managers are, how frequently they report ESG activities to the board. I think that gives us a lot of confidence and the results that come through speak volumes about their ESG commitment,” he said.
Starting out, it is important to ask the right questions when selecting an asset manager. “It’s really about making them show examples, how they approach different asset classes. Also, due diligence during your selection process is really important,” said Liza McDonald, head of responsible investment at Aware Super, an Australian superannuation fund which manages over A$125 billion in assets.
McDonald also believes in being “very upfront” at the IMA (Investment Management Agreement) stage is of utmost importance. “We need to be transparent about what we expect from our managers and get it formalised in the IMA,” she said.
In Australia, one important prerequisite is compliance with the Modern Slavery Act, introduced in 2019 to combat forced labour, through policies and published reports. “Asset managers have to attest that they comply with the Modern Slavery Act,” said Alexis Cheang, Partner, Responsible Investment, Mercer. “This enables the client to have confidence, and can even be applied to causes such as indigenous rights as well as diversity and inclusion.”
Monitoring the asset managers after the selection process is perhaps the most challenging part, acknowledged McDonald.
Aware Super keeps an “ongoing monitoring spreadsheet” for the ongoing assessment of both external fund managers or internal direct investments. “Through this, we identify issues or concerns and document them. Then we give it to the managers so they can review it, ask those questions in their next review meetings and bring answers back,” says McDonald.
Due diligence can take several different forms, panellists explained. In deciding whether or not to invest in infrastructure projects, Chong said, “We look for evidence of strong ESG components in power plants and projects that may involve displacing indigenous communities. We look at their PR, and whether they are committed to minimise disruptions to communities across the world.”
Although metrics and processes are important, panellists agreed that a shared understanding between asset owner and manager was crucial to successful pursuit of ESG investment goals. “Come back to fundamentals and look for partners who share the same beliefs,” Cheang advised.