Responsible investment - are pension funds getting the message?

The report below from Professional Pensions really nails one of the myths in the investment world - that (most) fund managers properly consider environmental, social and governance (ESG) issues. I've personally been involved in this bit of the world for over 6 years now and progress has been pretty sluggish in my view. One of the problems has been that trustees take at face value what fund managers report back to them about ESG issues, without interrogating the info properly.

I don't think fund managers are necessarily at fault here. If trustees only demand that there are a few paras in the quarterly report about ESG issues, and don't ask questions about them, why would a fund management house consider they really need to get a handle on them? At present the exchange is basically this. Trustees ask: are you doing anything on ESG? Fund managers reply: yes we are. And this is (currently) sufficient for funds who want/need to brush off stroppy scheme members or NGO campaigns - we ask our fund managers to assess ESG factors and report back to us. I think only in a small number of funds does anything significant really happen, and many of the funds where this does happen have a unique focus for one reason or another (Environment Agency, USS< local authorities etc).

I really hope that initiatives like RI Metrics will make trustees aware of how limited a lot of ESG reserach and engagement really is. I don't expect this tochange the world - some funds may never take these things seriously. But at least putting some quantitative info in trustees' hands will give those who do want to do things a much clear idea of how things stand presently.

RImetrics report reveals ‘significant variations’ in ESG practices
Kelly Gregor

THE fund management industry is a "long way" from best practice over environmental, social and corporate governance issues, research by RImetrics shows.

The ESG data provider’s research – among global asset managers representing over $12trn of assets and including over half of the world biggest 20 managers –showed that although many fund managers had improved their understanding of the issues involved competencies and practices varying greatly from manager to manager.

The report found the integration of ESG knowledge and research into the investment process posed the greatest challenge for the majority of asset managers – also warning that there were also significant variations in voting practices.

And it found that, while the majority of asset managers had a responsible investment strategy, few had consulted their clients on its development

RImetrics chief executive Jonathan Horton said there was a shift towards "a greater acceptance" of ESC in relation to investment performance and client demand.

"With this has come a greater demand for credible, independent and reliable responsible investment data and information.

He added: "It is clear that the maxim ‘if you can’t measure it, you can’t manage it’ applies in this field just as much as in any other."

Commenting on the report, BT Pension Fund trustee Bill McClory said: "This is a wake-up call to those managers who do not demonstrate good practice."

Responsible Investment co-head of Universities Superannuation Scheme David Russell added: "This report is further evidence that fund managers are struggling to integrate extra financial factors into their investment processes to the extent many trustees would like to see.

"The analysis provides us and other pension funds with a valuable benchmark by which to evaluate manager performance in this important area."