Asset Managers Must Deliver on ESG Promises, Say Asset Owners

Investors expect managers to focus on ESG opportunities, responsible investment integration and open communication.

Asset owners are ramping up the pressure on asset managers in relation to ESG risks, opportunities and performance, as they adopt a more active management approach. This includes taking a harder stance against managers that don’t deliver, according to a panel of asset owners yesterday.

Hosted by the UN-supported Principles for Responsible Investment (PRI), the asset owners reiterated the importance of asset managers prioritising responsible investment practices throughout the investment process.

Asset owners shouldn’t just “focus on asset manager selection, but also manager termination if they are not fulfilling your feedback requirements”, said Ndabe Mkhize, CIO for Eskom Pension and Provident Fund.

The CIO of the largest self-administered retirement fund in South Africa added that asset owners need to hold their asset managers accountable, making sure they remain “on course”. If managers are not delivering and “doing what they said they would through adding responsible value” the asset owner has a responsibility to address this, he said.

“For example, at the AGMs, are they voting for the things they said they would be voting for?” Mkize added. “We want asset managers to be more explicit when disclosing how ESG is being incorporated when engaging with companies, too.”

To help counter any potential for asset managers to stray from ESG targets, asset owners need to be more proactive when outlining their responsible investing goals and expectations, Mkhize continued.

“Responsible investing needs to permeate each any every asset class,” he noted. “If it’s not responsible investing, then it’s irresponsible investing.”

Fellow panellist Kirsty Jenkinson, Investment Director for CalSTRS, the world’s largest educator-only pension, said asset managers should identify ESG opportunities, as well as risks. CalSTRS recorded US$274 billion in AUM in November 2020.

“We want to know about the huge opportunities for investing in solutions to ESG-related challenges,” Jenkinson said. “When interacting with our asset managers, we want the focus to change and not just focus on ESG risks, but for them to help us understand where the opportunities are.”

Jenkinson said CalSTRS is currently looking at private assets, and will be selecting managers that best can identify ESG opportunities in private markets.

“Asset owners are in a unique position at the top of the investment chain, and as such they should really be empowered to work with asset managers on aligning their values, strategies and policies on responsible investment,” said PRI CEO Fiona Reynolds.

“It’s our view that responsible investment principles should be at the core of the relationship between the asset owner and the investment manager. We want to see these principles influence every step of the selection and monitoring of asset managers, both informally through one-to-one meetings and formally through legal documentation and client reporting,” she said.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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